Understanding Protectionism

1. When a government legislates policies to reduce or block international trade it is engaging in ___________________.

a. trade pessimism

b. protectionism

c. trade diversion

2. A tariff is a tax on ________ .

a. domestic goods and services

b. foreign goods and service

c. quality of goods

d. None of the above 

3. ___________________are numerical limitations on the quantity of products that can be imported.

a. Import duties

b. Import quotas 

c. Import limits

5. Import quotas are most commonly administered

a. By permitting all imports until the quota is filled for the year, then none after that.

b. By taxing imports.

c. By auctioning import licenses to the highest bidder.

d. By granting import rights to domestic importing firms on the basis of past market share.

7. ________________ are all the other ways that a nation can draw up rules, regulations, inspections, and paperwork to make it more costly or difficult to import products.

a. Import barriers

b. Nontariff barriers

c. Trade regulations

9. Imposing a tariff on a commodity raises the price of the imported commodity in the domestic economy. The increase in domestic prices on account of the tariff causing a fall in consumption of domestic goods reflects the_____________ of the tariff.

a. Protective effect

b. Revenue effect

c. Consumption effect

d. Terms of trade effect 

10. _____ are quotas that result in a total prohibition of trade.

a. Embargoes

b. Tariff-rate quotas

c. Voluntary export restraints

d. Nontariff barriers 

12. Protectionism certainly saves jobs in the specific industry being protected but, for two reasons, it costs jobs in other unprotected industries. The reasons are:

a. if consumers are paying higher prices to the protected industry, they inevitably have less money to spend on goods from other industries.

b. if the protected product is sold to other firms so that other firms must now pay a higher price for a key input.

c. All of these

d. None of these

13. Even if trade does not reduce the number of jobs, it could affect wages. True or False.

a. True

b. False

14. As international trade increases, it contributes to a shift in jobs away from industries where that economy does not have a comparative advantage and toward industries where it does have a comparative advantage. True or False.

a. False

b. True

8. Why are the poor countries of the world poor? One of the reasons can be:

a. trade policies of low-income countries

b. trade policies of high-income countries

4. The main difference between an import tariff and an import quota is

a. A quota reduces the quantity of imports more than a tariff.

b. A tariff raises the price of imports more than a quota.

c. A tariff generates government revenue, while a quota, unless it is sold, does not.

d. A tariff does not harm foreign producers.

11. Consider the following statements with respect to the North American Free Trade Agreement (NAFTA). Which of these are true?

a. It was a trade deal between the United States, Mexico, and Canada.

b. It agreed to reduce tariffs, import quotas, and nontariff barriers to trade between the United States, Mexico, and Canada.

c. Both a and b are true. 

6. Which of the following is not a non-tariff barrier?

a. A quota on sports equipment.

b. A tax equal to 10% of the value on imported crude oil.

c. A voluntary export restraint on automobiles.

d. A regulation requiring government agencies to favor domestic producers.