Multiple Choices Questions

Q1. Which of the following definitions best describe the concept of quota?

A. A numerical restriction on imports from another country

B. Voter whose political attachments, beliefs and values are at the middle of the political spectrum.

C. A graph showing the combination of two goods that provide equal utility to a consumer

D. The state of not acquiring information because the cost of acquiring the information is greater than the benefits.

E. The price of one good in terms of another good

Q2. Suppose John earns $1,000 a week and consumes gasoline and a composite good that represents all other goods that are not gasoline. If the price of gasoline is $2.50 a gallon and the price of the composite good is $50.00 per unit, how many gallons of gasoline and how much of the composite good can John buy if he allocates 20% of his income to gasoline and the rest to the composite good?

A. 80 gallons of gasoline and 800 units of the composite good

B. 80 gallons of gasoline and 16 units of the composite good

C. 200 gallons of gasoline and 16 units of the composite good

D. 200 gallons of gasoline and 800 units of the composite good

E. Cannot be determined because there is no such thing as a composite good

Q3. Calculate the relative price of gasoline and the composite good using the information in question 2.

A. 1 Gallon of Gasoline: 50 Units of the Composite Good

B. 1 Gallon of Gasoline: 20 Units of the Composite Good

C. 20 Gallons of Gasoline: 1 Unit of the Composite Good

D. 25 Gallons of Gasoline: 1 Unit of the Composite Good

E. 50 Gallons of Gasoline: 1 Unit of the Composite Good

Q4. Using the information in exhibit 2 above, calculate the amount of tariff revenue to the government.

A. $250,000,000

B. $500,000,000

C. $1,125,000,000

D. $1,250,000,000

E. $5,250,000,000

Q5. Using the information in exhibit 2 above, calculate the reduction in imports from the imposition of the tariff.

A. 50,000,000

B. 75,000,000

C. 100,000,000

D. 150,000,000

E. 250,000,000

Q6. Using the information in exhibit 2 above, calculate the reduction in consumer surplus as a result of the tariff.

A. $1,500,000,000

B. $1,625,000,000

C. $1,187,500,000

D. $9,000,000,000

E. $10,625,000,000

Short Answer Questions -

Q7. International Trade

A. Assume that the United States and Brazil both consume and produce sugar, but do not trade sugar with each other. (Also assume that these are the only two countries in the world.) Assume that the equilibrium price of sugar in Brazil is less than the equilibrium price in the United States (because Brazil has a climate advantages).

1. Provide graphs that show the adjustment process in Brazil, The United States, and the world.

2. Show (graph) what happens to the price of sugar in the United States and Brazil when they start trading with each other. Show how the world price is determined.

3. Explain what is taking place in both Brazil and the United States, and how the changes affect consumers and producers in both countries.

B. Provide a graph of a country that is importing a good because the world price is below the domestic price.

1. Show (graph) an imposition of a quota designed to protect domestic manufacturers of that good and their workers.

2. Show (graph) the quota's impact on domestic consumer surplus and domestic producer surplus.

3. Show (graph) the amount of revenue that could be raised for the government if it decided to auction off the quota.

4. Explain what happens to domestic producer surplus and domestic consumer surplus as a result of the imposition of the quota. Be sure to account for all areas of consumer surplus and producer surplus affected by the imposition of the quota.  

Q8. Consumer Choice and Public Choice

A. Suppose Max has a $150.00 a month budget for entertainment. Max's idea of entertainment is either movies or concerts. Suppose that concerts cost $30.00 each, and movies cost $10.00 each.

1. Show (graph) the different combinations of movies and concerts that Max could see per month based on his budget.

2. Show (with an indifference curve) Max's possible consumer equilibrium between movies and concerts.

3. Because home entertainment is taking a bite out of the movie industry, all the theatres in Max's town have decided to cut the price of movies from $10.00 each to $5.00 each. Show (graph) how this would affect Max's utility. (Hint: redraw the budget line to represent the change in the number of movies, and look for Max's new consumer equilibrium.)

4. Does Max get more utility, and how would you know? Explain.

B. Draw a graph that represents an unequal distribution of income between two earners (say 90% to one earner and 10% to the other earner).

1. Show on the graph a more "equitable" outcome, based on the assessment of the 10% earner.

2. Show (graph) what will happen, according to Public Choice Theory, when the 10% earner seeks to have the government impose this outcome.

3. Show on the graph and explain the impact on the total income of both parties as a result of participating in the income re-distribution process, a possible outcome if the 90% earners win, and a possible outcome if the 10% earner wins.

4. Explain why, according to economic theory, we see the results you have shown.