International International Economics, Economics, 10e 10e (Krugman/Obstfeld/Melitz)
Chapter 9 The Instruments of Tr Trade ade Polic
9.1 Basic Tariff Analysis 1) Specific tariffs are A) import taxes stated in specific legal statutes. B) import taxes calculated as a fixed charge ch arge for each unit of imported goods. C) import taxes calculated as a fraction of the value of the imported goods. D) the same as import uotas. !) import taxes calculated "ased solely on the origin country. Ans#er$ B %age &ef$ '(*'(+ Difficulty$ !asy ') Ad valorem tariffs are A) import taxes stated in ads in industry pu"lications. B) import taxes calculated as a fixed charge ch arge for each unit of imported goods. C) import taxes calculated as a fraction of the value of the imported goods. D) the same as import uotas. !) import taxes calculated solely on the origin country. Ans#er$ C %age &ef$ '(*'(+ Difficulty$ !asy ,) The excess supply curve of a product #e -) import from foreign countries -/) increases as A) excess demand of country increases. B) excess demand of country / increases. C) excess supply of country increases. D) excess supply of country / increases. !) excess supply of country / decreases. d ecreases. Ans#er$ D %age &ef$ '(+*'(9 Difficulty$ !asy 0) Suppose the nited States eliminates its tariff on "all "earings used in producing exports. Ball "earing prices in the nited States #ould "e expected to A) increase2 and the foreign demand for .S. exports #ould increase. B) decrease2 and the foreign demand for .S. exports #ould increase. C) increase2 and the foreign demand for .S. exports #ould decrease. D) decrease2 and the foreign demand for .S. exports #ould decrease. !) decrease2 and the foreign demand #ould "e unchanged. Ans#er$ C %age &ef$ '(9*'1( Difficulty$ !asy
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4) A specific tariff provides home producers more protection #hen A) the home mar6et "uys cheaper products rather than expensive products. B) it is applied to a commodity #ith many grade variations. C) the home demand for a good is elastic #ith respect to price changes. D) it is levied on manufactured goods rather than primary products. !) the home supply outnum"ers the foreign imports. Ans#er$ A %age &ef$ '1(*'1' Difficulty$ !asy ) A lo#er tariff on imported steel #ould most li6ely "enefit A) foreign producers at the expense of domestic consumers. B) domestic manufacturers of steel. C) domestic consumers of steel. D) #or6ers in the steel industry. !) foreign consumers of steel. Ans#er$ C %age &ef$ '(9*'1( Difficulty$ !asy +) A pro"lem encountered #hen implementing an 7infant industry7 tariff is that A) domestic consumers #ill purchase the foreign good regardless of the tariff. B) the industry may never 7mature.7 C) most industries reuire tariff protection #hen they are mature. D) the tariff may hurt the industry8s domestic sales. !) the tariffs fail to protect the domestic producers. Ans#er$ B %age &ef$ '11*'1' Difficulty$ !asy ) :hich of the follo#ing is a fixed percentage of the value of an imported product; A) specific tariff B) ad valorem tariff C) nominal tariff D) effective protection tariff !) infant industry tariff Ans#er$ B %age &ef$ '(*'(+ Difficulty$ !asy
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9) A tax of '( cents per unit of imported garlic is an example of a-n) A) specific tariff. B) ad valorem tariff. C) nominal tariff. D) effective protection tariff. !) a disadvantageous tariff. Ans#er$ A %age &ef$ '(*'(+ Difficulty$ !asy 1() A tax of '( percent per unit of imported garlic is an example of a-n) A) specific tariff. B) ad valorem tariff. C) nominal tariff. D) effective protection tariff. !) a disadvantageous tariff Ans#er$ B %age &ef$ '(*'(+ Difficulty$ !asy 11) :hich type of tariff is for"idden in the nited States on Constitutional grounds; A) import tariff B) export tariff C) specific tariff D) prohi"itive tariff !) import uota Ans#er$ B %age &ef$ '(*'(+ Difficulty$
T defended on the grounds that they A) improve the terms of trade of foreign nations. B) protect ?o"s and reduce unemployment. C) promote gro#th and development of young industries. D) prevent over*dependence of a country on only a fe# industries. !) protect domestic producers from foreign lo# prices. Ans#er$ A %age &ef$ '(9*'1' Difficulty$ !asy
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1,) The most vocal political pressure for tariffs is generally made "y A) consumers lo""ying for export tariffs. B) consumers lo""ying for import tariffs. C) consumers lo""ying for lo#er import tariffs. D) producers lo""ying for export tariffs. !) producers lo""ying for import tariffs. Ans#er$ ! %age &ef$ '(9*'1' Difficulty$ !asy 10) Tariff rates on products imported into the .S. A) have dropped su"stantially over the past 4( years. B) #ere prohi"ited "y the Constitution. C) reached an all time high in '(('. D) have risen steadily since 19'(. !) #ere the government8s main source of income in '((. Ans#er$ A %age &ef$ '(9*'1' Difficulty$ !asy 14) :hat is a T&! statement concerning the imposition in the .S. o f a tariff on cheese; A) 5t lo#ers the price of cheese domestically. B) 5t raises the price of cheese internationally. C) 5t raises revenue for the government. D) 5t #ill al#ays result in retaliation from a"road. !) it leads to higher domestic demand for cheese. Ans#er$ C %age &ef$ '(9*'1' Difficulty$ !asy 1) The tariff levied in a 7large country7 -ome)2 lo#ers the #orld price of the imported good. This causes A) foreign consumers to demand less of the good on #hich #as levied a tariff. B) domestic demand for imports to decrease. C) domestic demand for imports to increase. D) foreign suppliers to produce less of the good on #hich #as levied a tariff. !) no change in the foreign price of the good it imports. Ans#er$ D %age &ef$ '(9*'1' Difficulty$ !asy
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1+) 5t is argued that a tariff may help promote employment in a single industry2 "ut is not li6ely to help employment in general. Discuss. Ans#er$ A general tariff on all imports is euivalent to a depreciation in the value of the country8s currency. 5t #ould raise the prices of all imports2 and have a considera"le income effect. This income effect #ill have a negative effect on total consumption of the import* competing sector -as #ell as the exporta"les and non*trada"les). 5n addition2 under conditions of a flexi"le exchange rate regime -assuming the
1) &efer to a"ove figure. 5n the a"sence of trade2 ho# many :idgets does this country produce; Ans#er$ ( %age &ef$ '(9*'1' Difficulty$ !asy 19) &efer to a"ove figure. 5n the a"sence of trade2 ho# many :idgets does this country consume; Ans#er$ ( %age &ef$ '(9*'1' Difficulty$ !asy '() &efer to a"ove figure. :ith free trade and no tariffs2 #hat is the uantity of :idgets imported; Ans#er$ 9( %age &ef$ '(9*'1' Difficulty$ !asy
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'1) &efer to a"ove figure. :ith a specific tariff of , per unit2 #hat is the uantity of :idgets imported; Ans#er$ 0( %age &ef$ '(9*'1' Difficulty$ !asy '') &efer to a"ove figure. :ith free trade and no tariffs2 #hat is the uantity of :idgets produced domestically; Ans#er$ 1( %age &ef$ '(9*'1' Difficulty$ !asy ',) &efer to a"ove figure. The lo#est specific tariff #hich #ould "e co nsidered prohi"itive is . Ans#er$ 4 %age &ef$ '(9*'1' Difficulty$ !asy '0) &efer to a"ove figure. :ith a specific tariff of , per unit2 #hat is the uantity of :idgets produced domestically; Ans#er$ 0( %age &ef$ '(9*'1' Difficulty$ !asy '4) &efer to a"ove figure. :ith free trade and no tariffs2 #hat is the uantity of :idgets consumed domestically; Ans#er$ 1(( %age &ef$ '(9*'1' Difficulty$ !asy ') &efer to a"ove figure. :ith a specific tariff of , per unit2 #hat is the uantity of :idgets consumed domestically; Ans#er$ ( %age &ef$ '(9*'1' Difficulty$ !asy '+) The effective rate of protection measures A) the 7true7 ad valorem value of a tariff. B) the uota euivalent value of a tariff. C) the efficiency #ith #hich the tariff is collected at the customhouse. D) the protection given "y the tariff to domestic value added. !) the difference "et#een domestic and foreign prices of the import. Ans#er$ D %age &ef$ '1(*'1, Difficulty$ !asy
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') 5f the tariff on computers is not changed2 "ut domestic computer producers shift from domestically produced semiconductors to imported components2 then the effective rate of protection in the computer industry #ill A) increase. B) decrease C) remain the same. D) depend on #hether computers are %Cs or 7Supercomputers.7 !) no longer apply. Ans#er$ A %age &ef$ '1(*'1, Difficulty$ !asy '9) 5f the tariff on computers is not changed2 "ut the government then adds hitherto nonexistent tariffs on imported semi*conductor components2 then the effective rate of protection in the computer industry #ill A) increase. B) decrease. C) remain the same. D) depend on #hether computers are %Cs or 7Supercomputers.7 !) no longer apply. Ans#er$ B %age &ef$ '1(*'1, Difficulty$ !asy ,() :hen a government allo#s ra# materials and other intermediate products to enter a country duty free2 this generally results in a-an) A) effective tariff rate less than the nominal tariff rate. B) nominal tariff rate less than the effective tariff rate. C) rise in "oth nominal and effective tariff rates. D) fall in "oth nominal and effective tariff rates. !) rise in only the effective tariff rate. Ans#er$ B %age &ef$ '1(*'1, Difficulty$ !asy ,1) >f the many arguments in favor of tariffs2 the one that has en?oyed significant economic ?ustification has "een the A) cheap foreign la"or argument. B) infant industry argument. C) even playing field argument. D) "alance of payments argument. !) domestic living standard argument. Ans#er$ B %age &ef$ '11*'1' Difficulty$ !asy
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,') As glo"aliation tends to increase the proportion of imported inputs relative to domestically supplied components A) the nominal tariff automatically increases. B) the rate of -effective) protection automatically decreases. C) the nominal tariff automatically decreases. D) the rate of -effective) protection automatically increases. !) the amount of tariffs levied increases. Ans#er$ D %age &ef$ '1(*'1' Difficulty$ !asy ,,) 5n an inflationary environment2 then over time A) a specific tariff #ill tend to raise more revenue than an ad valorem tariff. B) an ad valorem tariff #ill tend to raise more revenue than a specific tariff. C) an optimum tariff #ill tend to raise more revenue than an escalating tariff. D) a tariff uota #ill tend to raise more revenue than a specific tariff. !) an import uota #ould raise more revenue than a specific tariff. Ans#er$ B %age &ef$ '(*'(+ Difficulty$ !asy ,0) Some argue that tariffs al#ays hurt the imposing country8s economic #elfare2 and are typically designed to shift resources from one sector to another2 protected or preferred one2 #ithin an economy. /ind and discuss a counter example to this argument. Ans#er$ The optimum tariff is theoretically a first*"est trade policy. %age &ef$ '1(*'1' Difficulty$
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9.' Costs and Benefits of a Tariff 1) 5f a good is imported into -large) country from country /2 then the imposition of a tariff in country A) raises the price of the good in "oth countries -the 7@a# of >ne %rice7). B) raises the price in country and cannot affect its price in country /. C) lo#ers the price of the good in "oth countries. D) lo#ers the price of the good in and could raise it in /. !) raises the price of the good in and lo#ers it in /. Ans#er$ ! %age &ef$ '1'*'1+ Difficulty$ !asy ') 5f a good is imported into -small) country from country /2 then the imposition of a tariff 5n country A) raises the price of the good in "oth countries -the 7@a# of >ne %rice7). B) raises the price in country and does not affect its price in country /. C) lo#ers the price of the good in "oth countries. D) lo#ers the price of the good in and could raise it in /. !) raises the price of the good in and lo#ers it in /. Ans#er$ B %age &ef$ '1'*'1+ Difficulty$ !asy ,) 5f a small country imposes a tariff2 then A) the producers must suffer a loss. B) the consumers must suffer a loss. C) the government revenue must suffer a loss. D) the demand curve must shift to the left. !) the #orld price on that item #ill shift. Ans#er$ B %age &ef$ '1'*'1+ Difficulty$ !asy 0) The imposition of tariffs on imports results in dead#eight -triangle) losses. These are A) production and consumption distortion effects. B) redistri"ution effects. C) revenue effects D) efficiency effects. !) distortion of incentives. Ans#er$ ! %age &ef$ '1'*'1+ Difficulty$ !asy
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4) The main redistri"ution effect of a tariff is the transfer of income from A) domestic producers to domestic "uyers. B) domestic "uyers to domestic producers. C) domestic producers to domestic government. D) domestic government to domestic consumers. !) foreign producers to domestic consumers. Ans#er$ B %age &ef$ '1'*'1+ Difficulty$ !asy ) The principle "enefit of tariff protection goes to A) domestic consumers of the good produced. B) foreign consumers of the good produced. C) domestic producers of the good produced. D) foreign producers of the good produced. !) the domestic government. Ans#er$ C %age &ef$ '1'*'1+ Difficulty$ !asy +) Should the home country "e 7large7 relative to its trade partners2 its imposition of a tariff on imports #ould lead to an increase in domestic #elfare if the terms of the trade rectangle exceed the sum of the A) revenue effect plus redistri"ution effect. B) protective effect plus revenue effect. C) consumption effect plus redistri"ution effect. D) production distortion effect plus consumption distortion effect. !) terms of trade gain. Ans#er$ D %age &ef$ '1'*'1+ Difficulty$ !asy ) The dead#eight loss of a tariff A) is a social loss "ecause it promotes inefficient use of national resources. B) is a social loss "ecause it reduces the revenue of the government. C) is not a social loss "ecause it merely redistri"utes revenue from one sector to another. D) is not a social loss "ecause it is paid for "y rich corporations. !) is not a social loss "ecause it aids domestic consumers. Ans#er$ A %age &ef$ '1'*'1+ Difficulty$ !asy
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9) A policy of tariff reduction in the computer industry is A) in the interest of the nited States as a #hole and in the interest of computer producing regions of the country. B) in the interest of nited States as a #hole "ut not in the interest of computer producing regions of the country. C) not in the interest of the nited States as a #hole "ut in the interests of computer producing regions of the country. D) not in the interest of the nited States as a #hole and not in the interests of computer consumers. !) not in the interest of the nited States as a #hole "ut in the interests of foreign computer producers. Ans#er$ B %age &ef$ '1'*'1+ Difficulty$ !asy 1() The fact that industrialied countries levy very lo# or n o tariff on ra# materials and semi processed goods A) helps developing countries export manufactured products. B) has no effect on developing country exports. C) hurts developing country efforts to export manufactured goods. D) hurts developing country efforts to export ra# materials. !) does not affect industrialied countries8 exports. Ans#er$ C %age &ef$ '1'*'1+ Difficulty$ !asy 11) The imposition of tariffs #ill help a nation attain #hich of the follo#ing goals; A) decreased domestic consumer prices B) increased domestic employment C) increased amount and variety of goods availa"le for consumers D) increased competition "et#een domestic and foreign producers !) gains for domestic producers Ans#er$ ! %age &ef$ '1'*'1+ Difficulty$ !asy 1') The change in the economic #elfare of a country associated #ith an increase in a tariff euals A) efficiency loss * terms of trade gain. B) efficiency gain * terms of trade loss. C) efficiency loss tax revenue gain. D) efficiency loss tax revenue gain terms of trade gain. !) efficiency loss * tax revenue gain. Ans#er$ A %age &ef$ '1'*'1+ Difficulty$ !asy 11 Copyright 3 '(14 %earson !ducation2 5nc.
1,) The t#o dead#eight triangles are the Consumption distortion and Production distortion losses. 5t is easy to understand #hy the Consumption distortion constitutes a loss for society. After all it raises the prices of goods to consumers2 and even causes some consumers to drop out of the mar6et altogether. 5t seems paradoxical that the Production distortion is considered an euivalent "urden on society. After all2 in this case2 profits increase2 and additional production -#ith its associated employment) comes on line. This #ould seem to "e an offset rather than an addition to the "urden or loss "orne "y society. !xplain #hy the Production distortion is indeed a loss to society2 and #hat is #rong #ith the logic that leads to the apparent paradox. Ans#er$ The Production Distortion represents an inefficient shift of society8s resources to produce a good2 #hich it could not sell profita"ly at #orld prices. Since -#ith full employment assumed) these resources #ere formerly used to produce export goods2 #hich could compete profita"ly2 the net result is a loss in real income to the country. %age &ef$ '1'*'1+ Difficulty$
14) &efer to a"ove figure. 5n the a"sence of trade2 #hat is the country8s consumer surplus; Ans#er$ 1( %age &ef$ '1'*'1+ Difficulty$ !asy
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1) &efer to a"ove figure. 5n the a"sence of trade2 #hat is the country8s producer surplus; Ans#er$ 1( %age &ef$ '1'*'1+ Difficulty$ !asy 1+) &efer to a"ove figure. The loss of Consumer Surplus due to the tariff euals . Ans#er$ ',( %age &ef$ '1'*'1+ Difficulty$ !asy 1) &efer to a"ove figure. 5n the a"sence of a tariff and in the presence of trade2 #hat is the country8s consumer surplus; Ans#er$ 44( %age &ef$ '1'*'1+ Difficulty$ !asy 19) &efer to a"ove figure. Eiven a tariff of , per unit2 #hat is the country8s consumer surplus; Ans#er$ ,'( %age &ef$ '1'*'1+ Difficulty$ !asy '() &efer to a"ove figure. :hat is the amount of efficiency loss resulting from imposition of the tariff; Ans#er$ +4 %age &ef$ '1'*'1+ Difficulty$ !asy '1) &efer to a"ove figure. :hat is the amount of government revenue resulting from imposition of the tariff; Ans#er$ 1'( %age &ef$ '1'*'1+ Difficulty$ !asy 9., >ther 5nstruments of Trade %olicy 1) An important difference "et#een tariffs and uotas is that tariffs A) raise the price of the good. B) generate tax revenue for the government. C) stimulate international trade. D) help domestic producers. !) are paid "y foreign producers. Ans#er$ B %age &ef$ '1+*'', Difficulty$ !asy
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') Throughout the post*:orld :ar 55 era2 the importance of tariffs as a trade "arrier has A) increased. B) decreased. C) remained the same. D) fluctuated #ildly. !) demonstrated a classic random #al6 #ith a mean*reversion tendency. Ans#er$ B %age &ef$ '1+*'', Difficulty$ !asy ,) 5n the exporting country2 an export su"sidy #ill A) help consumers and raise the overall economic #elfare of the exporting country. B) hurt consumers "ut raise the overall economic #elfare of the exporting country. C) hurt consumers and lo#er the overall economic #elfare of the exporting country. D) help consumers "ut lo#er economic #elfare of the exporting country. !) help consumers and have no effect on the economic #elfare of the exporting country. Ans#er$ C %age &ef$ '1+*'', Difficulty$ !asy 0) !conomic theory in general2 and trade theory in particular are replete #ith euivalencies. /or example2 it is argued that for any specific tariff one can find an euivalent ad valorem tariffF and that for any uota one can calculate a tariff euivalent. Discuss conditions or situations under #hich a specific and an ad valorem tariff are not euivalent. Discuss conditions or situations #hen a tariff and a uota are not euivalent. Ans#er$ !.g.2 during a period of price inflation2 an ad valorem tariff #ould "ecome increasingly more effective. The government does not receive any of the uota revenues2 unless the import licenses are sold or auctioned. %age &ef$ '1+*'', Difficulty$ !asy 4) An export su"sidy is A) a payment to a firm or individual that ships a good a"road. B) a fee that is charged to a country that ships goods to the .S. C) a payment made to a foreign government in return for preferential trade treatment. D) illegal in the .S. "ut is fairly common in the rest of the #orld. !) a limit on the uantity of a good or service that can "e sold a"road. Ans#er$ A %age &ef$ '1+*'', Difficulty$ !asy
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) An export su"sidy differs from a tariff in each of the follo#ing #ays !GC!%T A) a tariff generates revenue. B) a tariff is applied to imports. C) a tariff results in an efficiency loss. D) a tariff is a tax. !) a tariff discourages imports. Ans#er$ C %age &ef$ '1+*'', Difficulty$ !asy +) The !uropean nion8s Common Agricultural %olicy -CA%) is2 in effect A) a tariff imposed on agricultural exports. B) a tariff imposed on agricultural imports. C) a su"sidy that reduces the cost of agricultural exports. D) a su"sidy that increases the cost of agricultural exports. !) a uota that limits production of agricultural goods "y ! nations. Ans#er$ C %age &ef$ '1+*'', Difficulty$ !asy ) An import uota is similar to a in its effect on imports2 except that an import uota . A) tariffF does not generate revenue B) tariffF generates revenue C) su"sidyF does not generate revenue D) su"sidyF generates revenue !) tariffF does not result in an efficiency loss. Ans#er$ A %age &ef$ '1+*'', Difficulty$ !asy 9) The .S. sugar uota A) generates government revenue. B) results in net #elfare "enefits to the .S. economy. C) results in "enefits to sugar producers that exceed the cost to consumers. D) results in costs to consumers that exceed the "enefits to sugar producers. !) does not result in an efficiency loss. Ans#er$ D %age &ef$ ''1*'', Difficulty$ !asy
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1() :hich of the follo#ing are examples of goods that have "een su"?ect to voluntary export restraints; A) Hapanese cars and Chinese solar panels B) Belgian chocolates and /rench #ines C) /rench #ines and cheeses D) Hapanese sushi and Eerman cars !) Tai#anese electronics and Canadian "arley Ans#er$ A %age &ef$ ''0*''4 Difficulty$ !asy 9.0 The !ffects of Trade %olicy$ A Summary 1) An export tariff #ill producer surplus2 consumer surplus2 government revenue2 and overall domestic national #elfare. A) increaseF decreaseF increaseF have an am"iguous effect on B) increaseF decreaseF decreaseF decrease C) increaseF decreaseF have no effect onF have an am"iguous effect on D) increaseF decreaseF have no effect onF decrease !) increaseF increaseF decreaseF have an am"iguous effect on Ans#er$ A %age &ef$ ''+*'' Difficulty$ !asy ') An export su"sidy #ill producer surplus2 consumer surplus2 government revenue2 and overall domestic national #elfare. A) increaseF decreaseF increaseF have an am"iguous effect on B) increaseF decreaseF decreaseF decrease C) increaseF decreaseF have no effect onF have an am"iguous effect on D) increaseF decreaseF have no effect onF decrease !) increaseF increaseF decreaseF have an am"iguous effect on Ans#er$ B %age &ef$ ''+*'' Difficulty$ !asy ,) An import uota #ill producer surplus2 consumer surplus2 government revenue2 and overall domestic national #elfare. A) increaseF decreaseF increaseF have an am"iguous effect on B) increaseF decreaseF decreaseF decrease C) increaseF decreaseF have no effect onF have an am"iguous effect on D) increaseF decreaseF have no effect onF decrease !) increaseF increaseF decreaseF have an am"iguous effect on Ans#er$ C %age &ef$ ''+*'' Difficulty$ !asy
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0) A voluntary export restraint #ill producer surplus2 consumer surplus2 government revenue2 and overall domestic national #elfare. A) increaseF decreaseF increaseF have an am"iguous effect on B) increaseF decreaseF decreaseF decrease C) increaseF decreaseF have no effect onF have an am"iguous effect on D) increaseF decreaseF have no effect onF decrease !) increaseF increaseF decreaseF have an am"iguous effect on Ans#er$ D %age &ef$ ''+*'' Difficulty$ !asy 9.4 Appendix to Chapter 9$ Tariffs and 5mport Iuotas in the %resence of
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,) Suppose an import*competing firm is imperfectly competitive. &eplacement of an export tariff #ith an import uota that yields the same level of imports #ill mar6et price2 producer surplus2 consumer surplus2 government revenue2 and overall domestic national #elfare. A) increaseF increaseF decreaseF decreaseF decrease B) have no effect onF have no effect onF have no effect onF decreaseF decrease C) increaseF have no effect onF decreaseF decreaseF increase D) increaseF increaseF increaseF decreaseF have an am"iguous effect on !) decreaseF decreaseF increaseF decreaseF increase Ans#er$ A %age &ef$ ','*',4 Difficulty$ !asy 0) 5f an import*competing firm is the only domestic producer of a good2 then a transition from autar6y to free trade #ill domestic price2 producer surplus2 consumer surplus2 and overall domestic national #elfare. A) decreaseF decreaseF increaseF increase B) increaseF increaseF increaseF increase C) decreaseF decreaseF decreaseF decrease D) increaseF increaseF decreaseF decrease !) increaseF increaseF decreaseF increase Ans#er$ A %age &ef$ ','*',4 Difficulty$ !asy
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