1. If a country bans the importation of a particular good, the market equilibrium is shown by the intersection of the _____curve and the_____ curve.
2. The equilibrium price under an import quota is _____ (above/below) the price that occurs with an import ban and _____ (above/below) the price that occurs with free trade.
3. From the perspective of the government, a _____ (tariff/quota) is better
4. Threatening to impose a tariff on a country s exports if it doesn€™t open up its markets to trade is an example of a _____policy.
5. Incentives for Smuggling. If a country bans imports, smugglers may try to penetrate its markets. Suppose Chip land bans shirt imports, causing some importers to bribe customs officials who look the other way as smugglers bring shirts into the country. Your job is to combat shirt smuggling. Use the information in Figure to answer the following questions:

a. Suppose importers can sell their shirts on the world market at a price of $12 per shirt. How much is an importer willing to pay to get customs officials to look the other way?
b. What sort of change in trade policy would make your job easier?
6. Tariffs on Computer Chips. Suppose a country imposed tariffs on computer chips to protect its chip making industries. What other types of firms in that economy might object to this policy?
7. Tariffs and the Poor. Historically, apparel and textiles were subject to high tariffs. Explain why this might hurt low-income consumers€™ more than high income consumers.
8. Auctioning Import Licenses. In the text we explained that tariffs can be set to have the same effects as import quotas. However, if the government gives import licenses to producers, it will not collect any revenues. Suppose the government auctions the import licenses to the highest bidders. How will the revenue from the auction compare to the revenue raised bytariffs?

Transcribed Image Text:

Domestic supply 0 Total supply with free trade 2 17 12 Demand 60 80 Shirts per day