Multiple Choice Questions (MCQ) on

International Trade (604) 2018.

1. Transportation cost of trade affects:

a) pattern of trade
b) boundaries between tradable and non-tradable goods
c) Global supply chains
d) all of the above

d) all of the above

2. Underlying the application of the

monopolistic competition model to
trade is the idea that trade:
a) increases market size
b) allows companies to charge higher a) increases market size
price
c) increases consumer choices
d) decreases the number of firms in an
industry

3.A no-trade world will have which of

the following characteristics:

a) Countries will have same relative

endowments of production factors

b) Consumers across countries will have d) all above

identical and homogenous tastes

c) There will be no distortions or

externalities

d) all of the above

4. Which of the following trade
policies limits specified quantity of
goods to be imported at one tariff
rate.
a) Quota
a) Quota
b) Import tariff
c) Specific tariff
d) All of the above

5. In the 2-factor, 2 good Heckscher-

Ohlin model, the two countries differ
in
c) relative availabilites of factors of
a) Military capabilities
production
b) labour productivities
c) relative availabilities of factors of
production
d) tastes

6. According to Ricardo, a country

will have a comparative advantage
in:

a) Industries in which there are neither c) industries that sell to domestic and
imports nor exports foreign buyers
b) import competiting industries
c) Industries that sell to domestic and
foreign buyers
d) industries that sell to only foreign
buyers

7. Nations conduct international b) Resources are not equally

trade because: distributed among all trading nations.
a) Some nations prefer to produce one
thing while others produce other things.
b) Resources are not equally distributed
among all trading nations.
c) Trade enhances opportunities to
accumulate profits.
d) Interest rates are not identical in all
trading nations

8. Which of the following is a

determinant of trade?
a) Tastes
d) All of the above
b) Per capita income
c) Technological change
d) All of the above

9. International Trade is most likely to

generate short-term unemployment
in:
a) Industries in which there are neither
imports nor exports
b) Import-competing industries b) Import-competing industries
c) Industries that sell to domestic and
foreign buyers.
d) Industries that sell to only foreign
buyers

d) Exports give a country a political

10. According to the theory of advantage over other countries that
comparative advantage, which of the export less.
following is NOT a reason why
countries trade?

a) Costs are higher in one country

than in another.
b) Prices are lower in one country
than in another.
c) The productivity of labour differs
across countries and industries.
d) Exports give a country a political
advantage over other countries that
export less.

11. The reason why international

trade has strong effects on the
distribution of income is because:

a) Resources cannot move immediately

or without cost from one industry to
another.
c) both a & b
b) Industries differ in the factors of
production they demand

c) both a & b

d) Trade has no effect on distribution of

income.

12. New trade theory assumes the

following:

a) Increasing returns to scale d) all of the above

b) Imperfect competition
c) Product differentiation
d) all of th above

13. A vertical foreign direct

investment (FDI) is:
a) breaking up the production chain and
parts being transferred to the affiliated
location c) both a & b
b) Mainly driven by production cost
differences between countries.
c) both a and b
d. none of the above
14. Which of the following is not a
benefit of international trade?
a) High wage levels for all domestic
workers
a) High wage levels for all domestic
b) Lower domestic prices workers
c) Development of more efficient
methods and new products.
d) A greater range of consumption
choices.

15. Bangladish is relatively

a) Absolut advantage in production of
abundant in labour, while Canada is
shirts and computers.
relatively abundant in capital. In
b) Absolute advantage in prodcution of
both countries the production of
computers
shirts is relatively more labour
c) Comparative advantage in
intensive than the production of
production of shirts.
computers. According to the factor
d) Comparative advantage in
endowment theory, Bangladish will
production of computers.
have a(n)

16. Which of the following policies

permits a specifid quantity of goods
to be improted at one tariff rate and
applies a higher tariff rate to imports
avobe this quantity?
a) Tariff quota

a) Tariff quota
b) Import tariff
c) Specific tariff
d) All of the above

17. A country's workers union a) Voluntary export quotas

attempted to win the approval of
legislation that would moderate the b) export subsidies
practice of foreign sourcing on the
part of auto manufacturers. Which of c) tariff quotas
the following best represents this
legislation. d) local content requirement

18. Which of the following explains

intra-industry trade.

a) Wrong industrial classification d) All of the above

b) Product differantiation
c) Economics of scale
d) All of the above

19. Free traders maintain that an

open economy is advantageous in
that it provides all of the following
except:

a) Increased competition for world

producers
d) Relatively high wage levels for all
b) A wider selection of products for domestic workers.
consumers

c) The utilization of the most efficient

production methods.

d) Relatively high wage levels for all

domestic workers.

20. The fact that Germany both a) Intraindustry trade

imports and exports cars is an
example of:
a) Intraindustry trade
b) Interindustry trade
c) Perfect competition
d) Imperfect competition.

21. Who benefits from tariff

protection?

a) Domestic consumers on the good

produced

b) Domestic producers of the good b) Domestic producers of the good

produced produced?

c) Foreign producers of the good

produced

d) Foreign consumers of the good

produced.

22. A closed economy is one in

which:

a) Imports exactly equal exports, so that

trade is balanced.
c) The home economy is islated from
b) Domestic firms invest in industries
foreign trade.
overseas.

c) The home economy is isolated from

foreign trade
d) Saving exactly equals investment at
full employment.

23. Which of the following a) Imports are desirable.

statements would a mercantilist NOT
agree with?

a) Imports are desirable

b) Trade is a zero-sum activity.
c) The purpose of trade is to amass
revenues from exports.
d) Policies should promote exports and
discourage imports.

24. Which of the following is one of

the conclusions of New Trade
Theory?

a) Countries as a while must gain from

trade.

b) A country can only hurt itself by c) Consumers gain from the increased
using government policies to promote variety of goods that trade makes
exports. available

c) Consumers gain from the increased

variety of goods that trade makes
available

d) A country may export a good or

import it, but not both.

25. According to the Ricardo's a) Resources are directed to their

principle, specialisation and trade highest productivity
increase a nation's total output
since:

a) Resources are directed to their

highest productivity

b) The output of the nation's trading

partner declines
c) The nation can produce outside of its
production possibilities curve.

d) The problem of unemployment is

eliminated.

26. What determines the pattern of

specialisation and trade in industries
with external economies of scale?
a) Product differentiation
c) historical competition
b) Monopolistic competition

c) Historical contingency

d) None of the above

27. The reason why a cluster of firms

may be more efficient than in
individual firm is because a cluster
enables:
a) Specialised suppliers
d) all of the above
b) Imperfect competition

c) Product differentiation

d) All of the above

28. A horizontal foreign direct c) both a & b

investment (FDI) is

a) Starting a similar production process

(by the parent firm) elswhere in the
world

b) Locating a production near a firm's

large customer bases.

c) Both a and b.

d) None of the above.

29. David Ricardo's trading principle

emphasis the:

a) Demand side of the market c) Role of comparative costs

b) supply side of the market
c) role of comparative costs
d) role of absolute costs

30. Under Heckscher-Ohlin Model,

international trade can lead to
increases in:
a) Consumer welfare only if output of
both products is increased

b) Output of both products and b) Output of both products and

consumer welfare in both countries consumer welfare in both countries

c) Total production of both products, but

not consumer welfare in both countries

d) Consumer welfare in both countries,

but not toal production of both products.

31. A main advantage in a) Economies of large-scale

specialisation results from: production
a) Economies of large-scale production

b) The specializing country behaving as

monopoly
c) Smaller production runs resulting in
lower unit costs.

d) High wages paied to foreign workers.

32. A country’s workers union

attempted to win the approval of
legislation that wouldmoderate the
practice of foreign sourcing on the part
of auto manufacturers. Which ofthe
following best represents this
legislation?
d) Local content requirement
a) Voluntary export quotas

b) Export subsidies

c) Tariff quotas

d) Local content requirement