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Multiple Choice Quiz
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1.
If the car industry in Botswana requests tariff protection because their costs will be temporarily high until the industry is better established, the car industry is using the:
A)specificity rule.
B)infant industry argument.
C)externalities argument.
D)the "second best" rule.
2.
Often times, governments in developing countries will impose tariffs because:
A)tariffs are the best way to protect domestic jobs.
B)tariffs are the best way to show the rest of the world that the government is stable.
C)tariffs are often the cheapest and most effective means available of generating government revenues.
D)tariffs are the only way to promote domestic production in most developing countries.
3.
If the objective of government policy is to protect an industry for national defense purposes, the best policy strategy would be to:
A)impose a tariff on imports that compete with the domestic industry's product.
B)impose an import quota on imports that compete with the domestic industry's product.
C)do nothing.
D)provide subsidies to the strategic industry.
4.
If the objective of government policy is to redistribute incomes, the best policy strategy would be to:
A)impose a tariff that favors disadvantaged groups.
B)impose an import quota that favors disadvantaged groups.
C)address the problem directly with taxes and transfer payments and not with trade policy.
D)do nothing.
5.
If national pride if the objective of government policy, thebest policy strategy would be to:
A)do nothing.
B)provide subsidies to the strategic industry.
C)impose a tariff on imports that compete with thedomestic industry's product.
D)impose an import quota onimports that compete with the domestic industry's product.
6.
Which of the following represents the incentives at the margin in a first-best world?
A)SMC>P
B)P=SMC=MB=MC=SMB
C)P with tax>SMC
D)P>SMC
7.
Which of the following represents the incentives at the margin with monopoly power?
A)SMC > P
B)P = SMC = MB = MC = SMB
C)P with tax > SMC
D)P > SMC
8.
If we live in a second-best world in which too much is supplied because suppliers make a sell extra units for which the social costs exceed the price, then we are living in a world which has:
A)external costs.
B)external benefits.
C)distorting taxes.
D)monopolies.
E)monopsonies.
9.
There are the two ways to promote import-competing production-- a subsidy or a tariff. The tariff and subsidy are the same except that:
A)the tariff will cause a production effect while the subsidy does not.
B)the tariff will cause a consumption effect whilethe subsidy does not.
C)the tariff will be less costly than the subsidy.
D)the tariff will produce a smaller effect on import consumption in the long run.
10.
One of the few arguments which Adam Smith saw as valid for the use of trade protection was:
A)the infant industry argument.
B)the domestic production argument.
C)the income redistribution argument.
D)the national defense argument.





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