Question

1) How might an export tariff in a large country improve the country's economic welfare?

Group of answer choices

a) The export tariff will never improve the country's welfare, since deadweight consumption and production losses always outweigh terms of trade gains.

b) The export tariff will always improve the country's welfare, since there are no deadweight consumption and production losses.

c) The export tariff will improve the country's welfare if deadweight consumption and production losses are greater than terms of trade gains.

d) The export tariff will improve the country's welfare if terms of trade gains are larger than deadweight consumption and production losses.

2) What is the main difference between a quota and a voluntary export restraint?

Group of answer choices

a) The importing country administers a quota; the exporting country administers a voluntary export restraint.

b) A quota affects a country's imports, while a voluntary export restraint affects its exports.

c) A quota has deadweight losses, while a voluntary export restraint has no deadweight losses.

d) There are no differences between a quota and a voluntary export restraint.

3) In general, an export subsidy:

Group of answer choices

a) justifies government involvement in helping firms export.

b) encourages firms to export rather than sell domestically.

c) penalizes producers that export.

d) discourages foreign sales in favor of domestic sales.

Answer 1

1> d) The export tariff will improve the country's welfare if terms of trade gains are larger than deadweight consumption and production losses.

Export tariff creates welfare to a country because of the gains in terms of trade. The deadweight loss and production losses are the bad effect of the tariff. So if the good effect of export tariff outweighs the bad effect, then it is overall welfare-maximzing.

2>  a) The importing country administers a quota; the exporting country administers a voluntary export restraint.

Quota is issued by importing country but VER is imposed by exporting country though the effect is felt in both the countries.

3> b) encourages firms to export rather than sell domestically.

An export subsidy will lower the cost of the producer in the world market, this will give incentive to the producer to export than selling domestically.