ECN 306 Exam 2 Study Guide 2026 | Economics Review, Practice Questions &
Test Prep
A nationally optimal tariff causes no production or consumption efficiency losses - ✔✔False
A nation whose total imports are 50% of GDP decides to impose a 30% import tariff on all
imports. If the tariff causes a 45% reduction in import quantities, what is the impact on national
well-being as a percentage of GDP? - ✔✔3.38%
For both the small and large nations in international trade, national well-being is always higher
under free trade than under autarky. - ✔✔True
Generally, non-tariff barriers have what effects? - ✔✔Limit the quantity of the imported good,
increase the cost of accessing the home market, create uncertainty regarding access to the
home market
The U.S. is considering implementing a quota. What procedure for granting import licenses
would you recommend so that the U.S. suffers the smallest economic loss from the quota? -
✔✔Announce that an auction will be held and foreign suppliers will be required to bid
competitively for the licenses
Let T represent the deadweight loss to the nation of a tariff, Q the cost to the nation of a quota,
and VER the cost to the nation of a voluntary export restraint. What correctly shows how these
losses of national economic well-being are related? - ✔✔T <= Q <= VER
Careful studies by economists indicate that trade restrictions: - ✔✔Are an expensive way to try
and save jobs, cost consumers approximately $169,000 per job saved, and largely alter the mix
of jobs in an economy
, What is the modern version of the mercantillism argument for protection? - ✔✔The Preserves
Domestic Employment Motive
According to the Special Interest Model, politicians supply protection: - ✔✔Because they are
concerned with getting re-elected (thus, they grant protection in exchange for campaign
contributions from the protected industry), and whenever the benefits of protection are
concentrated among a few (who will be cognizant of the favor), while the costs are disbursed
among the many
According to the text, tariff protection may be justified for start-ups or infant industries in what
situation? - ✔✔Whenever start-ups in poor nations lack access to well-developed capital
markets
What implications does the Specificity Rule have for public policy? - ✔✔It asks that a domestic
subsidy be used to support domestic production rather than a tariff since there is no
consumption inefficiency loss with the subsidy
What argument for trade protection is possibly valid for developing countries? - ✔✔The
Revenue Motive argument
What argument for protection states that import-competing firms that are struggling to stay in
business should be provided protection in order to maintain jobs and continue domestic
production? - ✔✔The dying industry argument (Harley Davidson example)
The U.S. produces some of the electronic components for use in its fighter planes, but it is
forced to import these parts from Japan as well. There is concern that in the case of a prolonged
war, these important imports may not be available. The U.S. should: - ✔✔Subsidize the
domestic production of these electronics parts
Trade blocs such as free trade area are viewed favorably by international trade economists since
they have the same consequences for national economic well being as free trade policies. -
✔✔False
Test Prep
A nationally optimal tariff causes no production or consumption efficiency losses - ✔✔False
A nation whose total imports are 50% of GDP decides to impose a 30% import tariff on all
imports. If the tariff causes a 45% reduction in import quantities, what is the impact on national
well-being as a percentage of GDP? - ✔✔3.38%
For both the small and large nations in international trade, national well-being is always higher
under free trade than under autarky. - ✔✔True
Generally, non-tariff barriers have what effects? - ✔✔Limit the quantity of the imported good,
increase the cost of accessing the home market, create uncertainty regarding access to the
home market
The U.S. is considering implementing a quota. What procedure for granting import licenses
would you recommend so that the U.S. suffers the smallest economic loss from the quota? -
✔✔Announce that an auction will be held and foreign suppliers will be required to bid
competitively for the licenses
Let T represent the deadweight loss to the nation of a tariff, Q the cost to the nation of a quota,
and VER the cost to the nation of a voluntary export restraint. What correctly shows how these
losses of national economic well-being are related? - ✔✔T <= Q <= VER
Careful studies by economists indicate that trade restrictions: - ✔✔Are an expensive way to try
and save jobs, cost consumers approximately $169,000 per job saved, and largely alter the mix
of jobs in an economy
, What is the modern version of the mercantillism argument for protection? - ✔✔The Preserves
Domestic Employment Motive
According to the Special Interest Model, politicians supply protection: - ✔✔Because they are
concerned with getting re-elected (thus, they grant protection in exchange for campaign
contributions from the protected industry), and whenever the benefits of protection are
concentrated among a few (who will be cognizant of the favor), while the costs are disbursed
among the many
According to the text, tariff protection may be justified for start-ups or infant industries in what
situation? - ✔✔Whenever start-ups in poor nations lack access to well-developed capital
markets
What implications does the Specificity Rule have for public policy? - ✔✔It asks that a domestic
subsidy be used to support domestic production rather than a tariff since there is no
consumption inefficiency loss with the subsidy
What argument for trade protection is possibly valid for developing countries? - ✔✔The
Revenue Motive argument
What argument for protection states that import-competing firms that are struggling to stay in
business should be provided protection in order to maintain jobs and continue domestic
production? - ✔✔The dying industry argument (Harley Davidson example)
The U.S. produces some of the electronic components for use in its fighter planes, but it is
forced to import these parts from Japan as well. There is concern that in the case of a prolonged
war, these important imports may not be available. The U.S. should: - ✔✔Subsidize the
domestic production of these electronics parts
Trade blocs such as free trade area are viewed favorably by international trade economists since
they have the same consequences for national economic well being as free trade policies. -
✔✔False
