A tariff set high enough can eliminate imports of a good, just as a quota of zero would.
Correct Answer
True
True. A tariff raises the cost of imports, and if it is high enough no foreign seller can compete with domestic producers. The result matches a quota that allows no imports at all.
Category: Tools of Protection
Question 2
An import quota is a tax charged on each unit of a good brought into a country.
Correct Answer
False
False. An import quota is a numerical limit on the quantity that may be imported. A tax on each unit of an imported good is a tariff.
Category: Tools of Protection
Question 3
Rules, inspections and paperwork that make importing harder or more costly are known as nontariff barriers.
Correct Answer
True
True. Nontariff barriers restrict trade without a direct tax or quantity limit. Safety rules applied unevenly and complex rules about where a product was made are examples.
Category: Tools of Protection
Question 4
According to the demand and supply model, a tariff on an imported good lowers the price that domestic consumers pay for it.
Correct Answer
False
False. A tariff raises the price consumers pay, because imports become more expensive and domestic producers can charge more. Consumers buy less at the higher price.
Category: Winners and Losers
Question 5
Under free trade, consumers in an importing country gain while domestic producers of the imported good lose.
Correct Answer
True
True. Imports lower the domestic price, so buyers pay less and consume more. Domestic producers sell less at the lower price and lose producer surplus.
Category: Winners and Losers
Question 6
Free trade in a good raises total surplus in the importing country but lowers total surplus in the exporting country.
Correct Answer
False
False. In the demand and supply model, total surplus rises in both countries under free trade. Some groups within each country lose, but the winners gain more than the losers lose.
Category: Winners and Losers
Question 7
The cost to consumers of protecting an industry can exceed the salaries of the jobs that the protection saves.
Correct Answer
True
True. Studies of protected industries have found consumer costs per job saved that are far above what those jobs pay. Part of the extra money goes to profits and other costs, and protection also causes deadweight loss.
Category: Jobs and Wages
Question 8
When a country restricts imports of an input such as steel, domestic firms that use steel gain an advantage over their foreign competitors.
Correct Answer
False
False. Restricting steel imports raises the price of steel at home, so domestic firms that use it face higher costs. They can lose sales to foreign rivals, which is one way protection costs jobs elsewhere.
Category: Jobs and Wages
Question 9
Many low-skill jobs, such as lawn care and hotel cleaning, cannot be imported, so import competition does not directly set their wages.
Correct Answer
True
True. Services that must be performed locally are not exposed to foreign competition. Their wages depend mainly on domestic supply and demand for labor.
Category: Jobs and Wages
Question 10
The infant industry argument holds that a country should permanently protect its oldest industries from foreign competition.
Correct Answer
False
False. The infant industry argument calls for temporary protection of young industries until they can compete. Protecting old industries forever is not part of the argument.
Category: Arguments for Restrictions
Question 11
Economists are skeptical of the national interest argument partly because almost any product can be labeled vital to the nation.
Correct Answer
True
True. Industries seeking protection have an incentive to describe their products as strategic. Subsidies justified as matters of national security have sometimes lasted for decades.
Category: Arguments for Restrictions
Question 12
The national interest argument says a country should rely on imports for goods that are vital to its defense.
Correct Answer
False
False. The national interest argument says a country should avoid depending on foreign suppliers for vital goods, because supplies could be cut off. Economists usually answer that stockpiling is a cheaper safeguard than blocking imports.
Category: Arguments for Restrictions
Question 13
Under free trade, sugar producers in a country that exports sugar lose because the price they receive falls.
Correct Answer
False
False. Exporting to a market with a higher price raises the price in the exporting country, so its producers gain. It is consumers in the exporting country who lose, because they pay more.
Category: Winners and Losers
Question 14
Economists generally favor building a stockpile of a vital good, such as oil, over restricting its imports as protection against a supply cutoff.
Correct Answer
True
True. A stockpile can be drawn down in an emergency while the country keeps buying cheaper foreign supplies in normal times. Restricting imports in advance raises costs every year to guard against a crisis that may never come.
Category: Arguments for Restrictions
Question 15
A free trade agreement requires member countries to coordinate their monetary and fiscal policies.
Correct Answer
False
False. A free trade agreement only removes trade barriers among members. Coordinating monetary and fiscal policy is a feature of an economic union.
Category: Trade Agreements
Question 16
In the second half of the twentieth century, barriers to trade fell substantially in the United States and around the world.
Correct Answer
True
True. Rounds of global negotiations and regional agreements steadily reduced tariffs and other barriers after World War II.
Category: Trade Agreements
Question 17
An economic union has free trade among its members but lets each member set a separate trade policy toward outside countries.
Correct Answer
False
False. An economic union has free trade among members, a common trade policy toward outside countries and coordinated monetary and fiscal policy. Separate outside policies are a feature of a free trade agreement.
Category: Trade Agreements
Question 18
Some countries refuse to import goods produced with forced labor or the labor of young children.
Correct Answer
True
True. Child labor and forced labor are widely seen as morally unacceptable, and some countries bar imports made with them. Economists treat these cases as clearer than disputes over low wages alone.
Category: Jobs and Wages
Question 19
The economic analysis of free trade assumes that the move to trade is painless for every firm and worker.
Correct Answer
False
False. Economists recognize that trade creates losers as well as winners, such as workers in industries that shrink. The case for trade is that the total gains exceed the losses and that other policies can help those who lose.
Category: Trade Policy Tradeoffs
Question 20
Trade shifts jobs toward industries in which a country has a comparative advantage and away from industries in which it does not.
Correct Answer
True
True. As a country specializes, industries that make goods at low opportunity cost expand and hire, while those that compete with cheaper imports shrink. The total number of jobs depends mainly on other forces, such as the business cycle.
Category: Trade Policy Tradeoffs