Economics department

International Economics
Third year, English Section
T.A: Marwa Mamdouh

Sheet No.5
Question No.1:
State whether each of the following statements is true or false with explanation:
1. A tariff imposed on a certain commodity positively affects all sectors of the society.
2. The more steeper the supply and demand curves for a certain commodity, the lower is the
trade and revenue effects of a tariff imposed on imports of such commodity.
3. An ad valorem import tariff leads to a reduction of consumer surplus, while a specific
import tariff tends to increase consumer surplus.
4. The imposition of a compound tariff on a certain commodity affects the distribution of
income within the country.
5. The more close substitutes a commodity has, the lower is the consumer effect of a tariff
imposed on imports of such commodity.
6. As tariff rate imposed on imported inputs increases, the effective rate of protection on the
final commodity increases.
7. With a positive nominal tariff on the final commodity, more of the commodity is produced
domestically than would be under free trade.
8. The nominal tariff rate provides a good indicator of the degree of protection actually
provided to domestic producers of the import-competing product.
9. The nominal tariff rate is calculated on the price of the final commodity, while the rate of
effective protection is calculated on the domestic value added.
10. If a lower tariff rate is imposed on the imported input than on the final commodity
produced with the imported input, the nominal tariff rate will exceed the rate of effective
protection.
11. If imported inputs constitutes half the value of the final commodity and are admitted duty
free, then the rate of effective protection is equal to the nominal tariff rate.
12. the rate of effective protection (g) ranges between: 0 < g < 100

Question No.2:
Choose the right answer for each of the following statements:
1. If Egypt imposes a tariff on car imports, this will tend to ___________.
a. Redistribute income from labour to capital
b. Redistribute income from capital to labour
c. Does not affect income distribution

2. Which of the following is not considered a consequence of tariff imposition by a small

country?
a. World prices are not affected
b. Consumers face a higher domestic price for the importable commodity
c. Domestic production reduces while consumption and imports increase
d. The net country welfare declines
3. The Stolper-Samuelson theorem postulates that imposition of an import tariff would
a. Increase real return to the countrys abundant factor of production
b. Decrease real return to the countrys abundant factor of production
c. Increase real return to the countrys scarce factor of production
d. Decrease real return to the countrys scarce factor of production
4. Imposition of an import tariff causes _____________.
a. Domestic price of the imported good increases
b. Domestic consumption of the imported good decreases
c. Import-competing industry output increases
d. All of the above
5. The protection cost is equal to reduction in consumer surplus less ____________.
a. The increase in producer surplus
b. The revenue effect of the tariff
c. The increase in producer surplus added to tariff revenue effect
6.

If there are no imported inputs used in the production of a commodity, then the effective
rate of protection ________.
a. Exceeds the nominal tariff rate
b. Equals to the nominal tariff rate
c. Is less than the nominal tariff rate
d. None of the above

7.

If the nominal tariff rate on final commodity is 50%, the nominal tariff rate on imported
input is 20%, the costs of the imported input relative to the price of final commodity is 0.4;
then the effective tariff rate equals ___________.
a. 1.0
b. 0.7
c. 0.3
d. Cannot be calculated

Question No.3:
1. Differentiate between:
a. Different effects of import tariff imposition.
b. Components of the protection cost of a tariff.
2. Prove that if no imported inputs go into the domestic production of the final commodity,
then the effective protection rate = the nominal tariff rate of the final commodity.
3. Use a demand and supply diagram to illustrate the effects of removing a 100% ad valorem
tariff on a small countrys imports of commodity X on: domestic producers, consumers,
government, and the economy as a whole.
4. If the nominal tariff rate on imported suits is 40%, the nominal tariff rate on imported input
used in the domestic production of suits is 80%, and the domestic value added is 50%,
what is the effective rate of protection given to the domestic producer of suits?
5. If the imported input is admitted duty free, the ratio of the cost of the imported input to the
price of the final commodity is 0.25, find the effective rate of protection in terms of the
nominal tariff rate.
6. If 60 dollars of imported wool goes into the domestic production of a suit, with domestic
value added equal to 40 dollars. Find the effective rate of protection given to the domestic
producer of suits if wool is admitted duty free, and the price of suits to domestic consumers
is 130 dollars.