Who gains and who loses from a protective tariff? Explain.
What will be an ideal response?
A tariff increases the price of the imported product. First, consumers are hurt. Some consumers will not be able to purchase the product at the higher price and the consumers who do purchase the good will pay the higher price. Second, a tariff helps domestic producers because they receive more revenue than they would without the tariff. Third, workers in the tariff-protected industry may benefit because it may protect jobs and maintain higher wages than would be the case without the tariff. Fourth, business and workers in industries that import or service the import product are hurt. Fifth, foreign producers of the imported product receive less revenue than would be the case with free trade. Sixth, the federal government gains from a tariff because it receives the amount of the tariff times the number of the products that are imported. Overall, the nation loses because the gains for the industry protected by a tariff and workers in that industry are significantly offset by the losses to consumers and economic inefficiency that comes from an industry that cannot compete on world markets.
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Based on the figure below. Starting from long-run equilibrium at point C, a decrease in government spending that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at__ creating _____gap.
A. B; no output B. D; an expansionary C. B; recessionary D. D; a recessionary
Which of the following situations would cause the statistical discrepancy to be $20 billion?
a. a current account balance of $380 billion and a financial account balance of $360 billion b. a current account balance of negative $400 billion and a financial account balance of $380 billion c. a current account balance of $100 billion and a financial account balance of negative $80 billion d. a current account balance of negative $50 billion and a financial account balance of $70 billion
If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the price elasticity of demand in absolute value is
A. 20 percent. B. 2. C. 2 percent. D. .2.
Moral hazard is more likely to arise when:
A. one side of an economic relationship cannot observe the behavior of those on the other side. B. adverse selection is present. C. insurance policies have high deductibles. D. people are uninsured.