Question

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In a small country, the net national cost of tariff protection is equal to the reduction in consumer surplus minus A) the increase in produær surplus. B) the increase in government revenue and the increase in producer surplus. C) the efficiency loss and the consumption side loss D) the gain to foreigners. E) the increase in government revenue. 2) Tariffs reallocate income from A) producers to consumers. B) government to producers. C) consumers to foreigners. D) consumers to producers. E) Both A and D. 3) The production side efficiency loss of a tariff is caused by A) the expansion of relative inefficient domestic production B) the contraction of domestic consumption C) confusion about prices when a tariff is imposed. D) the increase in government revenue. E) higher profits gained by foreign producers. 4) Which of the following is NOT correct about the effects of a tariff on an imported product? A) Tariffs increase government revenue. B) Tariffs benefit domestic producers by raising price and domestic output. C) Tantis mean higher prices and less consumption for consumers of the product D) Tariffs increase the efficiency of how resources are allocated. 5) Which of the following is FALSE? A) Consumer surplus increases after a tariff is placed on imports. B) Government revenue increases after a tariff is imposed C) Producer sur plus increases after a tariff is imposed D) Deadweight losses result from tarifs 6) in order for large countries to successfully starts to increase well being A) domestie consumption and imports must decrease more significantly than in the small country care By domestie production must incase more significantly than for the small country case C) the dead weight loss created by the tanilt must be greater than the government revenue the taritt generates Do they must have significant market power so that one time will cut pnce to preserve their sales

Answer 1

1. In a country that is considered to be a small country, the net national cost of tariff protection is calculated as a difference between the decrease in consumer surplus and the increase in government revenue from tariff and the increase in producer surplus. Thus, option B is correct.

2. The effect of tariff can be seen as a reallocation of income from the hands of consumer to that of the producer. Thereby, increasing producer surplus and decreasing Consumer surplus. Thus, option A is correct.

3. That expansion in the relative inefficient domestic production causes the production side efficiency loss of a tariff. Thus, option A is correct.

4. Tariff on an imported good leads to a decrease in the efficiency of resource allocation. Thus, option D is the right answer.

5. As we saw above, tariff leads to a fall in Consumer surplus. Thus, option A is False.

6. Large countries can use tariffs in successfully increasing wellbeing if they have significant market power in order to make the foreign firms reduce their prices to sell more. Thus, option D is correct.