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EC 101.03
Exercises for Chapter 9
FALL 2010
1. Using the graph, assume that the government imposes a $1 tariff on hammers. Answer the following
questions given this information.
a.
b.
c.
d.
e.
f.
g.
h.
i.
What is the domestic price and quantity demanded of hammers after the tariff is imposed?
What is the quantity of hammers imported before the tariff?
What is the quantity of hammers imported after the tariff?
What would be the amount of consumer surplus before the tariff?
What would be the amount of consumer surplus after the tariff?
What would be the amount of producer surplus before the tariff?
What would be the amount of producer surplus after the tariff?
What would be the amount of government revenue because of the tariff?
What would be the total amount of deadweight loss due to the tariff?
a.
b.
c.
d.
e.
f.
g.
h.
i.
$6, 84
66
44
$384
$294
$45
$80
$44
$11
ANS:
2. The nation of Pineland forbids international trade. In Pineland, you can buy 1 pound of fish for 2
pounds of beef. In other countries, you can buy 1 pound of fish for 1.5 pounds of beef. These
facts indicate that
a. Pineland has a comparative advantage, relative to other countries, in producing fish.
b. other countries have a comparative advantage, relative to Pineland, in producing beef.
c. the price of beef in Pineland exceeds the world price of beef.
d. if Pineland were to allow trade, it would import fish.
ANS: D
3. Suppose the United States exports cars to France and imports cheese from Switzerland. This
situation suggests that
a. the United States has a comparative advantage relative to Switzerland in producing cheese,
and France has a comparative advantage relative to the United States in producing cars.
b. the United States has a comparative advantage relative to France in producing cars, and
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Switzerland has a comparative advantage relative to the United States in producing cheese.
the United States has an absolute advantage relative to Switzerland in producing cheese, and
France has an absolute advantage relative to the United States in producing cars.
the United States has an absolute advantage relative to France in producing cars, and
Switzerland has an absolute advantage relative to the United States in producing cheese.
c.
d.
ANS: B
4. When a country allows trade and becomes an importer of steel,
a. the losses of the domestic producers of steel exceed the gains of the domestic consumers of
steel.
b. the losses of the domestic consumers of steel exceed the gains of the domestic producers of
steel.
c. the gains of the domestic producers of steel exceed the losses of the domestic consumers of
steel.
d. the gains of the domestic consumers of steel exceed the losses of the domestic producers of
steel.
ANS: D
Figure 9.1. The figure illustrates the market for wool in New Zealand.
Price
75
70
65
Domestic supply
60
A
55
World
price
50
B
G
D
45
H
F
40
35
C
Domestic demand
30
25
20
15
10
5
1
5.
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Refer to Figure 9-1. From the figure it is apparent that
a. New Zealand will experience a shortage of wool if trade is not allowed.
b. New Zealand will experience a surplus of wool if trade is not allowed.
c. New Zealand has a comparative advantage in producing wool, relative to the rest of the
world.
d. foreign countries have a comparative advantage in producing wool, relative to New Zealand.
ANS: C
6.
Refer to Figure 9-1. From the figure it is apparent that
a. New Zealand will export wool if trade is allowed.
b. New Zealand will import wool if trade is allowed.
c. New Zealand has nothing to gain either by importing or exporting wool.
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Quantity
d.
the world price will fall if New Zealand begins to allow its citizens to trade with other
countries.
ANS: A
7.
Refer to Figure 9-1. With trade, New Zealand will
a. export 11 units of wool.
b. export 5 units of wool.
c. import 15 units of wool.
d. import 6 units of wool.
ANS: A
8.
Refer to Figure 9-1. In the absence of trade, the equilibrium price of wool in New Zealand is
a. $15.
b. $45.
c. $55.
d. $70.
ANS: B
9.
Refer to Figure 9-1. In the absence of trade, total surplus in New Zealand is represented by the
area
a. A + B + C.
b. A + B + C + D + F.
c. A + B + C + D + F + G.
d. A + B + C + D + F + G + H.
ANS: B
10.
Refer to Figure 9-1. When trade in wool is allowed, consumer surplus in New Zealand
a. increases by the area B + D.
b. increases by the area C + F.
c. decreases by the area B + D.
d. decreases by the area D + G.
ANS: C
11.
Refer to Figure 9-1. When trade in wool is allowed, producer surplus in New Zealand
a. increases by the area B + D.
b. increases by the area B + D + G.
c. decreases by the area C + F.
d. decreases by the area G.
ANS: B
12
Refer to Figure 9-1. When trade is allowed,
a. New Zealand producers of wool become better off and New Zealand consumers of wool
become worse off.
b. New Zealand consumers of wool become better off and New Zealand producers of wool
become worse off.
c. both New Zealand producers and consumers of wool become better off.
d. both New Zealand producers and consumers of wool become worse off.
ANS: A
13.
Refer to Figure 9-1. Relative to the no-trade situation, trade with the rest of the world results in
a. New Zealand consumers paying a higher price for wool.
b. a decrease in producer surplus in New Zealand.
c. a decrease in total surplus in New Zealand.
d. All of the above are correct.
ANS: A
14.
Refer to Figure 9-1. In the absence of trade, total surplus in the New Zealand wool market
amounts to
a. 187.5
b. 275.0
c. 378.5
d. 412.5
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ANS: D
15.
Refer to Figure 9-1. With trade, total surplus in the New Zealand wool market amounts to
a. 312.5.
b. 367.0.
c. 467.5.
d. 495.0.
ANS: C
16. After a country goes from disallowing trade in coffee with other countries to allowing trade in
coffee with other countries,
a. the domestic price of coffee will be greater than the world price of coffee.
b. the domestic price of coffee will be lower than the world price of coffee.
c. the domestic price of coffee will equal the world price of coffee.
d. The world price of coffee does not matter; the domestic price of coffee prevails.
ANS: C
Figure 9-6
17.
Refer to Figure 9-6. Without trade, the equilibrium price of carnations is
a. $8 and the equilibrium quantity is 300.
b. $6 and the equilibrium quantity is 200.
c. $6 and the equilibrium quantity is 400.
d. $4 and the equilibrium quantity is 500.
ANS: A
18.
Refer to Figure 9-6. With trade and without a tariff,
a. the domestic price is equal to the world price.
b. carnations are sold at $8 in this market.
c. there is a shortage of 400 carnations in this market.
d. this country imports 200 carnations.
ANS: A
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19.
Refer to Figure 9-6. Before the tariff is imposed, this country
a. imports 200 carnations.
b. imports 400 carnations.
c. exports 200 carnations.
d. exports 400 carnations.
ANS: B
20.
Refer to Figure 9-6. The size of the tariff on carnations is
a. $8 per dozen.
b. $6 per dozen.
c. $4 per dozen.
d. $2 per dozen.
ANS: D
21.
Refer to Figure 9-6. The imposition of a tariff on carnations
a. increases the number of carnations imported by 100.
b. increases the number of carnations imported by 200.
c. decreases the number of carnations imported by 200.
d. decreases the number of carnations imported by 400.
ANS: C
22.
Refer to Figure 9-6. The amount of revenue collected by the government from the tariff is
a. $200.
b. $400.
c. $500.
d. $600.
ANS: B
23.
Refer to Figure 9-6. When a tariff is imposed in the market, domestic producers
a. gain by $100.
b. gain by $200.
c. gain by $300.
d. lose by $100.
ANS: C
24.
Refer to Figure 9-6. The amount of deadweight loss caused by the tariff equals
a. $100.
b. $200.
c. $400.
d. $500.
ANS: B
25.
Refer to Figure 9-6. When the tariff is imposed, domestic consumers
a. lose by $500.
b. lose by $900.
c. gain by $500.
d. gain by $900.
ANS: B
Figure 9-14. On the diagram below, Q represents the quantity of computers and P represents the price
of computers.
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26. Refer to Figure 9-14. When the country for which the figure is drawn allows international trade in
computers,
a. consumer surplus for domestic computer consumers decreases.
b. the demand for computers by domestic computer consumers decreases.
c. the losses of the domestic losers outweigh the gains of the domestic winners.
d. domestic computer producers sell fewer computers.
ANS: A
27.. Refer to Figure 9-14. When the country for which the figure is drawn allows international trade
in computers,
a. consumer surplus changes from the area A + B + D to the area A.
b. producer surplus changes from the area C to the area B + C + D.
c. total surplus decreases by the area D.
d. All of the above are correct.
ANS: B
28.
Refer to Figure 9-14. The country for which the figure is drawn
a. has a comparative advantage relative to other countries in the production of computers and it
will export computers.
b. has a comparative advantage relative to other countries in the production of computers and it
will import computers.
c. has a comparative disadvantage relative to other countries in the production of computers
and it will export computers.
d. has a comparative disadvantage relative to other countries in the production of computers
and it will import computers.
ANS: A
29.
Refer to Figure 9-14. A result of this country allowing international trade in computers is as
follows:
a. The well-being of domestic computer producers is now higher in that they now sell more
computers at a higher price per computer.
b. The effect on the well-being of domestic computer consumers is unclear in that they now
buy more computers, but at a higher price per computer.
c. The effect on the well-being of the country is unclear in that domestic producer surplus
increases, while the effect on domestic consumer surplus is unclear.
d. All of the above are correct.
ANS: A
30.
When a country that imports a particular good imposes an import quota on that good,
a. producer surplus increases and total surplus increases in the market for that good.
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b.
c.
d.
ANS: B
producer surplus increases and total surplus decreases in the market for that good.
producer surplus decreases and total surplus increases in the market for that good.
producer surplus decreases and total surplus decreases in the market for that good.
31. Chile imposes a $7 tariff on chips. Which of the following outcomes is possible?
a. The price of chips in Chile increases to $19; the quantity of Chilean-produced chips
decreases; and the quantity of chips imported by Chile decreases.
b. The price of chips in Chile increases to $16; the quantity of Chilean-produced chips
increases; and the quantity of chips imported by Chile decreases.
c. The price of chips in Chile increases to $19; the quantity of Chilean-produced chips
increases; and the quantity of chips imported by Chile decreases.
d. The price of chips in Chile increases to $16; the quantity of Chilean-produced chips
increases; and the quantity of chips imported by Chile does not change.
ANS: C
32.
Import quotas and tariffs produce some common results. Which of the following is not one of
those common results?
a. Total surplus in the domestic country falls.
b. Producer surplus in the domestic country increases.
c. The domestic country experiences a deadweight loss.
d. Revenue is raised for the domestic government.
ANS: D
33.
Domestic producers of a good become better off, and domestic consumers of a good become
worse off, when a country begins allowing international trade in that good and
a. the country becomes an importer of the good as a result.
b. the world price exceeds the domestic price of the good that prevailed before international
trade was allowed.
c. other countries have a comparative advantage, relative to the country in question, in
producing the good.
d. total surplus does not change as a result.
ANS: B
34. When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an exporter of
of a particular good,
a. producer surplus increases and total surplus increases in the market for that good.
b. producer surplus increases and total surplus decreases in the market for that good.
c. producer surplus decreases and total surplus increases in the market for that good.
d. producer surplus decreases and total surplus decreases in the market for that good.
ANS: A
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