Scenario: You Learned in the Textbook That Protectionism Via an Imposed

question 253

Multiple Choice

Scenario: You learned in the textbook that protectionism via an imposed tariff is not free, since it interferes with market equilibrium and leads to a loss of social surplus in that market. A rationale for imposing a tariff is to shield domestic firms in a particular industry from foreign competition. But what if domestic firms that export goods and services rely on imported inputs in their production? The pie charts below shows that most U.S. exporters are also importers and vice versa.

(Source: J. Bradford Jensen, Importers are Exporters: Tariffs Would Hurt Our Most Competitive Firms, Trade and Investment Policy Watch, Peterson Institute of International Economics, December 7, 2016, https://piie.com/blogs/trade-investment-policy-watch/importers-are-exporters-tariffs-would-hurt-our-most-competitive.)
-Refer to the scenario above.Which statement is consistent with the graphic above?

• A) It is not possible to discourage only imports without discouraging exports at the same time in the United States.
• B) Tariffs can be an effective tool to promote U.S. exports.
• C) Most U.S. importers use domestically produced inputs.
• D) Loss of social surplus due to a tariff in one market could be offset by an increase in social surplus in other markets.

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Definitions:

Long Service Leave

A paid absence after the employee has provided a long period of continuous employment.

Company Tax Rate

The percentage rate at which a company is taxed on its profits by the government.

Tax Deductible

Expenses that can be subtracted from gross income to reduce the amount of income subject to tax.

Deferred Tax Asset

A tax benefit arising from temporary differences between the book value and tax basis of assets and liabilities, which will result in deductible amounts in future periods.