LU GOVT 350 Exam 3 Questions and
Correct Answers.
What is the nature of protectionism? - Answer Protectionist policies lead to tariffs and trade
barriers. Protectionism operates under the economic fallacy of looking at only one side of the
issue and fails to consider long-term consequences.
What is meant by the statement "Do not confuse policy intentions with policy consequences"? -
Answer Just because a policy is formed and established with good intentions does not mean
the consequences of that policy will also be good and beneficial.
What is meant by the statement "What is immediately seen, and what is not seen"? - Answer
The immediate consequences of a policy can often be immediately seen, but a good economist
looks beyond to the second and third tier effects.
What is meant by the statement "The more something is taxed, the less you'll have of it"? -
Answer The law of incentives: if you provide a disincentive, you shrink the base of people
willing to perform a task or own that object to those who can overcome that disincentive.
What is meant by the statement "the more you subsidize something, the more you'll have of
it"? - Answer The law of incentives: if you provide an incentive, you will grow the base of
people willing to perform a task or own an object by lowering the cost to do those things.
What is a tariff? - Answer A tax levied on goods imported into a country
What is the significance of the Smoot-Hawley Tariff Act? - Answer This protectionist tariff
passed under Hoover raised tariffs on over 20,000 products by 60%. Contributed to the Great
Depression.
List three barriers to free trade. - Answer •Tariffs on imported goods
•Subsidies granted to producers or consumers
•Quotas imposed on imported products
Name two negative economic impacts of trade protectionism. - Answer Trade Barriers:
•Create predictable inefficiencies in any industry intended to benefit from the barrier
•Costs increase for consumers as tariff costs get built into higher prices
What is the Infant Industry argument? - Answer The argument is that in order to get a
fledgling industry off the ground, you must protect it from 'unfair competition'.
Correct Answers.
What is the nature of protectionism? - Answer Protectionist policies lead to tariffs and trade
barriers. Protectionism operates under the economic fallacy of looking at only one side of the
issue and fails to consider long-term consequences.
What is meant by the statement "Do not confuse policy intentions with policy consequences"? -
Answer Just because a policy is formed and established with good intentions does not mean
the consequences of that policy will also be good and beneficial.
What is meant by the statement "What is immediately seen, and what is not seen"? - Answer
The immediate consequences of a policy can often be immediately seen, but a good economist
looks beyond to the second and third tier effects.
What is meant by the statement "The more something is taxed, the less you'll have of it"? -
Answer The law of incentives: if you provide a disincentive, you shrink the base of people
willing to perform a task or own that object to those who can overcome that disincentive.
What is meant by the statement "the more you subsidize something, the more you'll have of
it"? - Answer The law of incentives: if you provide an incentive, you will grow the base of
people willing to perform a task or own an object by lowering the cost to do those things.
What is a tariff? - Answer A tax levied on goods imported into a country
What is the significance of the Smoot-Hawley Tariff Act? - Answer This protectionist tariff
passed under Hoover raised tariffs on over 20,000 products by 60%. Contributed to the Great
Depression.
List three barriers to free trade. - Answer •Tariffs on imported goods
•Subsidies granted to producers or consumers
•Quotas imposed on imported products
Name two negative economic impacts of trade protectionism. - Answer Trade Barriers:
•Create predictable inefficiencies in any industry intended to benefit from the barrier
•Costs increase for consumers as tariff costs get built into higher prices
What is the Infant Industry argument? - Answer The argument is that in order to get a
fledgling industry off the ground, you must protect it from 'unfair competition'.
