1. US import demand for French perfumes is given by P = 90 - 3Q, where P is the perfume price ($), Q is the number of imported perfume bottles (in millions) demanded by US consumers. International supply of French perfumes (in dollars and in million bottles) is given by: P = 10 + 2Q. If the US government imposes a $10 import tariff on French perfumes entering the US market, what would be the deadweight loss for the world as a whole in the perfume market? Assume that these are the only two countries in the world.
Draw a graph to explain.
Hint: Draw supply and demand curves. From the producers' point of view, tariff appears as a cost that must be paid to the government. This means that the supply curve of perfumes will shift up by $10.
2. A small country that imposes a tariff will observe:
a. an increase in the domestic production of the import-competing good.
b. no change in the world price of the importable good.
c. a decrease in imports.
d. all of these answers are correct.
3. Refer to the figure above. The impact of a tariff on shoes on the amount of domestic producer surplus is a __________ measured by area __________.
a. Gain; a
b. Loss; a
c. Gain; (a+b)
d. Loss; (a+b)
4. In the figure above, a large importing country imposes a tariff that raises the domestic price from Pw to PT but lowers the foreign export price from PW to PT*; The net welfare effect of this tariff on the importing country is given by
a. (c + e)
b. (a + c + e)
c. (b + d)
d. (b + d - e)
5. Which of the following is NOT true about the VER?
a. It benefits the exporting country as a whole.
b. It is an export quota.
c. It always produces a loss for the importing country.
d. They are frequently imposed at the request of an importer.
6. Suppose the "Effective Rate of Protection" for Brazilian automobile producers is calculated to be - 60% (negative 60 percent). This result indicates that
a. there is a flaw in the calculation. The effective rate of protection is always positive.
b. Brazilian automobile producers would be better off if Brazil adopted free trade for all.
c. Brazilian automobile producers would be better off if Brazil increased its tariffs on both imported automobile parts and imported cars by 60% each.
d. Brazilian automobile producers would be better off if Brazil increased its tariffs on imported automobile parts.
e. Brazilian automobile producers would be better off if Brazil increased its tariffs on both parts and final goods.