Page 108 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance

Notes (ii) A nontariff barrier operates by:
(a) Limiting the quantity of imports.
(b) Increasing the cost of getting imports to market.
(c) Creating uncertainty about the conditions under which imports will be permitted.
(d) All of the above.
(iii) One of the reasons that protectionists and government officials may favor using a quota
instead of a tariff is:
(a) Quotas generate more revenue for the government than do tariffs.
(b) A quota ensures that the quantity of imports is strictly limited.
(c) Quotas create less market distortions than do tariffs.
(d) Quotas give less power to politicians than do tariffs.
(iv) A quota:
(a) Causes domestic prices to fall.
(b) Causes world prices to rise.
(c) Restricts the quantity of a good that can be imported.
(d) Is always more efficient than a tariff.
(v) In the case of a small country, a quota and a tariff are (almost) identical if:
(a) The government allocates licenses for free to importers using a rule or process that
involves (almost) no resource cost.
(b) The government auctions off licenses to the highest bidder.
(c) The government allocates licenses to importers through application and selection
procedures that require the use of substantial resources.
(d) The government allocates import licenses directly to the public using a free lottery system.
(vi) Which of the following is a means of allocating import licenses by assigning the licenses
without competition, applications, or negotiation?
(a) Fixed favoritism.
(b) Resource-using application procedures.
(c) Import-license auctions.
(d) Domestic content requirements.
(vii) Which of the following requires that an import distributor buy a certain percentage of the
product locally?
(a) An import quota.
(b) A mixing requirement.
(c) A voluntary export restraint.
(d) A domestic content requirement.
8.4 Summary

• Tariffs, which are taxes on imports of commodities into a country or region, are among the
oldest forms of government intervention in economic activity.
• Tariffs are widely used to protect domestic producers’ incomes from foreign competition. This
protection comes at an economic cost to domestic consumers who pay higher prices for import-
competing goods, and to the economy as a whole through the inefficient allocation of resources
to the import competing domestic industry.
• Tariffs can be expressed in absolute or in relative terms, they may be discriminatory or non-
discriminatory, they can be imposed on imports or on exports, and they may be prompted by
considerations of revenue or protection to domestic industries.

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