The Automobile Industry in Macroland Successfully Lobbies for Import Quotas

question 41

Multiple Choice

The automobile industry in Macroland successfully lobbies for import quotas that result in automobile prices that are $1,000 higher than before the quotas. Increased sales of automobiles produced in Macroland protect the jobs of 20,000 automobile workers. What is an additional consequence of the quotas that is not as attractive for Macroland's economy?

• A) The government will lose tax revenue.
• B) Automobile producers in other countries will reduce the price of their cars to offset the higher prices required by the quotas.
• C) Each of Macroland's citizens who buys a car will have $1,000 less to spend on other products, leading to reduced sales and fewer jobs in other industries.
• D) Consumers will buy more cars than before, pushing the automobile market out of equilibrium.

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Definitions:

Business-Specific Risk

Also known as unsystematic risk, it refers to the risk associated with a specific sector or company.

Diversified Portfolio

An investment strategy that involves spreading investments across various asset classes to reduce risk.

Beta Coefficient

An indicator of the level of fluctuations or systematic risk associated with a particular security or portfolio relative to the overall market.

Volatility

The degree of variation of a trading price series over time, usually measured by the standard deviation of returns.