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Import quota elimination

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Chinaâ??s entry into the World Trade Organization (WTO) is likely to create more competition between local and foreign firms, as well as provide China greater access to the market of exports. This is particularly true in the market for rubber since China is the worldâ??s second largest consumer of rubber. According to the WTO, China plans to eliminate its import quota on rubber over the next five years. What impact is the import quota reduction likely to have on the price of rubber and the quantity of rubber exchanged in China? What implications will the elimination of the quota on rubber have on Chinaâ??s social welfare?

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Import quotas limit the import of a particular product. Once the limit is reached, no additional rubber can be imported. This has the effect of driving up domestic prices. Domestic rubber producers can charge a higher price than they could otherwise as long as there is sufficient demand. Those needing the rubber must will bid up the ...

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How the elimination of an import quota affect prices and quantities sold.

See Also This Related BrainMass Solution

Questions on Economic Acts

1. Laws governing business practices made which of the following illegal?

a. The Clayton Antitrust Act declared horizontal mergers illegal.

b. The Sherman Antitrust Act made price discrimination, tie-in contracts, and interlocking directorships illegal when their effect was to lessen competition.

c. The Celler-Kefauver Act of 1950 made it illegal for firms to use "unfair or deceptive acts or practices."

d. The Federal Trade Commission Act made vertical mergers illegal.

2. Microsoft Corporation in its antitrust case was accused of:

a. illegally trying to take over its competitors through hostile takeovers.

b. Tying other Microsoft products to its Windows operating system.

c. Producing too good a product.

d. Overcharging the government on sales of software to the Defense Department.

3. A horizontal merger:

a. is the combining of two corporations in the same industry.

b. is outlawed by the Celler-Kefauver Act of 1950.

c. does not involve the Herfindahl index.

d. became nearly impossible to pull off in the late 1990s.

4. Japan's Ministry of International Trade and Industry (MITI) is an example of:

a. industrial policy.

b. the military-industrial complex.

c. natural monopolies.

d. conglomerate mergers.

5. A production possibilities curve

a. that shows opportunity cost is a straight line.

b. has time on one axis and space on the other.

c. cannot be used to explain one of two alternatives for a nation.

d. shows we are faced with scarcity.

6. When individuals trade, using their comparative advantages, the production possibility curve

a. bows out.

b. rotates along a single axis.

c. shifts in.

d. does not change.

7. Adam Smith, author of The Wealth of Nations, was a strong believer in:

a. government intervention in the market.

b. efforts to keep foreign goods out of one's country.

c. the benefits that come from the propensity humans have to trade.

d. efforts to keep competition from happening.

8. Which of the following statements concerning money is true?

a. Money must have an inherent value to function as a medium of exchange.

b. The unit-of-account function of money requires that prices never change.

c. As long as money is serving as a medium of exchange, it automatically also serves as a store of wealth.

d. The largest component of money is currency in circulation.

9. The required reserves of a bank:

a. is calculated by multiplying the required reserve ratio by the bank's demand deposit liabilities.

b. is determined by the Office of the President.

c. represents an amount of money that the bank can loan out.

d. would increase if the required reserve ratio decreased.

10. Which of the following statements is false?

a. According to some economists, the crisis with savings and loans was in part caused by a lack of enforcement of government regulation of these institutions.

b. According to some economists, the crisis with savings and loans was in part caused by too much government guaranteeing of depositor's funds.

c. The main problem with deposit insurance is that it reduces the incentive for individuals to worry about whether their financial institutions are financially sound.

d. The Federal Reserve is responsible for guaranteeing the deposits of commercial banks.

11. To offset a recession the Fed should:

a. use contractionary monetary policy.

b. decrease required reserves, decrease the discount rate, and/or buy U.S. government securities on the open market.

c. increase required reserves, decrease the discount rate, and/or buy U.S. government securities on the open market.

d. decrease banks' excess reserves to decrease the money supply.

12. All of the following statements of the Taylor Rule are correct except:

a. this is a policy suggestion that the Fed follow.

b. set the Fed funds rate at 2 percent minus current inflation less desired output and desired inflation.

c. this is a valuable first approximation of what the Fed might do.

d. the Fed should blindly follow this rule.

13. During an expansionary phase of the business cycle, fiscal and monetary policy can logically be coordinated to:

a. run a deficit and increase the money supply.

b. run a surplus and increase the money supply.

c. reduce government spending, increase taxes, increase the discount rate, increase reserve requirements, and/or sell U.S. government debt on the open market.

d. increase government spending, reduce taxes, decrease the discount rate, decrease reserve requirements, and/or buy U.S. government debt on the open market.

14. Suppose the required reserve ratio is 25 percent and there are no cash holdings. If the Fed buys $2 billion of government securities from banks then:

a. this will decrease banks' excess reserves by $2 billion.

b. the amount of checkable deposits in the banking system and therefore the money supply could eventually increase by $8 billion.

c. the Fed is undertaking contractionary monetary policy.

d. the interest rate will likely rise.

15. If there are two goods X and Y and country A has a comparative advantage in the production of good X:

a. country B has a comparative advantage in producing good Y.

b. country A will export good Y.

c. country B will import good Y.

d. there is no reason for the countries to trade.

16. Regarding tariffs and quotas:

a. domestic producers prefer quotas to tariffs because the quota raises the price of an imported good and tariffs do not.

b. quotas on imported automobiles cost jobs in the U.S. automobile industry, but result in lower prices for consumers.

c. a quota is a quantity limitation on imported goods but a tariff is a tax on imported goods.

d. governments prefer quotas to tariffs because quotas provide additional tax revenues to government.

17. Which of the following about the official transactions account is true?

a. If the U.S. Treasury buys dollars in order to support the value of the dollar in exchange-rate markets then this will be recorded in the official transaction accounts.

b. A balance-of-payments deficit necessarily implies that a nation will have a positive entry in the official transactions account.

c. It records the amount of cash traded between nations.

d. It is another name for the current account.

18. An economic advantage of the EU's having a common currency is:

a. Member nations no longer have independent monetary policies.

b. Nationalism problems.

c. Price transparency.

d. A common currency ties the nations together.

19. Which of the following statements about exchange-rate markets is true?

a. An increase in U.S. income will cause a decrease in the supply of dollars and a decrease in the demand for foreign currencies.

b. Higher U.S. real interest rates relative to other nations will increase the supply of dollars.

c. If the price level in the U.S. falls relative to the price level in foreign nations, U.S. exports will increase and imports decrease, causing the demand for dollars to rise and the supply of dollars to fall.

d. It is easy to correctly estimate the long-run equilibrium exchange rate.

20. Which of the following statements is true?

a. A balance of trade deficit means a nation is exporting more than it is importing.

b. Monetary and fiscal policies do not affect international goals.

c. A balance-of-trade surplus tends to exert an expansionary effect on the economy.

d. A balance- of-trade deficit means that the nation is producing more than it is consuming.


1. How does the democratic political system lead politicians to emphasize points outside the production possibility curve?

2. If the income distribution is tied to a particular production technique, how might that change one's view of alternative production techniques?

3. What two trade policies would you recommend if an economy has a recessionary gap?

4. "Budget deficits should be avoided, even if the economy is below potential, because they reduce saving and lead to lower growth." Does this policy directive follow from the short-run or the long-run framework? Explain your answer.

5. How did the social Security system contribute to the surpluses of the late 1990s?

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