answer to exercises Ch 12

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NSS Exploring Economics 6

Chapter 12 International trade (II) — trade barriers and external trade of Hong Kong

Questions
p.150
Think it over
1.
Why do many governments impose duties on imported goods?
2.
What are the effects of the imposition of duties on the price of imported goods, the volume of imports, the consumer surplus of domestic consumers and the producer surplus of domestic producers?
3.
Why does the Hong Kong Government impose duties on very few types of imports?

p.151
Discuss
12.1
Explain how the imposition of tariffs and quotas may restrict international trade and protect domestic industries.

p.154
Discuss
12.2
Free trade benefits everybody in an economy.’ Do you agree? Explain.

Test
…show more content…
With the help of TWO diagrams, compare the situation without trade and the situation with trade and show the gains from trade. Do all domestic consumers and domestic producers benefit from trade? (8 marks)

2.
With the help of a diagram, illustrate why the imposition of a quota would benefit domestic producers but harm domestic consumers and bring a deadweight loss to an economy. (8 marks)

Structured Questions
1*.
In China, the import of cotton is subject to a unit tariff. After its entry into the World Trade
Organization, China has to reduce its tariff on cotton. Suppose the world price of cotton remains unchanged after the tariff reduction.
a. With the help of a diagram, illustrate how the reduction in the tariff affects the domestic price, domestic consumption, domestic production and volume of imports of cotton. (7 marks)
b. How does the tariff reduction affect the consumer surplus, producer surplus, government revenue and total social surplus? (5 marks)

2**.
a. Compare the effects of an increase in domestic demand on the domestic price, domestic consumption, domestic production and volume of imports if a country imposes a tariff and a quota on its imports, respectively. (12 marks)
b. Would consumers prefer a tariff or a quota in the above situation? (2 marks)

Answers
P.150
Think it over
1. They mainly want to cut the volume of imports so as to protect their
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