Topic 8: Instruments and Welfare Analysis of Trade Policy

Question 1

As gains from trade are often ……… spread, and there
are even losers from international trade, there are often
calls for trade protection by unions, lobby groups etc.

Answer 1

unevenly

Question 2

……… tariffs: Taxes that are levied as a fixed charge for each
unit of goods imported e.g. A specific tariff of £10 on each
imported bicycle with an international price of £100 means that
customs officials collect the fixed sum of $10.

Answer 2

Specific

Question 3

.. …….. tariffs: Taxes that are levied as a fraction of the
value of the imported goods e.g. A 20% ad valorem tariff on
bicycles generates a £20 payment on each £100 imported
bicycle

Answer 3

Ad Valorem

Question 4

The first case for free trade is the argument that producers and consumers
allocate resources most efficiently when governments do not …….. market
prices through trade policy.
– National welfare of a small country is highest with free trade.
– With restricted trade, consumers pay higher prices and consume too little while firms produce too much.

Answer 4

distort