All Free Economics MCQs with Answers

• A. does not require government taxes to finance it
• B. yields the same deadweight welfare loss as an import tariff or import quota
• C. has only a consumption effect deadweight loss
• D. has only a protective effect deadweight loss

Explanation: A production subsidy for an import-competing good encourages inefficiently high domestic production but does not directly reduce domestic…

• A. selling goods to foreigners at a price below that charged domestic consumers
• B. selling goods to foreigners at a price below the cost of production
• C. antidumping duties being levied on the imported, dumped goods
• D. All of the above

Explanation: Dumping can mean selling abroad below the domestic price or even below production cost, while importing countries may respond with…

• A. never
• B. seldom
• C. often
• D. always

Explanation: Quota licences are seldom auctioned because governments commonly allocate them administratively or to politically influential firms.

• A. quota license
• B. quota rents
• C. quota prices
• D. None of the above

Explanation: Quota rents are the extra profits created when a quota makes the domestic price higher than the foreign price.

• A. higher prices and reduced imports
• B. increased government revenue
• C. increased consumer surplus
• D. decrease producer surplus

Explanation: An import quota restricts supply from abroad, pushing the domestic price upward and reducing the quantity imported.

• A. prices
• B. quantity
• C. revenue
• D. costs

Explanation: A quota is a quantitative trade restriction, so it limits the quantity of a good that may be imported or exported during a specified…

• A. U.S oil companies and workers deserved higher incomes
• B. U.S oil was of superior quality and merited higher prices
• C. one should not be too dependent on foreign suppliers of crucial resources
• D. The U.S government needed the quota revenue to balance its budget

Explanation: Restrictions on imported oil can be justified on national-security grounds because dependence on foreign suppliers may create risks during…

• A. Capture the entire subsidy in the form of higher profits
• B. Increase their level of production
• C. reduce wages paid to domestic workers
• D. consider the subsidy as a increase in production cost

Explanation: A production subsidy lowers the effective marginal cost of producing the good, encouraging domestic firms to expand output.

• A. is a limit on the number of tariffs that a country can place on imports?
• B. uses a single tariff along with import quotas to restrict import
• C. is designed to avoid the the price increases caused by simple tariffs
• D. is a two-tier tariff system intended to restrict imports?

Explanation: A tariff-rate quota uses two tariff rates: a lower rate for imports within a specified quantity and a higher rate for imports beyond it.

• A. domestic subsidy
• B. export subsidy
• C. import quota
• D. export quota

Explanation: An import quota is a government-set maximum quantity of a foreign-produced good allowed into the country during a given period.

• A. lower the welfare of all Pakistanis
• B. lead to increases in Pakistani consumer surplus
• C. encourage Pakistan's production of competing goods
• D. encourage Pakistani workers to demand higher wages

Explanation: A foreign export subsidy lowers the price of imported goods in Pakistan, increasing the purchasing power and consumer surplus of Pakistani…

• A. more elastic in Japan, more substitutes are available from other nations
• B. more elastic in Japan, fewer substitutes are available from other; nations
• C. more inelastic in Japan; more substitutes are available from other; nations
• D. more inelastic in Japan; fewer substitutes are available from other nations

Explanation: Dumping is encouraged when demand is more elastic in the foreign market, because buyers there can switch readily among substitutes…

• A. help more than they hurt
• B. hurt more then they help
• C. are equivalent to an import quota
• D. are equivalent to an export quota

Explanation: A foreign export subsidy lowers the price paid by American consumers, increasing their consumer surplus. Although U.S.

• A. an import tariffs
• B. a tariff rate quota
• C. a selective quota
• D. a global quota

Explanation: A global quota limits the total quantity imported from all countries without assigning shares to particular countries or importers.

• A. The within-quota tariff rate exceeds the over-quota tariff rate
• B. the over-quota tariff rate exceeds the with-quota tariff rate
• C. The within-quota tariff rate equals the over-quota tariff rate
• D. The within-quota tariff rate plus over-quota tariff rate equal 100 percent

Explanation: A tariff-rate quota applies a lower tariff to imports within the allowed quantity and a higher tariff once that quantity is exceeded.

• A. result in government purchase policies favoring domestic over foreign producers
• B. result in government purchase policies favoring foreign over domestic producers
• C. attempt to restrict the number of tourists leaving a nation
• D. are intended to publicize the advantage of the most efficient domestic companies

Explanation: Buy-national policies direct government procurement toward domestically produced goods even when foreign suppliers may offer lower prices…

• A. export quotas imposed by the Japanese government
• B. export tariffs imposed by the Japanese's government
• C. import quotas imposed by the U.S government
• D. domestic subsidies granted by the U.S government

Explanation: During 1981–1984, Japan restricted its automobile exports to the United States through a voluntary export restraint, which functioned as…

• A. sporadic dumping
• B. predatory dumping
• C. persistent dumping
• D. foreign dumping

Explanation: Sporadic dumping occurs when firms sell temporary excess inventory abroad, often caused by unexpected changes in domestic supply or…

• A. Predatory dumping
• B. sporadic dumping
• C. persistent dumping
• D. year end dumping

Explanation: Sporadic dumping is associated with recessions or excess inventories, because firms dispose of surplus goods in foreign markets rather…

• A. two tier tariff applied to a country's imports
• B. three-tier tariff applied to a country's imports
• C. two tier quota applied to a county's exports
• D. three tier quota applied to a country's exports

Explanation: A tariff-rate quota applies a low tariff up to a specified import quantity and a higher tariff to imports beyond that quantity.