Theories of International Trade: Master the Fundamentals of Global Commerce

Question 1

According to the Heckscher-Ohlin model, countries tend to export goods that use their abundant factors of production.

Accepted Answer

True

Answer

False

Question 2

Which of the following is NOT a determinant of international trade patterns?

Accepted Answer

Cultural preferences

Answer

Differences in factor endowments

Answer

Technological advancements

Answer

Government policies

Question 3

A country with an absolute advantage in producing both wheat and clothing will:

Accepted Answer

Specialize in producing and exporting both wheat and clothing

Answer

Specialize in producing and exporting only wheat

Answer

Specialize in producing and exporting only clothing

Answer

Not engage in international trade

Question 4

The concept of 'revealed comparative advantage' suggests that countries should:

Accepted Answer

Specialize in exporting goods that they are relatively efficient at producing

Answer

Specialize in importing goods that they are relatively efficient at producing

Answer

Produce all goods domestically to avoid dependence on imports

Answer

Export and import goods in equal proportions

Question 5

Which trade policy instrument is designed to protect domestic industries from foreign competition?

Accepted Answer

Tariffs

Answer

Subsidies

Answer

Export quotas

Answer

Currency devaluation

Question 6

The Heckscher-Ohlin model explains trade primarily based on differences in:

Accepted Answer

Natural resources and labor costs.

Answer

Technology and capital endowment.

Answer

Culture and language.

Answer

Government regulations and policies.

Question 7

Which of the following is a potential drawback of international trade?

Accepted Answer

Job losses in certain sectors.

Answer

Increased economic growth.

Answer

Improved consumer choice.

Answer

Reduced prices for goods and services.

Question 8

Which protectionist policy is designed to restrict the quantity of imported goods?

Accepted Answer

Quota.

Answer

Tariff.

Answer

Subsidy.

Answer

Embargo.

Question 9

Which of the following is NOT a potential impact of trade liberalization?

Accepted Answer

Improved living standards for all citizens.

Answer

Increased competition in domestic markets.

Answer

Job creation in export-oriented sectors.

Answer

Reduced government revenues from import tariffs.

Question 10

According to the comparative advantage theory of international trade, countries should specialize in the production and export of goods for which they have:

Accepted Answer

Comparative advantage

Answer

Absolute advantage

Answer

Higher opportunity cost

Answer

Lower opportunity cost

Question 11

The elasticity of demand for a country's exports measures the responsiveness of:

Accepted Answer

Export quantity to changes in export price

Answer

Export price to changes in export quantity

Answer

Import quantity to changes in import price

Answer

Import price to changes in import quantity

Question 12

Which of the following is NOT a determinant of a country's terms of trade?

Accepted Answer

Population size

Answer

Demand for exports

Answer

Supply of imports

Answer

Government policies

Question 13

Which of the following is a key assumption of the Heckscher-Ohlin model of trade?

Accepted Answer

Technology is identical across countries

Answer

Labor is the only factor of production

Answer

Factors of production are mobile between countries

Answer

Demand for goods is perfectly elastic

Question 14

The concept of 'infant industry protection' suggests that:

Accepted Answer

Domestic industries should be sheltered from foreign competition until they become competitive

Answer

Free trade should be promoted in all cases

Answer

Protectionism is always detrimental to economic growth

Answer

Government intervention is unnecessary in international trade

Question 15

When considering the ethical implications of international trade, which of the following statements is most accurate?

Accepted Answer

The ethical implications of international trade depend on the specific context and should be evaluated on a case-by-case basis.

Answer

Economic gains should always be prioritized, regardless of social and environmental consequences.

Answer

Social and environmental concerns should always be prioritized, even if it limits economic growth.

Answer

Ethical considerations should only be applied to trade between developed countries.

Question 16

According to the Heckscher-Ohlin model, countries tend to export goods that intensively utilize their:

Accepted Answer

Abundant factors of production

Answer

Scarce factors of production

Answer

Intermediate factors of production

Answer

Non-tradable factors of production

Question 17

The concept of 'absolute advantage' refers to a country's ability to:

Accepted Answer

Produce more of a good or service with fewer resources than another country

Answer

Produce more of a good or service with the same resources as another country

Answer

Produce a good or service that another country cannot produce

Answer

Produce a good or service of higher quality than another country

Question 18

The concept of 'infant industry protection' refers to the practice of:

Accepted Answer

Shielding domestic industries from foreign competition until they become competitive

Answer

Providing subsidies to foreign industries to help them enter the domestic market

Answer

Imposing tariffs on imported goods to protect domestic producers

Answer

Negotiating trade agreements to reduce barriers to entry for domestic industries

Question 19

Which of the following is a potential tool for facilitating global trade?

Accepted Answer

Trade agreements

Answer

Tariffs

Answer

Quotas

Answer

Embargoes

Question 20

Which of the following measures can a country undertake to enhance its export performance?

Accepted Answer

Devaluing its currency

Answer

Imposing quotas on imports

Answer

Reducing government subsidies to exporters

Answer

Decreasing domestic production

Question 21

Which theory proposes that countries should specialize in producing and exporting goods where they have a lower opportunity cost, or a higher relative efficiency, compared to other countries?

Accepted Answer

Comparative advantage theory

Answer

Absolute advantage theory

Answer

Mercantilist theory

Answer

Heckscher-Ohlin model

Question 22

Which of the following is a measure of a country's overall level of protectionist policies and trade barriers?

Accepted Answer

Trade-weighted average tariff

Answer

Tariff

Answer

Quota

Answer

Subsidy

Question 23

Which of the following organizations is responsible for promoting free trade among its member countries and enforcing trade agreements?

Accepted Answer

World Trade Organization

Answer

World Bank

Answer

International Monetary Fund

Answer

United Nations

Question 24

In the Heckscher-Ohlin model, which factor primarily determines the goods a country exports?

Accepted Answer

Abundant factors of production

Answer

Technological advancements

Answer

Consumer preferences

Question 25

Which theory of international trade contends that countries should specialize in and export goods for which they possess an absolute advantage in production?

Accepted Answer

Absolute Advantage Theory

Answer

Comparative Advantage Theory

Answer

Heckscher-Ohlin Theory

Answer

Gravity Model of Trade

Question 26

According to the Comparative Advantage Theory, countries should prioritize producing and exporting goods that they can produce with:

Accepted Answer

The lowest opportunity cost

Answer

The lowest absolute cost

Answer

The highest absolute cost

Answer

The highest opportunity cost

Question 27

Tariffs represent a type of trade barrier that involves:

Accepted Answer

Imposing a tax on imported goods

Answer

Establishing quotas on imported goods

Answer

Restricting the flow of capital

Answer

Prohibiting the export of certain goods

Question 28

The term 'balance of trade' refers to:

Accepted Answer

The difference between a country's exports and imports

Answer

The total value of a country's exports

Answer

The total value of a country's imports

Answer

The ratio of a country's exports to its imports

Question 29

To promote inclusive growth and reduce poverty in a developing country, what trade policy would you recommend?

Accepted Answer

Lower trade barriers and embrace free trade to encourage competition, innovation, and efficiency.

Answer

Protect domestic industries by imposing tariffs on imports.

Answer

Increase foreign exchange earnings by subsidizing export-oriented industries.

Answer

Prioritize trade with other developing countries to reduce dependence on developed nations.

Question 30

Which of the following is NOT a fundamental assumption of the theory of absolute advantage?

Accepted Answer

Countries have identical production possibilities.

Answer

Countries specialize in producing goods where they have a lower opportunity cost.

Answer

Goods are produced at constant costs, regardless of the quantity produced.

Answer

Trade is beneficial to all participating countries.

Question 31

According to the comparative advantage theory, countries should:

Accepted Answer

Specialize in producing and exporting goods where they have a lower relative production cost.

Answer

Produce all goods they consume domestically.

Answer

Import all goods they consume.

Question 32

Which of the following is a key factor that influences the pattern of trade according to the Heckscher-Ohlin model?

Accepted Answer

The relative abundance of factors of production (e.g., labor, capital) in different countries.

Answer

The distance between different countries.

Answer

The level of technological development of different countries.

Question 33

Which of the following is a potential benefit of international trade?

Accepted Answer

Increased economic growth and development through specialization and efficiency gains.

Answer

Loss of jobs in all industries.

Answer

Increased inequality within countries.

Answer

Environmental degradation.

Question 34

Which of the following is a potential cost of international trade?

Accepted Answer

Job losses in import-competing industries due to increased competition.

Answer

Improved living standards.

Answer

Increased consumer choice.

Answer

Higher prices for imported goods.

Question 35

Which of the following is NOT a potential impact of exchange rate fluctuations?

Accepted Answer

Increased investment in foreign markets.

Answer

Changes in the competitiveness of exports.

Answer

Increased uncertainty for businesses engaged in international trade.

Answer

Changes in the relative prices of imported and exported goods.

Question 36

Which of the following is a major goal of trade policy?

Accepted Answer

To promote economic growth and development through international trade.

Answer

To reduce consumer choice in order to support domestic producers.

Answer

To protect domestic industries from foreign competition at all costs.

Answer

To increase government revenue through tariffs and other trade barriers.

Question 37

How does the dynamic comparative advantage concept challenge the traditional static perspective of trade theory?

Accepted Answer

It highlights the significance of ongoing innovation and learning in determining trade patterns.

Answer

It assumes that countries' comparative advantages remain constant.

Answer

It implies that trade liberalization invariably benefits all nations.

Answer

It concentrates on the immediate effects of trade on economic growth.

Question 38

Which theory suggests that countries should specialize in producing and exporting goods where they have the lowest opportunity cost, even if they can produce all goods more efficiently than other countries?

Accepted Answer

Comparative advantage

Answer

Mercantilism

Answer

Heckscher-Ohlin model

Answer

Absolute advantage

Question 39

Which factor is excluded from the Heckscher-Ohlin model?

Accepted Answer

Government intervention in trade

Answer

Labor force

Answer

Capital

Question 40

Which of the following is NOT a barrier to international trade?

Accepted Answer

Free trade agreements

Answer

Tariffs

Answer

Subsidies

Answer

Import quotas

Question 41

What does the absolute advantage theory of international trade emphasize?

Accepted Answer

Countries should specialize in producing and exporting goods they can produce with the greatest efficiency, even if they cannot produce all goods as efficiently as other countries.

Answer

Countries should produce and export all goods that they need, regardless of efficiency.

Question 42

What is the fundamental difference between absolute advantage and comparative advantage?

Accepted Answer

Absolute advantage focuses on a country's efficiency in producing a specific good, while comparative advantage considers its relative efficiency in producing multiple goods.

Answer

Absolute advantage is based on the total production quantity, while comparative advantage is based on production costs.

Question 43

Which of the following factors does NOT determine a country's comparative advantage?

Accepted Answer

Government subsidies

Answer

Availability of natural resources

Answer

Wage rates

Answer

Technological advancements

Question 44

According to the theory of absolute advantage, countries should specialize in producing and exporting goods for which they have the:

Accepted Answer

Lowest absolute production costs.

Answer

Highest absolute production costs.

Answer

Highest comparative advantage.

Answer

Lowest comparative advantage.

Question 45

The Heckscher-Ohlin model suggests that a country's comparative advantage is determined by its:

Accepted Answer

Factor endowments, such as labor and capital.

Answer

Level of technological advancement.

Answer

Government policies.

Answer

Exchange rates.

Question 46

Which of the following is a potential benefit of international trade?

Accepted Answer

Increased economic growth and efficiency.

Answer

Reduced consumer choice.

Answer

Increased environmental pollution.

Answer

Increased economic inequality.

Question 47

The theory of comparative advantage assumes that:

Accepted Answer

Countries have different opportunity costs of production.

Answer

Countries have the same technology and resources.

Answer

All countries produce the same goods with equal efficiency.

Question 48

Transportation costs in international trade can lead to:

Accepted Answer

Reduced gains from trade.

Answer

Lower prices for consumers.

Answer

Trade exclusively between developed countries.

Answer

Increased volume of trade.

Question 49

A tariff on imported goods typically results in:

Accepted Answer

Increased prices and profits for domestic producers.

Answer

Reduced output from domestic producers.

Answer

Increased competition for domestic producers.

Question 50

A primary objective of the World Trade Organization (WTO) is to:

Accepted Answer

Reduce trade barriers and promote free trade.

Answer

Regulate the global banking system.

Answer

Set global labor standards.

Answer

Provide financial assistance to developing countries.

Question 51

In the context of trade blocs, "trade creation" refers to:

Accepted Answer

Increased trade between member countries.

Answer

Reduced trade between member countries.

Answer

Increased global demand for goods.