Study Guide

International Economics

Chapter 4

1. Distinguish between the following:

a. Ad valorem and specific tariff

b. Customs union and free-trade area

c. An import and export tax

d. C.I.F. and F.O.B. price

e. Consumers’ surplus and producers’ surplus

2. Define an optimum tariff.

3.Suppose the United States levied a 30 percent tariff on imported cars. Explain the general effects (not in terms of numbers) on the following:

a. U.S. terms of trade

b. Distribution of income within the United States

c. U.S. welfare

4. Understand the effects of a tariff from a graphical standpoint on the importing country if the country is large, and if the country is small.

5. Regardless of the size of the tariff imposer, a tariff represents the difference between the price consumers pay and the price _______________________________ pays.

6. A tariff causes an income redistribution from consumers to producers and __________________.