All Free Economics MCQs with Answers

• A. cause foreign assemblers of computers to use more computer components that are supplied by countries other than the United States
• B. Increase the Price of computers to consumers in the United States
• C. Increase the Production of computers in the United States
• D. Increase the production of computer components in the United States

Explanation: Offshore assembly provisions reduce or remove duties on U.S.-made components assembled abroad and reimported, making those components more…

• A. will always
• B. will never
• C. can sometimes
• D. None of the above

Explanation: A tariff can sometimes raise national welfare in a large country if its improvement in terms of trade exceeds the efficiency losses caused…

• A. the country is a small country rather than a larger country
• B. its terms of trade improve enough
• C. The tariff enhances the welfare of its trading partners
• D. Its government's tax revenue increases because of the tariff

Explanation: For a large country, an import tariff may lower the foreign export price and improve its terms of trade.

• A. improve
• B. worsen
• C. not change
• D. any of these

Explanation: A small country takes the world price as given, so its tariff cannot reduce the foreign export price or alter its terms of trade.

• A. highest of all
• B. higher than on manufactured goods
• C. equal to tariffs on manufactured goods
• D. lower than on manufactured goods

Explanation: Developed countries generally impose lower or zero tariffs on raw materials so domestic producers can obtain inputs cheaply.

• A. consumer surplus
• B. producer surplus
• C. deadweight costs
• D. deadweight surplus

Explanation: Consumer surplus is the gap between a buyer’s willingness to pay and the price actually paid.

• A. producer surplus
• B. deadweight surplus
• C. government surplus
• D. consumer surplus

Explanation: Consumer surplus measures the benefit buyers receive when they pay less than the maximum amount they are willing and able to pay.

• A. The price of autos within the nation will rise by 10 percent
• B. The price of autos within the nation will rise by less than 10 percent
• C. The price of autos within the nation will rise by more than 10 percent
• D. The price of autos will not rise because of internal competition

Explanation: Under the small-nation assumption, the country cannot influence the world price, so a 10 percent tariff raises the domestic price by the…

• A. a regional area within which trade with foreign nations is allowed
• B. a free trade agreement among several nations
• C. designed to limit exports of manufactured goods by placing export taxes on goods made within the zone
• D. designed to promote exports by deferring imports duties on intermediate inputs and waving such duties if the final product is re-exported rather than sold domestically

Explanation: An FTZ encourages exports by allowing duties on imported intermediate inputs to be deferred, and those duties are waived when the finished…

• A. only revenue effects
• B. only protective effects
• C. Both protective and revenue effects
• D. neither protective or revenue effects

Explanation: A tariff protects domestic producers by raising the domestic price and also generates government revenue on imported units.

• A. fixed amounts of money per unit traded
• B. a percentage of the price of the product
• C. a percentage of the quantity of imports
• D. All of the above

Explanation: An ad valorem tariff is calculated as a percentage of the imported product’s value or price.

• A. In the interest of the U.S as a whole but not in the interest of the state of Pennsylvania where steel mills are located
• B. In the interest of the U.S as a whole and in the interest of the state of Pennsylvania
• C. Not in the interest of the U.S as a whole, but it might be in the interest of the state of Pennsylvania
• D. Not in the interest of the U.S as a whole, nor in the interest of the state of Pennsylvania

Explanation: Steel protection can benefit domestic steel producers and regions such as Pennsylvania, but higher prices impose costs on consumers and…

• A. supply is elastic, and demand is perfectly inelastic
• B. demand is elastic, and demand is perfectly inelastic
• C. both supply and demand are relatively inelastic
• D. both supply and demand are relatively elastic

Explanation: Deadweight loss is larger when buyers and sellers respond strongly to a tax, because quantity traded falls more sharply.

• A. a tax on salt
• B. a tax on cigarettes
• C. a tax on petrol
• D. a tax on cruise line ticketsTax Preparation & Planning

Explanation: A tax creates the greatest deadweight loss in a market with relatively elastic demand or supply.

• A. B + C + E + F
• B. B
• C. B + C
• D. A

Explanation: The buyers’ share of the tax burden is represented by area B, the vertical gap between the original market price and the price buyers pay…

• A. D
• B. A
• C. A + B + E
• D. A + B +C + D

Explanation: After the tax, consumer surplus is the area below the demand curve and above the price paid by buyers, which is area A.

• A. C + D + F
• B. A
• C. A + B + E
• D. D + C + B

Explanation: Without a tax, consumers pay the single equilibrium price, so consumer surplus includes all the area below demand and above that price…

• A. an import subsidy
• B. a quota
• C. comparative advantage
• D. an export subsidy

Explanation: An export subsidy can make exporting profitable even when the social cost of producing the exported units exceeds their value to domestic…

• A. overproduce, under consume
• B. Overproduce, overconsume
• C. underproduce, under consume
• D. underproduce, overconsume

Explanation: A tariff raises the domestic price above the world price, so domestic producers expand output while consumers reduce consumption.

• A. Comparative advantage
• B. High exchange rates
• C. trade barriers
• D. trade quotas

Explanation: When opportunity costs differ internationally, each country can produce some goods at a relatively lower sacrifice than others.