Figure: Home's Exporting Industry I

Transcription

1 Name: Date: 1. Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar exporters a subsidy of $50 per ton, then domestic consumption of sugar will: A) fall. B) rise. C) remain unchanged. D) first fall, then rise. Use the following to answer questions 2-7: Figure: Home's Exporting Industry I The supplied graph shows information about a home exporter. 2. (Figure: Home's Exporting Industry I) According to the figure, if the world price of the product is $125, then the domestic demand is: A) 120. B) 100. C) 20. D) (Figure: Home's Exporting Industry I) According to the figure, at the world price there is a of in the home market, which is. A) surplus; 60; imported B) shortage; 60; imported C) surplus; 60; exported D) shortage; 100; exported Page 1

2 4. (Figure: Home's Exporting Industry I) According to the figure, the home country provides a subsidy of, which results in an increase in exports of. A) $50; 40 B) $175; 120 C) $125; 100 D) $175; (Figure: Home's Exporting Industry I) According to the figure, the subsidy results in a(n) of government revenue by the amount of. A) increase; $5,000 B) increase; $2,500 C) decrease; $5,000 D) decrease; $21, (Figure: Home's Exporting Industry I) According to the figure, the subsidy results in a(n) in producer surplus by the amount of. A) reduction; $6,500 B) reduction; $5,000 C) increase; $5,500 D) increase; $4, (Figure: Home's Exporting Industry I) According to the figure, the deadweight loss because of the subsidy is: A) $500. B) $1,000. C) $1,500. D) $2,500. Page 2

3 Use the following to answer questions 8-13: SCENARIO: PAYOFF MATRIX FOR AIRBUS AND BOEING The payoff matrix supplied shows outcomes of various strategies that Airbus and Boeing might follow in response to action on the part of the other company. This payoff matrix describes actions in developing so-called super-jumbo jets that can carry 600 or more passengers. In each element, the lower left value gives the outcome for Boeing based on the action of Airbus and the upper right value gives the outcome for Airbus based on the action of Boeing. For example, in element A, each company will lose $10 million if they both decide to produce super-jumbo jets. Payoff Matrix for Airbus and Boeing 8. (Scenario: Payoff Matrix for Airbus and Boeing) Which element(s) is a (are) Nash equilibrium (equilibria)? A) D B) A and C C) B and D D) B and C 9. (Scenario: Payoff Matrix for Airbus and Boeing) Boeing has decided not to produce super-jumbo jets. Instead, it will continue to market its 450-passenger 747s. Which elements represent this decision? A) A and B B) B and C C) C and D D) A and D Page 3

4 10. (Scenario: Payoff Matrix for Airbus and Boeing) Boeing has decided not to produce super-jumbo jets. Instead, it will continue to market its 450-passenger 747s. However, Airbus will produce super-jumbo jets. Which element represents their joint decisions? A) A B) B C) C D) D 11. (Scenario: Payoff Matrix for Airbus and Boeing) Boeing has decided not to produce super-jumbo jets. Instead, it will continue to market its 450-passenger 747s. However, Airbus will produce super-jumbo jets. Is Boeing's decision correct? A) Yes, because it would lose profits if it produced a super-jumbo jet. B) No, because it could earn more profits by not producing a super-jumbo jet. C) Yes, because it would neither lose nor earn more profits by producing a superjumbo jet. D) No, because it would lose more profits if it produced a super-jumbo jet. 12. (Scenario: Payoff Matrix for Airbus and Boeing) Now suppose that the U.S. government decides to provide a $50 million subsidy to Boeing in order to encourage it to produce super-jumbo jets. Boeing decides to take the subsidy. What is Airbus's best strategy? A) continue to produce super-jumbo jets because its profits will not be affected B) continue to produce super-jumbo jets even though its profits will fall C) discontinue producing super-jumbo jets because its losses are lower than if it produced super-jumbo jets D) discontinue producing super-jumbo jets because it would neither lose nor earn more profits by producing super-jumbo jets 13. (Scenario: Payoff Matrix for Airbus and Boeing) Which element in the payoff matrix describes the best choices of Airbus and Boeing when Boeing receives a $50 million subsidy? A) A B) B C) C D) D 14. If we choose whether or not it is a good idea to subsidize, we must compare the present value of the net gain in profits with the: A) taxes paid by the producers on those profits. B) cost of the subsidy. C) reduced profits in other nations. D) timeliness of making the decision. Page 4

5 15. Have the GATT-WTO rulings on environmental cases adversely affected the U.S. environment? 16. The U.S. sugar quota sometimes causes the U.S. domestic price of sugar to be as high as twice the world price. How does the sugar quota affect the U.S. price of corn and the U.S. environment? Use the following to answer questions 17-20: SCENARIO: ELECTRIC FAN TRADE U.S. firms can produce and sell electric fans for $25. The United States can also import electric fans from China at $40 each and from Canada at $45 each. Electric fans made in the United States, China, and Canada are identical. Currently, the United States imposes a 30% tariff on imported electric fans. 17. (Scenario: Electric Fan Trade) From which country will the United States import fans? A) China B) Canada C) both China and Canada D) neither China nor Canada 18. (Scenario: Electric Fan Trade) Now suppose that the United States forms a free-trade area (NAFTA) with Canada and Mexico. From which country will the United States import fans? A) China B) Canada C) both China and Canada D) neither China nor Canada 19. (Scenario: Electric Fan Trade) For the United States, are there trade diversion losses, trade creation gains, or both as a result of the formation of NAFTA? A) only trade diversions losses B) only trade creation gains C) both trade creation gains and trade diversion losses D) neither trade creation gains nor trade diversion losses Page 5

6 20. (Scenario: Electric Fan Trade) Suppose that the United States levied a 10% tariff on imported electric fans (rather than the 30% tariff described in the scenario). Would there be trade diversion losses, trade creation gains, or both as a result of the formation of NAFTA? A) only trade diversions losses B) only trade creation gains C) both trade creation gains and trade diversion losses D) neither trade creation gains nor trade diversion losses 21. In terms of efficiency, trade diversion is a desirable outcome of a regional freetrade agreement, because trade is diverted from the producer to the producer. A) more; high-cost; low-cost B) more; less deserving; more deserving C) less; low-cost; high-cost D) less; foreign; domestic 22. The tuna-dolphin dispute was ruled by the WTO in favor of nations that. The ruling said that trading partners bar imports based on. A) exported tuna to the United States and Europe; could not; a production process such as the size of the nets used B) imported tuna; could; the production process C) cared about wildlife in the seas; could; concerns over the safety of dolphins D) produced seafood products; could not; the way the products were used, such as pet food 23. The ruling in the shrimp-turtle case resulted in: A) the United States being able to ban shrimp caught with nets unsafe for sea turtles. B) the WTO upholding the environmental standard but ruling against the United States on technical grounds that it did not provide sufficient notice; after negotiation the WTO reversed its decision. C) the WTO refusing to hear the case. D) a ruling that upheld the environmental standard. 24. The phenomenon known as the tragedy of the commons occurs whenever: A) the private sector owns resources and manages them tragically. B) the government owns resources and manages them tragically. C) there is no ownership of resources, so they become depleted due to lack of management. D) two countries own the same resource and cannot agree on its management. Page 6

7 25. An example of the tragedy of the commons is: A) no worldwide fuel economy standard. B) overfishing in international waters. C) unsafe fishing practices that trap dolphins and sea turtles. D) illegal copyright infringement. Page 7

8 Answer Key 1. A 2. D 3. C 4. A 5. C 6. C 7. B 8. D 9. C 10. C 11. A 12. C 13. B 14. B 15. No. Labeling and consumer concerns are expected to offset some adverse environmental issues (e.g., the tuna-dolphin case and the biotech food case); the WTO has allowed environmentally safe harvesting techniques to be enforced (the shrimp-turtle case); and the United States made adjustments to the Clean Air Act to allow imports (the Venezuela-Brazil oil case). 16. One demand for imported sugar cane comes from firms that produce ethanol, an alternative (or additive) to gasoline that can be produced from sugar or corn. The high import price for sugar causes these firms to substitute corn grown by American farmers, which in turn, causes increased demand for corn and higher corn prices. Producing ethanol from corn is much less energy efficient than producing it from sugar cane. Corn also depletes the soil and requires fertilizers, which use energy in their production. The net energy savings from making ethanol from corn is poor and it would be better to use sugar cane to produce ethanol, if it could be purchased at world prices. Eliminating the quota and allowing free trade in sugar would benefit the environment because it would allow more sugar cane to be used to produce ethanol. 17. D 18. B 19. B 20. B 21. C 22. A 23. B 24. C 25. B Page 8