ECON 13 Study Guide - Midterm Guide: Infant Industry Argument, Scantron Corporation, Externality
IS and Econ 13 - Second Midterm
Examination KEY
S. Skaperdas – February 27, 2012
(Correct answers are starred “*”)
Version B
Please fill in your scantron, INCLUDING
YOUR VERSION (B). Be sure to mark
(blacken) the appropriate boxes. (You will not
get a grade otherwise.)
There are 35 questions in this exam. Questions
1-30 are worth 1 point each. Questions 31-35
are worth 2 points each.
1. An example of a government transfer is a(n)
a. bequest from a deceased relative.
b. subsidy to corn producers.*
c. tax on inheritance.
d. salary for members of the armed forces.
e. expenditure on an interstate highway.
2. Restrictions on international trade
a. have increased since WWII.
b. include subsidies to exported goods.*
c. were uncommon before WWII.
d. a and b.
e. All of the above.
3. The following are factors that help explain
trade protection EXCEPT:
a. The availability of new goods.*
b. Strategic trade policy.
b. The security externality of trade.
c. The infant industry argument.
d. Interest-group politics.
Suppose each of two countries, say China and
the U.S., can either pursue free trade or engage
in trade protection. If both countries were to
engage in free trade, they would each see their
income grow by $50 billion. If both were to
engage in trade protection, they would each grow
by $10 billion. If China were to choose free
trade and the U.S. trade protection, China would
not grow at all and the U.S. would grow by $60
billion. Conversely, if the U.S. were to choose
free trade and China trade protection, China
would grow by $60 billion and the U.S. would
not grow at all. Please use this information in
the following four questions. (In answering
these questions, you might find helpful to draw
the matrix of different outcomes.)
4. Which of the following combination of
policies maximizes the sum of growths for the
U.S and China?
a. China chooses free trade and the U.S.
chooses trade protection.
b. China chooses trade protection and the
U.S. chooses free trade.
c. They both choose free trade.*
d. They both choose trade protection.
e. Either a or b should occur.
5. It would be in the U.S.’s interest to
a. pursue free trade regardless of what
China does.
b. pursue trade protection regardless of
what China does.*
c. pursue free trade only if China were to
pursue free trade.
d. pursue trade protection only if China
were to pursue trade protection.
e. pursue either free trade or protection,
depending on the level of sunspots.
6. It would be in China’s interest to
a. pursue free trade regardless of what the
U.S. does.
b. pursue trade protection regardless of
what the U.S. does.*
c. pursue free trade only if the U.S. were to
pursue free trade.
d. pursue trade protection only if the U.S.
were to pursue trade protection.
e. pursue either free trade or protection,
depending on the level of sunspots.
7. Then, if the U.S. and China were to choose
their policies independently of one another so as
to maximize their own growth, we would expect
a. China to choose free trade and the U.S.
to choose trade protection.
b. China to choose trade protection and the
U.S. to choose free trade.
c. both to choose free trade.
d. both to choose trade protection.*
e. Either a or b would occur.
8. When a quota is imposed on an import,
typically in the importing country,
a. consumers lose.
b. domestic producers gain
c. foreign exporters lose.
d. b and c.
e. All of the above.*
7
ECON 13 Full Course Notes
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