Tutorial 3
EPPE 3023 International Economic
Topic 3: Tariff
1. [Link] importer of computers is required to pay a duty to the government of $100 per
computer regardless of the price of the computer. What type of tariff is described in this
example?
Answer: specific tariff
2. A tax of 20 cents per unit on imported cheese is an example of a(an) ________________.
Answer: specific tariff
3. A tax of 15 percent per imported item is an example of a(an) ___________________.
Answer: ad volarem tariff
4. Distinguish between consumer surplus and producer surplus. How do these concepts relate
to a country’s economic welfare?
Answer: Consumer surplus: refers to the difference between what consumers are willing to
pay for a good or service and what they actually pay. It represents the benefit or "gain" that
consumers receive when they can purchase a product at a price lower than the highest price
they are willing to pay. In graphical, it is the area below the demand curve and above the
price level. Consumer surplus contributes positively to economic welfare by reflecting the
satisfaction or benefit consumers receive when they can buy goods at a lower price than
expected (Please refer your slide 40).
Answer: Producer Surplus refers to the difference between the price at which producers are
willing to sell a good and the price they actually receive for it. It represents the benefit or
"gain" producers receive when they sell a product at a price higher than the minimum price
at which they are willing to sell. Graphically, it is the area above the supply curve and below
the price level. Producer surplus contributes to economic welfare by indicating the benefit
producers receive when they can sell at a higher price than the minimum they would accept.
(Please refer your slide 41)
5. Figure 1. Domestic Market for Gasoline in the United States
a. It represents the domestic market for gasoline in the United States. What is the consumer
surplus in this market?
Answer: $60
b. It represents the domestic market for gasoline in the United States. What is the producer
surplus in this market?
Answer: $60
6. Figure 2 illustrates the demand and supply schedules for pocket calculators in Mexico, a small
nation unable to affect the world price.
Figure 2. Import Tariff Levied by a "Small" Country
a. In the absence of trade, how much does Mexico produce and consume for pocket calculators?
Answer: 60 calculators
b. In the absence of trade, Mexico's producer surplus and consumer surplus respectively equal
Answer: Producer surplus ($180) and Consumer surplus ($180)
c. With free trade, how much does Mexico import for pocket calculators?
Answer: 100 calculators
d. With free trade, the total value of Mexico's imports for pocket calculators equal
Answer: $300
e. With free trade, Mexico's producer surplus and consumer surplus respectively equal
Answer: Producer surplus ($5) and Consumer surplus ($605)
f. With a per-unit tariff of $3, the quantity of imports decreases to________________.
Answer: 40 calculators
g. The loss in Mexican consumer surplus due to the tariff equals
Answer: $285
h. The tariff results in the Mexican government collecting
Answer: $120
i. Mexican manufacturers gain ____________ because of the tariff.
Answer: $75
j. The deadweight cost of the tariff totals___________.
Answer: $90
Topic 4: Non-Tariff Barrier
1. Give three examples of nontariff trade barriers?
Answer: export subsidies; import subsidies; domestic regulations and so on.
2. In the early 1980s, the Japanese government limited shipments of Japanese automobiles to the
United States. This limitation was known as_________________.
Answer: export quota
Question 3-13, answer true or false
3. An import quota is a physical restriction on the quantity of goods that may be imported during
a specified time period.
Answer: True
4. A global import quota permits a specified number of goods to be imported each year, but does
NOT specify where the product is shipped from and who is permitted to import.
Answer: True
5. During periods of growing demand, a tariff more effectively restricts the volume of imports
than an equivalent import quota.
Answer: False
6. With a quota placed on imported sugar, increased domestic demand leads to increased sugar
imports but NOT to higher sugar prices.
Answer: False
7. An elimination of nontariff barriers on apples tends to increase apple imports, reduce profits
of import-competing apple producers, and generate job losses for domestic apple workers.
Answer: True
8. To the extent that a local content requirement forces firms to locate production in a high-cost
nation, product price rises and consumer surplus falls.
Answer: True
9. Voluntary export restraint agreements typically apply to all of the world's exporting nations
rather than only the most important exporting nations.
Answer: False
10. A subsidy granted to an import-competing producer imposes a deadweight loss on the
domestic economy equal to the redistribution effect plus consumption effect.
Answer: False
11. A subsidy granted to import-competing producer reduces overall domestic welfare by the
same amount as would a tariff or quota that restricts imports by the same amount.
Answer: False
12. International dumping occurs when foreign buyers are charged higher prices than domestic
buyers for an identical product, after allowing for transportation costs and tariff duties.
Answer: False
13. Sporadic (distress) dumping would occur if domestic orange producers dispose of an excess
quantity of oranges, resulting from an abnormally large harvest, by selling them at lower
prices abroad than at home.
Answer: True
14. Figure 3 illustrates the apple market for Sweden, assumed to be a small country that is unable
to affect the world price. SSweden is the domestic supply and DSweden is the domestic demand.
SSweden+Quota is Sweden's supply schedule with an import quota.
Figure 3. Sweden's Apple Market
a. In the absence of trade, Sweden's equilibrium price and quantity of apples would be
Answer: $1.40 and 14 pounds
b. Suppose the rest of the world can supply apples to Sweden at a price of $0.60 per pound. With
free trade, Sweden produces _______ pounds of apples and imports _______ pounds of apples.
Answer: 6, 16
c. At the free-trade price of $0.60 per pound, Sweden's consumer surplus totals _____ and producer
surplus totals ______.
Answer: CS:$24.20, PS:$1.80
d. If SSweden+Quota represents the supply schedule after a quota is levied, Sweden's imports will
equal_______.
Answer: 8 pound apple
e. After the quota is levied, the price of apples in Sweden will equal________.
Answer: $1.00 per pound.
f. As a result of the quota, Sweden's consumer surplus (gain/lose) equal to $____________.
Answer: decreases/lose by $8.
g. The quota leads to a deadweight welfare loss for Sweden of an amount equaling $__________.
Answer: $1.60
h. The quota's revenue effect equals $____________.
Answer: $3.20
