This exam consists of 16 multiple choice questions and 2 problems. Each multiple choice question is worth 2 points for a total of 32 points in this section. Answer each multiple-choice question by picking the best option and writing it in the space provided. The point value of the problems are written next to them. The two problems are together worth 28 points. Concentrate and think your answers through. All the best.

Answer questions 1-10 based upon the following diagram.

1. The autarky price is

a. 30

b. 10

c. 50

d. 15

Answer:

2. The price under free trade is

a. 30

b. 10

c. 50

d. 15

Answer:

3. The price after the imposition of the tariff is

a. 30

b. 20

c. 15

d. 50

Answer:

4. Before the tariff the total quantity of imports would equal

a. 50

b. 100

c. 150

d. 200

Answer:

5. With the tariff, the total quantity of imports would equal

a. 50

b. 100

c. 10

d. 200

Answer:

6. After the tariff, consumer’s surplus is

a. 2500

b. 3000

c. 2250

d. 1500

Answer:

7. Due to the tariff, the producers gain

a. 375.5

b. 200.5

c. 125.5

d. 187.5

Answer:

8. The deadweight loss of the tariff is

a. 50

b. 100

c. 250

d. 125

Answer:

9. The total revenue generated by the tariff is

a. 500

b. 1000

c. 250

d. 300

Answer:

10. Which of the following is a prohibitive tariff

a. 15

b. 10

c. 5

d. 20

Answer:

11. A tariff _________ raise a country’s welfare

a. Can never

b. Can sometimes

c. Must always

d. Smaller than the prohibitive level

Answer:

.

12. The effective rate of protection is

a. Always higher than the nominal rate of protection

b. Always lower than the nominal rate of protection

c. Always equal to the nominal rate of protection

d. None of the above

Answer:

Use the following information to answer questions 13-14

A domestic producer of gas powered lawnmowers receives protection in the form of a tariff of $50 each on the import of gas-powered lawnmowers. The free trade price of each lawnmower is $200. Each lawnmower requires $100 worth of imported components. However a tariff of 10% is imposed on the imported components. You can assume this is a small country.

13. The domestic price of lawnmowers with the tariff is

a. 150

b. 200

c. 250

d. 260

Answer:

14. The tariff on the lawnmowers is

a. A prohibitive tariff

b. A specific tariff

c. An ad valorem tariff

d. The optimal tariff

Answer:

15. The Effective Rate of Protection on lawnmowers with the tariff is

a. 5/9

b. 2/5

c. 9/10

d. 3/2

Answer:

16. Economists believe that a production subsidy is superior to a tariff because

a. It causes a smaller deadweight loss

b. Is temporary

c. Protects infant industries

1. Involves no dead-weight loss

Answer:

1. Illustrate the effects of the imposition of a quota on imports by a small country. Be sure to depict the (1) effect on domestic producers, (2) effect on domestic consumers, and (3) the effect on the domestic government. Explain your diagram carefully.

(12 points)

2. Illustrate the effects of the imposition of a tariff on imports by a large country. Be sure to depict the (1) effect on domestic consumers, (2) effect on domestic producers and (3) effect on the domestic government. (4) Will this tariff raise domestic welfare? Why or why not?

Explain your diagram and your arguments carefully.

(16 points)