习题四
- Important Concepts
Tariff protection
Ad valorem tariff
Specific tariff
F.O.B. price
C.I.F. price
Effective tariff
2.Choices
(1) In what way does the effective rate analysis help to illuminate these policy issues?
a. Deepening of production in LDCs
b. Taking advantage of economies of scale
c. Escalation of tariff rates by degree of processing in industrial countries
d. Stimulating competition
(2) Which one is NOT the type of tariff?
a. ad valorem tariff b. specific tariff
c. export tariff d. compound duty
(3) The rule , which guards against discrimination in international trade, is known as.
a. WTO b. MFN
c. GATT d. IMF
(4) The elimination of tariff in a customs union will cause the effect of ______.
a. trade improvement b. trade diversion
c. trade creation d. trade competation
(5) A tariff rate is high enough to keep out all imports of the product which we call ______.
a. revenue tariff b. prohibitive tariff
c. protective tariff d. specific tariff
(6) The internal price of imports rises by the full amount of the duty,an increase that has domestic effects ______.
a. production expands in the industries producing substitutes for the tariff-ridden imports.
b. it forces some consumers to curtail consumption of imports and to swith to domestically produced substitutes.
c. a tariff may have such important indirect consequences as increasing the degree of monopoly in the country,thereby lowering productive efficiency and retarding economic growth.
d. gain more benefits.
(7) Which sentence is correct about average tariff ______.
a. procedures to estimate average tariff rates across industries are generally biased downward.
b. a closely related guide to project selection is the domestic resource cost of foreign exchange earned by exports or saved by import substition.
c. the industries at the low end of the scale in terms of effective protection are the ones that should be expanded.
d. such liberalization is the centerpiece of general economic reform.
3.Review Questions
(1) Explain the concept of “effective rate of protection”
(2) Review and evaluate three common arguments for protection.
(3) Suppose that one country subsidizes its exports and the other country imposes a "countervailing" tariff that offsets its effect, so that in the end relative prices in the second country are unchanged. What happens to the terms of trade? What about welfare in the two countries?
(4) Determine the effect of the tariff on the welfare of each of the following groups:
(a) Home import-competing producers;
(b) Home consumers;
(c) the Home government.
(5) Suppose that Foreign had been a much larger country, with domestic demand D* = 800 - 200P, 5* = 400 + 200P.
(Notice that this implies that the Foreign price of wheat in the absence of trade would have been the same as in problem 2.)
(6) Recalculate the free trade equilibrium and the effects of a 0.5 specific tariff by Home. Relate the difference in results to the discussion of the "small country" case in the text.
(7) Distinguish between the following:
a.Ad valorem and specific tariff
b.Nominal and effective protection
c.Customs union and free-trade area
d.The WTO and the European Community
e.Discriminatory and nondiscriminatory tariff reduction
f.Trade creation and trade diversion ( of a customs union )
g.An import and export tax
h.C.I.F. and F.O.B. price
i.Large and small countries
j.Consumers’ and producers’ surplus
k.Optimum tariff and effective tariff
(8) ( For the well-initiated student ) Assume that we have a two-country, tariff-ridden world and that the countries decide to remove the tariff in two successive steps of equal tariff cuts. Using a partial equilibrium diagram, demonstrate that the welfare benefits to the world as a whole are greater from the first than from the second tariff reduction.
(9) Explain the concept of the optimum tariff. How can a tariff improve the welfare of one country and lower that of the world as a whole?
(10) “A customs union constitutes a partial movement toward free trade and must therefore lead to an improvement in world welfare.” Do you agree? Explain this statement, using a diagram to show the three effects of a customs union. Does the increase in intraunion trade measure trade creation?
(11) Suppose the United States levied a 20 percent tariff on imported cars. Explain the effects on the
l.U.S. terms of trade
m.Distribution of income within the United States
n.U.S. welfare ( or real income )
Use graphs as needed.
(12) Evaluate each of the following statements:
o.A tariff on textiles is equivalent to a tax on consumers and a subsidy to the textile producers and workers. ( Use a diagram )
p.A tariff lowers the real income of the country, while at the same time it distributes income from the consumers to the governments and to the import-competing industry. (Use a diagram )
q.Chinese mushrooms undersell American mushrooms because Chinese labor is cheaper than American labor. We should impose a high tariff on mushrooms until China agrees to raise wage rates to the level prevailing in the United States.
(13) Assess the possible effects of NAFTA. Is such an FTA likely to lead to an expansion of interindustry or intraindustry trade? How would such an FTA conform to the MFN provision of the WTO?