Econ 360 Spring 2020 Second Midterm Name___________________________________

1. Draw a graph with the following information: The world price of soybeans is $2.00 per bushel with a domestic supply of 60 Q/million bushels and a domestic demand of Q/millions bushels. The importing country is small enough not to affect the world price. A. Suppose government puts a tariff of $0.25 per bushel on soybean imports. How

much will the tariff reduce imports? Draw the new graph. B. Given a tariff of $0.25 per bushel on soybean imports, how much will domestic

production increase? C. How much revenue will the government raise from a $0.25 per bushel tariff on

soybean imports?

2. Explain in detail why tariffs create deadweight losses.

3. Describe how the imposition of a tariff is different for a large country (that can affect the world price) than a small country.

4. Give an example of a nontariff measure that could reduce the quantity of imports or

exports. Explain.

5. If politicians decide to proceed with protectionist measures, why might economists prefer tariffs to quotas? Explain at least three reasons.

6. Describe intellectual property rights. What agreements have been reached regarding their protection? What are the benefits and the costs of protecting intellectual property rights?

7. Why do both developed and less-developed countries protect clothing and textiles heavily?

8. Explain the concept of infant industry and explain the difficulties for implementing that argument for protection.

9. What are the arguments that countries generally use to justify protection for a particular industry? Describe the arguments and any inherent problems with them. Are the arguments primarily economic or are there some noneconomic arguments?

10. Are economic sanctions usually effective in achieving policy goals? Explain.

11. Describe the four legal procedures available to U.S. firms to seek protection from foreign competition. What circumstances would warrant a request under each? How frequently is each used? What would be the result if the firm won?

2

12. Explain the difference between primary and secondary income.

13. Explain what are the components of the current account and what were some of the consequences of the large current account deficits that the U.S. ran from the 1990s to 2007?

14. What are official reserve assets, and why are they important to countries?

15. Use the following table to answer the next question(s). All values are measured as a percent of GNP.

A) Total savings, private plus public, is equal to _____?

B) The current account balance is: _________?

16. It is unclear whether the free flow of capital is beneficial to all countries. Explain the benefits and costs of allowing capital to move freely.

17. Explain why current account deficits may or may not be harmful to a country.