For fall semester 2008, this exam will cover chapters 6, and 7. The following is an updated study guide. See the calendar for links to the homework solutions. Of course, you should also study from your worksheets.
Here are some practice questions:
1. Are tariffs and quotas equivalent in their economic effects? Compare and contrast their economic effects assuming a static demand for the imported good and competitive markets. Illustrate your answer with a graph. Next, discuss the effects a tariff compared to a quota when demand grows over time. Finally, discuss the effects a tariff compared to a quota when there is only one domestic producer of the imported good. (See chapters 6, 7, your notes and worksheets.)
2. Use a partial equilibrium analysis, i.e., supply & demand diagrams, to illustrate and describe the economic effects of a tariff on imports for a large country. In particular, show the effects on domestic production, domestic consumption, imports, prices, consumer welfare, producer welfare, government revenue, and overall (net) economic welfare. Qualify your overall conclusion, if necessary. (See chapters 6, 7, your notes and worksheets.)
3. Compare the welfare effects of tariffs, quotas and VERs in the small country case, assuming static demand and supply. See chapters 6, 7, your notes and worksheets.)
4. Compare and contrast the nominal and effective rates of protection. (See chapter 6, pages 171-176.)
5. Discuss each of the following arguments. Which, if any, are valid? Which, if any, are sound? Justify your answers. (See chapters 2 through 7.)
a. US consumers should buy only garments made by the Ladies Garment Workers Union, to save their jobs.
b. Textile imports should be restricted because textile workers in foreign countries earn very low wages.
c. Rather than breaking Microsoft into several smaller companies, as some would like to do, the US government should subsidize Microsoft's research and development efforts to encourage development of new products and their export to other countries.
d. The US government should encourage GM, Chrysler, and Ford to merge, and limit the number of cars that all other countries can sell in this country. This will increase the profits of shareholders in this new company. As they spend their new wealth, they will make all Americans richer.
e. The US should impose a tariff on the import of teak (a durable wood that grows in India and SE Asia). This will help to save the rain forests.
f. The US government should impose a tariff on planes purchased from Airbus by US airlines. This will increase Boeing's sales, and hence their profits, raising US welfare at the expense of the EU.
g. A country that exports goods on low wages is encouraging exploitation of its own workers and making them poorer. The US should protect workers in developing countries by insisting that their workers receive wages comparable to US wages. Imports from countries paying lower wages should be banned.
6. Construct a valid argument for the protection of an infant industry. (See chapter 7.)
7. Discuss the welfare effects of the European Union’s Common Agriculture Policy on the EU, the US, and a developing country that imports food at the current level of world prices. Illustrate your answer with one or more graphs. (See chapter 7 notes.)
8. Discuss the welfare effects of the United States’ quota restricting the quantity of imported sugar. Illustrate your answer with one or more graphs. (See chapter 7 notes.)
9. Suppose that prospective importing firms hire lobbyists to help them secure from government authorities the right to import quota restricted items into a country. How much would importers as a group be willing to pay lobbyists for their services? Explain. Suppose lobbyists are paid this amount. What happens to domestic welfare in this case?
10. Refer to the (strategic trade policy) Boeing v Airbus worksheet.
11. Analyze the welfare effects of an export tariff imposed by a small country. Refer to the worksheet on export tariffs.
12. Assume that an industry manufactures a complex product with a high value per unit weight. Assume that the manufacture of components of this product is subject to internal economies of scale, and is capital intensive while the final assembly of the product is labor intensive. Describe the likely pattern of world trade in this industry. (See chapters 4, 5, and 7.)
Quantitative/Graphing Problem