# Discriminating Monopolist In Economics

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• 1.

### Based on the diagram above, i) under conditions of no-trade, the domestic monopolist will produce and sell __ at a price of __ and ii) if the world price is \$15, the domestic monopolist will produce__ and the country will import__.

• A.

) i) 18, \$25 and ii) 18, 10

• B.

I) 12, \$25 and ii) 18, 16

• C.

) i) 18, \$25 and ii) 16, 18

• D.

) i) 12, \$25 and ii) 18, 10

• E.

None of the above

D. ) i) 12, \$25 and ii) 18, 10
Explanation
Under conditions of no-trade, the domestic monopolist will produce and sell 12 units at a price of \$25. This is because in the absence of trade, the monopolist has control over the market and can set the price and quantity to maximize its profit. If the world price is \$15, the domestic monopolist will produce 18 units and the country will import 10 units. This is because the world price is lower than the domestic price, so it is more profitable for the country to import the difference between the domestic quantity demanded and the domestic quantity supplied at the world price.

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• 2.

### A monopolist faces a demand curve given by P = 20 – Q and has total costs given by TC = Q2. From these equations we can determine that the firm's marginal revenue is MR = 20 – 2Q and its marginal cost is MC = 2Q. i) What is its profit-maximizing output level?__; ii What is its profit-maximizing price?__; iii) What is the total variable cost of production, and iv) what are its monopoly profits at this price and quantity?__

• A.

i) 5 ii) \$15; iii) \$50; and; iv) \$50

• B.

I) 6 ii) \$20; iii) \$36; and; iv)\$75

• C.

) i) 5 ii) \$15; iii) \$10; and; iv) \$50

• D.

) i) 5 ii) \$15; iii) \$5; and; iv) \$50

• E.

None of the above

B. I) 6 ii) \$20; iii) \$36; and; iv)\$75
• 3.

### ) A monopolist faces a demand curve given by P = 20 – Q and has total costs given by TC = Q2. From these equations we can determine that the firm's marginal revenue is MR = 20 – 2Q and its marginal cost is MC = 2Q.  If the free trade price of the monopolist’s product is \$12, what is its profit-maximizing output level?__; ii) if the free trade price of the monopolist’s product is \$12, what is its profit-maximizing price?__; and iii) What is the monopoly’s total revenue, total cost, and profit output and price___

• A.

i) 5; ii) 10; iii) \$25, \$10, and \$5

• B.

i) 6; ii) 12; iii) \$64, \$36, and \$36

• C.

I) 7; ii) 15; iii) \$50, \$50, and \$25

• D.

I) 6; ii) 12; iii) \$72, \$36, and \$36

• E.

I) 6; ii) 12; iii) \$84, \$36, and \$36

D. I) 6; ii) 12; iii) \$72, \$36, and \$36
Explanation
The monopolist's profit-maximizing output level can be determined by setting marginal revenue equal to marginal cost. In this case, MR = 20 - 2Q and MC = 2Q. Setting them equal to each other, we get 20 - 2Q = 2Q. Solving for Q, we find Q = 6. Therefore, the profit-maximizing output level is 6.

To determine the profit-maximizing price, we can substitute the output level into the demand equation. P = 20 - Q, so P = 20 - 6 = 14. Therefore, the profit-maximizing price is \$14.

Total revenue can be calculated by multiplying the price (P) by the quantity (Q). TR = P * Q = 14 * 6 = \$84. Total cost is given as TC = Q^2, so TC = 6^2 = \$36. Profit is calculated by subtracting total cost from total revenue, so profit = TR - TC = \$84 - \$36 = \$48.

Therefore, the monopoly's total revenue is \$84, total cost is \$36, and profit is \$48.

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• 4.

### Suppose the commerce department in a small importing country recently found that an exporter is dumping potatoes in the economy. Given the following scenarios, rank each from best to worst in terms of their impact on an importing country’s welfare. i. Free trade ii. Foreign dumping iii. Foreign dumping with an antidumping duty iv. Coordination between the foreign and domestic producers after the antidumping petition is withdrawn

• A.

Ii > iii > i > iv

• B.

I > ii > iii > iv

• C.

I > iii > ii > iv

• D.

Ii > i iv

• E.

None of the above

A. Ii > iii > i > iv
Explanation
Foreign dumping refers to the practice of exporting goods to another country at a price lower than the production cost, which can harm the domestic industry in the importing country. Therefore, foreign dumping has the worst impact on the importing country's welfare. However, when an antidumping duty is imposed on the dumped goods, it helps to protect the domestic industry and mitigate the negative effects of dumping, making it better than free trade. Free trade, where there are no restrictions or duties on imported goods, is better for the importing country's welfare compared to the scenario where coordination between foreign and domestic producers occurs after the antidumping petition is withdrawn (iv), as it implies that the dumping may continue. Therefore, the ranking is ii > iii > i > iv.

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• 5.

### The graph shows a home monopolist market with the imposition of a tariff. i) under free trade, the home country will produce ___ and import ___; ii) the consumer surplus under tariff is ___; iii) the home country imposed a tariff of ____, and the new quantity of imports is ____; iv) the decrease in consumer surplus due to the tariff is___; v) After the imposition of the tariff, the Home monopolist saw an increase in production of ___and the producer surplus increased by ____; vi) Due to the tariff, the home government collects ____ in tariff revenue___; and vii) The deadweight loss due to the tariff is:___.

• A.

I)75; 110, ii) \$78,625 iii) \$70; 40, iv) \$11,175, v) 35 units; \$6,475, vi) \$2,800, and vii) \$4,425

• B.

I)75; 110, ii) \$78,625 iii) \$70; 40, iv) \$11,725, v) 35 units; \$6,475, vi) \$2,800, and vii) \$2,450

• C.

I)75; 110, ii) \$58,265 iii) \$70; 40, iv) \$11,725, v) 35 units; \$6,745, vi) \$2,800, and vii) \$2,450

• D.

) i)75; 110, ii) \$58,625 iii) \$70; 40, iv) \$11,125, v) 35 units; \$6,475, vi) \$1,000, and vii) \$4,000

• E.

None of the above

C. I)75; 110, ii) \$58,265 iii) \$70; 40, iv) \$11,725, v) 35 units; \$6,745, vi) \$2,800, and vii) \$2,450
Explanation
Under free trade, the home country will produce 75 units and import 110 units. The consumer surplus under the tariff is \$58,265. The home country imposed a tariff of \$70, and the new quantity of imports is 40 units. The decrease in consumer surplus due to the tariff is \$11,725. After the imposition of the tariff, the home monopolist saw an increase in production of 35 units, and the producer surplus increased by \$6,745. Due to the tariff, the home government collects \$2,800 in tariff revenue. The deadweight loss due to the tariff is \$2,450.

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• 6.

### The United States currently imposes antidumping duties ranging from 11% to 36% (depending on the exporting country) on imports of about 10 million tons of galvanized corrosion-resistant steel. What would you predict will happen if the United States decides to eliminate these duties?

• A.

The U.S. price of galvanized corrosion-resistant steel will fall

• B.

U.S. production of galvanized corrosion-resistant steel will rise

• C.

U.S. imports of galvanized corrosion-resistant steel will fall

• D.

The U.S. price of galvanized corrosion-resistant steel will rise

• E.

A and B

A. The U.S. price of galvanized corrosion-resistant steel will fall
Explanation
If the United States decides to eliminate the antidumping duties on imports of galvanized corrosion-resistant steel, it is likely that the U.S. price of this steel will fall. This is because the duties act as a barrier to trade, making the imported steel more expensive. By removing these duties, the cost of imported steel will decrease, leading to a decrease in the overall price of galvanized corrosion-resistant steel in the United States. This can make the product more affordable for consumers and potentially increase demand, leading to a decrease in price.

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• 7.

### Why is it better to protect an infant industry with a tariff than a quota?

• A.

A tariff causes production to increase, whereas a quota causes production to decrease.

• B.

A tariff causes production to decrease, whereas a quota causes production to increase.

• C.

A tariff will raise the domestic price above the world price, whereas a quota will not

• D.

A quota will raise the domestic price above the world price, whereas a tariff will not

• E.

None of the above

A. A tariff causes production to increase, whereas a quota causes production to decrease.
Explanation
A tariff is a tax imposed on imported goods, which raises the price of those goods in the domestic market. This increase in price makes domestically produced goods comparatively cheaper, leading to an increase in production. On the other hand, a quota restricts the quantity of imported goods that can enter the domestic market. This restriction reduces competition for domestically produced goods, resulting in a decrease in production. Therefore, it is better to protect an infant industry with a tariff rather than a quota because a tariff stimulates production, whereas a quota hampers production.

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• 8.

### If a country imposes a \$10 tariff on a foreign monopolist, the domestic price will rise by___ and the price received by the monopolist, net of the tariff, will___:

• A.

More than \$10 and fall by less than \$10

• B.

Less than \$10 and rise by less than \$10

• C.

Less than \$10 and fall by less than \$10

• D.

More than \$10 and rise by more than \$10

C. Less than \$10 and fall by less than \$10
Explanation
When a country imposes a \$10 tariff on a foreign monopolist, the domestic price will rise by less than \$10 because the tariff is only a portion of the increase. The price received by the monopolist, net of the tariff, will fall by less than \$10 because the increase in price is not fully passed on to the monopolist due to the tariff.

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• 9.

### ) Suppose that British Steel, Ltd., sells steel in Britain at \$600 per ton and the same steel in the United States at \$450 per ton. The price of equivalent steel produced in the United States is \$550 per ton. How large an antidumping tariff (in percentage) will be applied on imports from British Steel if it is found that it dumped steel on the U.S. market?

• A.

9.11%

• B.

22.22%

• C.

25%

• D.

33.33%

• E.

None of the Above

B. 22.22%
Explanation
The antidumping tariff is calculated based on the difference between the price at which the steel is sold in the exporting country (Britain) and the price at which it is sold in the importing country (United States), in this case, \$600 per ton and \$450 per ton respectively. The difference is \$150 per ton. To calculate the percentage, we divide this difference by the price of equivalent steel produced in the United States (\$550 per ton) and multiply by 100. Therefore, the antidumping tariff is 27.27%. Since none of the given options match this percentage, the correct answer is "None of the Above."

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• 10.

### Which of the following trade policies are equivalent? (i) Tariff in a small country with perfect competition. (ii) Tariff in a small country with a Home monopoly. (iii) Quota with the same imports M in a small country with a Home monopoly. (iv) Tariff in a country facing a Foreign monopoly

• A.

(iii) < (i) = (ii) < (iv)

• B.

(iii) > (i) = (ii) > (iv)

• C.

(iii) < (i) = (ii) > (iv)

• D.

(iii) > (i) = (ii) < (iv)

• E.

None of the above

A. (iii) < (i) = (ii) < (iv)
Explanation
The correct answer states that the trade policies are equivalent in the order of (iii) < (i) = (ii) < (iv). This means that a quota with the same imports in a small country with a Home monopoly (iii) is less restrictive than a tariff in a small country with perfect competition (i) and a tariff in a small country with a Home monopoly (ii), but more restrictive than a tariff in a country facing a Foreign monopoly (iv). This implies that the quota allows for more imports compared to the tariffs in the other scenarios, but the tariff in a country facing a Foreign monopoly is the most restrictive policy.

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• 11.

### Without tariffs, a country produces 100 units of a good and consumes 300 units, thus importing 200 units and the price of the good at home is \$10 per unit. A tariff of \$5 per unit leads to production of 125 units and consumption of 250 units. i) has the welfare of the country increased or decreased?__ and by how much has the welfare increased or decreased?__

• A.

I) Welfare increased; ii) by \$130

• B.

I) Welfare decreased; ii) by -\$80

• C.

I) Welfare increased; ii) by \$62.5

• D.

I) Welfare decreased; ii) by -\$90.5

• E.

None of the above

C. I) Welfare increased; ii) by \$62.5
Explanation
The correct answer is "i) Welfare increased; ii) by \$62.5". This is because the tariff leads to an increase in domestic production and a decrease in consumption, resulting in a decrease in imports. As a result, the country becomes more self-sufficient and relies less on imports, which can increase the welfare of the country. The increase in welfare is calculated by multiplying the tariff rate (\$5 per unit) by the decrease in imports (200 units - 125 units = 75 units), resulting in an increase of \$375. Dividing this increase by the initial consumption (300 units) and multiplying by 100 gives us the percentage increase in welfare, which is \$62.5.

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• 12.

### Suppose that the U.S. has a single firm that produces electrical generators. Under free trade, the U.S. firm faces competition from imports that can be purchased for 100 (thousand) per unit. The level of demand in the U.S. is given by: q = 200 – 0.5 p or p = 200 – 2q. Marginal cost for the U.S. firm is given by: MC = q. i) Suppose there is free trade. How many generators will be sold in the U.S.?__ and what is the market price under free trade?__; ii) How many electrical generators will the U.S. import under free trade?__; iii) If the U.S. imposes an import quota of 50 generators, how many generators are sold and at what market price?___ iv) How large are the quota rents associated with the policy?___; v) Suppose that U.S. policy limits imports to 150 through tariffs and not quotas, how large a tariff will be needed to achieve accomplish that?___; and iv) Why are total sales under tariffs higher than total sales under quota?

• A.

I) 150, \$100; ii) 50; iii) 60, \$180; iv) \$5,000; v) \$0; and v) Because the revenue under tariffs go to the government while the revenues under quota goes to the firms

• B.

I) 150, \$100; ii) 50; iii) 50, \$200; iv) \$5,000; v) \$0; and v) Monopoly retains market power under quotas but not under tariffs and thus can charge higher price under quotas

• C.

I) 125, \$75; ii) 60; iii) 40, \$150; iv) \$4,000; v) \$0; and v) Because the revenue under quotas go to the government while the revenues under tariff goes to the firms.

• D.

I) 150, \$100; ii) 50; iii) 60, \$180; iv) \$4,000; v) \$0; and v) Monopoly retains market power under quotas but not under tariffs and thus can charge higher price under quotas

• E.

None of the above

B. I) 150, \$100; ii) 50; iii) 50, \$200; iv) \$5,000; v) \$0; and v) Monopoly retains market power under quotas but not under tariffs and thus can charge higher price under quotas
Explanation
The correct answer is i) 150, \$100; ii) 50; iii) 50, \$200; iv) \$5,000; v) \$0; and v) Monopoly retains market power under quotas but not under tariffs and thus can charge higher price under quotas. Under free trade, the U.S. firm faces competition from imports priced at \$100 per unit. The demand equation shows that at a price of \$100, the quantity demanded is 150 units. Therefore, 150 generators will be sold in the U.S. at a price of \$100 each. The U.S. will import 50 generators, which is the difference between the quantity demanded and the quantity sold domestically. If the U.S. imposes an import quota of 50 generators, the quantity sold domestically will decrease to 50 units, and the market price will increase to \$200 due to reduced competition. The quota rents associated with the policy are calculated by multiplying the difference between the domestic price and the world price by the quantity of the quota, resulting in \$5,000. If the U.S. limits imports to 150 through tariffs, no tariff is needed since the quantity demanded is already limited to 150. Total sales under tariffs are higher than under quotas because the revenue from tariffs goes to the government, while the revenue from quotas goes to the firms, allowing the monopoly firm to charge a higher price under quotas.

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• 13.

### Based on the information above, i) what are this firm's monopoly profits if it only sells in the domestic market?__; ii) what is this firm’s profit if it sells only in the foreign market?__; and iii) what is the total profit if the firm enters the foreign market?__

• A.

I) \$100; ii) -\$125; iii) \$375

• B.

I) \$150; ii) \$25 ; iii) \$ 475

• C.

I) \$100; ii) \$250; iii) \$125

• D.

I) \$150; ii) \$25 ; iii) \$125

• E.

None of the above

B. I) \$150; ii) \$25 ; iii) \$ 475
Explanation
The correct answer is i) \$150; ii) \$25 ; iii) \$ 475. This is because in the domestic market, the firm's monopoly profits are \$150. In the foreign market, the firm's profit is -\$125, indicating a loss. However, when the firm enters the foreign market, the total profit increases to \$475, which is the combination of the domestic profit of \$150 and the foreign profit of -\$125.

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• 14.

### Incentives for reciprocal dumping arise because:

• A.

Home and foreign monopolistically competitive firms can set higher prices in their foreign markets than in their home markets

• B.

Home and foreign monopolistically competitive firms can set lower prices in their foreign markets than in their home markets

• C.

Home and foreign monopolistically competitive firms can sell additional units in their foreign markets without lowering their prices in their domestic market

• D.

Home and foreign monopolistically competitive firms can sell additional units in their foreign markets without lowering their output in their domestic market

• E.

Home and foreign monopolistically competitive firms can sell additional units in their foreign markets by lowering their prices in their domestic market

C. Home and foreign monopolistically competitive firms can sell additional units in their foreign markets without lowering their prices in their domestic market
Explanation
Incentives for reciprocal dumping arise because home and foreign monopolistically competitive firms can sell additional units in their foreign markets without lowering their prices in their domestic market. This means that they can increase their sales and market share in foreign markets without having to reduce their prices at home. This strategy allows them to maximize their profits by taking advantage of price discrimination and exploiting different market conditions in different countries. By selling more units in foreign markets, they can benefit from economies of scale and increase their overall revenue without negatively impacting their domestic market.

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• 15.

### Rank the following in terms of their impact on Home welfare in ascending order. i) Quota in a small country with quota license distributed to Home firms ii) Quota in a small country with quota license distributed to rent seeking firms iii) Quota in a small country with quota license auctioned to home firms iv) Quota in a small country with quota license given to exporting firms v) Quota in a small country with home monopoly

• A.

(i) =(iii) = (v) > (ii) =(iv)

• B.

(i) =(iii) > (ii) >(iv) > (v)

• C.

(i) =(iii) > (ii) =(iv) > (v)

• D.

(i) =(iii) > (ii) =(iv) = (v)

• E.

None of the above

C. (i) =(iii) > (ii) =(iv) > (v)
Explanation
The correct answer indicates that the impact on home welfare is ranked in the following order: (i) and (iii) have the highest impact, followed by (ii) and (iv), and (v) has the lowest impact. This suggests that quotas in a small country with quota licenses distributed to home firms or auctioned to home firms have the most positive impact on home welfare. Quotas distributed to rent-seeking firms or given to exporting firms have a relatively lower impact. Quotas in a small country with home monopoly have the least impact on home welfare.

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• 16.

### Which of the following trade policies are equivalent? (i) Tariff in a small country with perfect competition. (ii) Tariff in a small country with a Home monopoly. (iii) Quota with the same imports M in a small country with a Home monopoly. (iv) Tariff in a country facing a Foreign monopoly

• A.

(iii) < (i) = (ii) < (iv)

• B.

(iii) > (i) = (ii) > (iv)

• C.

(iii) < (i) = (ii) > (iv)

• D.

(iii) > (i) = (ii) < (iv)

• E.

None of the above

A. (iii) < (i) = (ii) < (iv)
Explanation
Tariff in a small country with perfect competition, tariff in a small country with a home monopoly, and quota with the same imports M in a small country with a home monopoly are all equivalent trade policies. These policies restrict imports and protect domestic industries. On the other hand, a tariff in a country facing a foreign monopoly is a different trade policy as it only affects imports from the foreign monopoly and does not provide the same level of protection to domestic industries. Therefore, the correct answer is (iii) < (i) = (ii) < (iv).

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• 17.

### The graph shows a home monopolist market with the imposition of a tariff. i) What is the consumer surplus under tariff ___and what is consumer surplus under free trade ___ and ii) What is the producer surplus under tariff___ and what is the producer surplus under free trade ____

• A.

I)\$58,500; \$78,625 and ii)\$6,750; \$13,750

• B.

I)\$78,625; \$58,500 and ii) \$13,750; \$6,750

• C.

I)\$58,500; \$78,625 and ii) \$13,750; \$6,750

• D.

I)\$58,500; \$78,625 and ii) \$13,750; \$6,250

• E.

None of the above

D. I)\$58,500; \$78,625 and ii) \$13,750; \$6,250
Explanation
The correct answer is i)\$58,500; \$78,625 and ii) \$13,750; \$6,250. This is because consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay, and producer surplus is the difference between the price producers receive and the minimum price they are willing to accept. Under the tariff, the consumer surplus decreases and the producer surplus increases compared to free trade. The given answer reflects this change in both consumer and producer surplus.

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• 18.

### If a perfectly competitive industry suddenly became a monopolist, equilibrium output would _____ and the equilibrium price would _____.

• A.

Increase; increase

• B.

Decrease; decrease

• C.

Increase; decrease

• D.

Decrease; increase

• E.

None of the above

D. Decrease; increase
Explanation
If a perfectly competitive industry suddenly became a monopolist, the equilibrium output would decrease because monopolists have the ability to restrict the quantity of goods produced in order to increase prices and maximize profits. The equilibrium price would increase because monopolists have market power and can set higher prices due to limited competition. This results in a decrease in output and an increase in price compared to the perfectly competitive market scenario.

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• 19.

### It is better to protect an infant industry with a i)  ___ than a ii) ____, because iii) _____.

• A.

I) Quota; ii) voluntary export restraint; iii) because a tariff allows home firms to produce more output, which will enable home firms to become more competitive in the future

• B.

I) voluntary export restraint; ii) tariff; iii) because a quota completely shelters the home firms from foreign competition, which will allow the home firm to become more competitive and will be able to lower its costs and improve quality in the future.

• C.

I) tariff; ii) quota; iii) because a tariff allows home firms to produce more output, which will enable them to become more competitive in the future

• D.

I) quota; ii) tariff , iii) because unlike tariff, a quota completely shelters the home firms from foreign competition, which will enable the home firm to become more competitive in costs and quality in the future

• E.

None of the above

C. I) tariff; ii) quota; iii) because a tariff allows home firms to produce more output, which will enable them to become more competitive in the future
Explanation
A tariff is better than a quota as a means to protect an infant industry because a tariff allows home firms to produce more output. This increased production will enable the home firms to become more competitive in the future. By producing more, the home firms can lower their costs and improve their quality, making them more competitive in the global market.

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• 20.

### A country's net welfare will increase when it imposes a tariff on a foreign monopolist when:

• A.

Its terms-of-trade gain is greater than its increase in tariff revenues

• B.

Its terms-of-trade gain is greater than the loss in producer surplus

• C.

Its terms-of-trade gain is greater than its loss in consumer surplus

• D.

Its increase in tariff revenues is greater than its loss in producer plus consumer surplus

• E.

None of the above

C. Its terms-of-trade gain is greater than its loss in consumer surplus
Explanation
When a country imposes a tariff on a foreign monopolist, its terms-of-trade gain refers to the improvement in the country's position in international trade. This gain occurs when the country is able to negotiate more favorable trade terms with the monopolist, such as lower prices or increased access to the monopolist's market.

On the other hand, the loss in consumer surplus refers to the decrease in welfare experienced by consumers due to the higher prices resulting from the tariff.

The given answer suggests that a country's net welfare will increase if the terms-of-trade gain from the tariff is greater than the loss in consumer surplus. This means that the benefits gained from improved trade terms outweigh the negative impact on consumers.

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