MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Chapter 18, Problem 7DQ
To determine
To discuss: The country that would be better or worse off when import quota will be imposed.
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In intentional trade negotiations, it is very common for a country's trade representative to threaten to enact protectionist policy that include: tariffs, quotas, quota-tariff, national security restrictions, and domestic content requirements. Define what each of these protection policies. Explain why quotas are usually the least creditable threat. If the trade represents a small importing country, would it make economic sense to threaten tariffs? Why or Why not?
Country A is increasing tariffs on steel imports to
protect country A's local steel industries. How can such
a trade policy be NOT good for country A?
If Indonesia (which is a small country) imposes an import tariff on textile imports, we can conclude that:(a) The world price of textile rises, and Indonesia imports less.(b) The world price of textile stays constant, and Indonesia imports less.(c) The world price of textile falls, and Indonesia imports less.(d) The world price of textile stays constant, and Indonesia imports the same as before.
Explain why.
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- "Poor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade." How would I respond to this statement?arrow_forwardMany economists predict the eventual rise of China as a "superpower" because of economic reform, along with a strong work ethic and increased emphasis on higher education for its population. How do you think trade between Asia, Europe, and North America will be affected by China's continued development?arrow_forwardA small country imports T-shirts. With free trade at a world price of $10, domestic production is 10 million T-shirts and domestic consumption is 42 million T-shirts. The country’s government now decides to impose a quota to limit T-shirt imports to 20 million per year. With the import quota in place, the domestic price rises to $11 per T-shirt and domestic production rises to 15 million T-shirts per year. On average, each worker in the T-shirt industry produces 20,000 T-shirts. What would be the loss in consumer surplus for each job created (as a result of the quota)? SHOW ALL YOUR WORK. Find the decrease in consumer surplus. Find the increase in quantity supplied (change in production). Find the number of jobs created. Find the loss in consumer surplus per job created.arrow_forward
- If a certain trade is good for one country, it must be good for the other country?arrow_forwardWhich scenario describes the operation of a tariff? Angola opens up trade with the world corn market and decides to maintain its previous market price. Consumers in Turkey, who pay $4 per cup of tea, demand that the government open up trade with the world market because they know the world price is $2 per cup. Ireland taxes the import of potatoes in order to keep domestic farmers in business. Norway becomes an exporter of fireworks after it opens up trade with the world market and realizes its market price is lower than the world price. Which is NOT an effect of a tariff? deadweight loss a domestic market price above world market price Activate Windows Go to Settings ho activate Win increased demand decreased importsarrow_forwardThe demand for cameras in a certain country is given by D = 8000 - 30P, where P is the price of a camera. Supply by domestic camera producers is S 4000 + 10P. Suppose that world price of a camera is $150. If this country decides to trade, which of the following is true? 3000 cameras will be exported Domestic production of cameras will decrease by 500 Domestic production of cameras will increase by 500 2000 cameras will be importedarrow_forward
- Why would an importing country use a tariff rather than a quota?arrow_forwardUS imports of sugar are subject to a quota. Although rounded up, the figures used in this exercise are close to reality. Thanks to the quota, US production of sugar is 6 million ton/year, instead of 5 million without the quota, and US consumption of sugar is 8 million ton/year, instead of 9 million without the quota. The US consumer pays $480/ton, whereas the world price is $280/ton. a) Easy: What is the volume of the quota? b) Easy: Why is the US price higher with the quota? c) Medium: Can you plot US supply and demand curves? Show graphically the impact of the quota for consumers and producers.arrow_forwardWhatever can be done by a tariff can be done by a quota.arrow_forward
- When a country allows trade and becomes an importer of a good, which of the following is NOT a consequence? The price received by domestic producers of the good decreases. The gains of domestic consumers of the good exceed the losses of domestic producers of the good. The gains of domestic producers of the good exceed the losses of domestic consumers of the good. The price paid by domestic consumers of the good decreases.arrow_forwardPresident Trump increased tariffs on some goods from China. China retaliated by increasing tariffs on some U.S. goods. If free trade is the ideal, what was President Trump’s goal when increasing tariffs? Do you think this was an effective strategy? Why or why not?arrow_forwardA small country imports T-shirts. With free trade at a world price of $10, domestic production is 10 million T-shirts and domestic consumption is 42 million T-shirts. The country's government now decides to impose a quota to limit T-shirt imports to 20 million per year. With the import quota in place, the domestic price rises to $12 per T- shirt and domestic production rises to 15 million T-shirts per year. The quota on T- shirts causes domestic consumers to A) gain $7 million. B) lose $7 million. C) lose $70 million. D) lose $77 millionarrow_forward
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