MCQS of
International Trade
1) How is comparative advantage defined?
a) You produce the things you are especially good at, and buy from others, the goods you are less
efficient in producing.
b) To produce and consume all goods without trade.
c) How the world actually works.
d) Globalization, growing economic linkages among countries.
2) What are the four factor endowments?
a) National resources, labor, physical capital and human capital
b) Types of technology
c) Material inputs used up in the process of production
d) International differences in climate
3) The Heckscher- Ohlin model is principally focused on what aspect of economics?
a) International trade
b) Supply and demand
c) Normative economics
d) Production possibility frontier
4) 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 identical and homogenous tastes
c) There will be no distortions or externalities
d) all of the above
5) 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
6) Which of the following trade policies limits specified quantity of goods to be imported at one tariff rate?
a) Quota
b) Import tariff
c) Specific tariff
d) All of the above
7) In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in
a) Military capabilities
b) labor productivities
c) relative availabilities of factors of production
d) tastes
8) Nations conduct international trade because:
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
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
c) Industries that sell to domestic and foreign buyers.
d) Industries that sell to only foreign buyers
10) What was the first economic theory of international trade to be developed?
a) The theory of mercantilism
b) The theory of comparative advantage
c) The theory of absolute advantage
d) The Heckscher-Ohlin theory
11) Mercantilists believed that a country could increase the amount of wealth it had by _____.
a) Promoting exports and discouraging imports
b) Discouraging exports and promoting imports
c) Controlling imports and exports
d) Increasing both imports and exports
12) According to Adam Smith, the trade between countries should happen _____.
a) Naturally according to the market forces
b) Under government regulation
c) Using factors that are available
d) Only when a country has an absolute advantage
13) If a nation has an open economy it means that the nation:
a) Allows private ownership of capital.
b) Has flexible exchange rates
c) Has fixed exchange rates
d) Conducts trade with other countries
14) International trade forces domestic firms to become more competitive in terms of
a) The introduction of new products
b) Product design and quality
c) Product price
d) All of the above
15) The movement to free international trade is most likely to generate short-term unemployment in which
industries
a) Industries in which there are neither imports nor exports
b) Import-competing industries.
c) Industries that sell to domestic and foreign buyers
d) Industries that sell to only foreign buyers
16) Increased foreign competition tend to
a) Intensify inflationary pressure at home
b) Induce falling output per worker-hour for domestic workers
c) Place constraints on the wages of domestic workers
d) Increase profits of domestic import-competing industries
Use the information in the table below to answer the next three questions 17,18,19.
Country Tons of steel DVDs
South Korea 80 40
Japan 20 20
17) The opportunity cost of one DVD in Japan:
a) One ton of steel
b) Two tons of steel
c)Three tons of steel
d) Four tons of steel
18) The opportunity cost of one DVD in South Korea is:
a. One-half ton of steel
b. One ton of steel
c. One and one-half tons of steel
d. Two tons of steel
19) According to the principle of comparative advantage:
a. South Korea should export steel
b. South Korea should export steel and DVDs
c. Japan should export steel
d. Japan should export steel and DVDs
Answer the next 4 questions 20,21,22,23 based on the production table below:
Country:(Output per Labor Hour)
A B
Product X 3 9
Product Y 4 2
20) Country A has an absolute advantage in
a) Product X
b) Product Y
c) Neither X nor Y
d) Both X and Y
21) Country B has an absolute advantage in
a) Product X
b) Product Y
c) Neither X nor Y
d) Both X and Y
22) If the countries were to trade along the lines of absolute advantage:
a) A would export X to B
b) B would import Y from A
c) Neither country would want to trade
23) If countries were to trade along the lines of comparative advantage:
a) A would export X to B
b) A would export Y to B
c) Neither country would want to trade
24) Globalization refers to:
a) Lower incomes worldwide
b) Less foreign trade and investment
c) Global warming and their effects
d) A more integrated and interdependent world
25) Comparative Cost Trade Theory is given by
a) Adam Smith
b) David Ricardo
c) Gottfried Haberle
d) Heckscher Ohlin
26) ……………...is the payment method most often used in International Trade which offers the exporter best
assurance of being paid for the products sold internationally.
a) Bill of Lading
b) Letter of Credit
c) Open Account
d) Drafts
27) Key controllable factors in global marketing are:
a) Government policy and legislation
b) social and technical changes
c) marketing activities and plans
d) all of the above.
28) The first phase of globalization started around 1870 and ended with …..
a) World War I
b) World War II
c) The Establishment of GATT
d) In 1913 when GDP was High
29) According to this theory, the holdings of a country’s treasure primarily in the form of gold constituted its
wealth.
a. Gold Theory
b. Ricardo Theory
c. Mercantilism
d. Hecksher Theory
30) The Theory of Absolute Cost Advantage is given by
a. David Ricardo
b. Adam Smith
c. F W Taylor
d. Ohlin and Heckscher
31) The Theory of Relative Factor Endowments is given by
a) David Ricardo
b) Adam Smith
c) . F W Taussig
d) Ohlin and Hecksher
32) The theory of comparative cost advantage is given by
a. David Ricardo
b. Adam Smith
c. F W Taussig
d. Ohlin and Heckscher
Unit 1 Answer Key:
1 – a 2 - a 3 - a 4 - d 5 - d 6 – a 7 – c 8 – b 9 - b 10 -a
11 – a 12 - d 13 - d 14 - d 15 - b 16 – c 17 – a 18 – d 19 - a 20 - b
21 – a 22 -b 23 - b 24 - d 25 - b 26-b 27-c 28-a 29-c 30-b
31-d 32-a
INTERNATIONAL TRADE
MID SEMESTER EXAMINATION
MCQS
(1) In the study of international economics we use tools of
(A) Micro Economics theory only
(B) Macro-economic theory only
(C) Neither Micro nor Macro theory
(d) both Micro and Macro theory but we also extend and intrerate
(2) To which of the following would the mercantilists huve objected?
(A) Free trade
(B) Stimulating Exports
(C) Accumulation of gold by their nation
(D) Restraining imports
(3) What proportion of world trade is based on absolute advantage?
(A) Most
(B) Some
(C) None
(D) All
(4) The commodity in which a nation has the least absolute disadvantage represents its area of:
(A) Comparative disadvantage
(B) Comparative advantage
(C) cannot say without additional information
(D) Absolute advantage
(5) Ricardo's law of comparative advantage is based on:
(A) The labor theory of value
(B) The opportunity cost theory
(C) The law of diminishing returns
(D) All of the above
(6) A difference in relative commodity prices between two nations can be based upon difference in
(A) Factor endowment
(B) Technology
(C) Taste
(D) All of the above
(7) The offer curve of nation shows what the nation:
(A) Can do
(B) Must do
(C) Is willing to do
(D)any of the above
(8) When a nation impose as import-tariff, the nation's offer curve will?
(A) Shift away from the axis measuring the esport commodity
(B) Shit away from the axis measuring its imports commodity the
(C) Not shift
(D) Any of the above is possible
(9) Which trade holds that nation can increase their economic well-being by specializing in the production of goods they produce more efficiency than anyone else?
(A) The factor endowment theory
(B) The theory of comparative advantage
(C) The international product life cycle theory
(D) The theory of absolute cost advantage
(10) Which theory holds that nation should produce those goods in which it has the greatest relative advantage?
(A) The factor endowment theory
(B) The theory of absolute cost advantage
(C) The theory of relative advantage
(D) None of the above
(11) Over the time, the economic interdependence of nations has
(A) Remained unchanged
(B) Diminished
(C) Grown
(D) Cannot say
(12) International trade theory refers to
(A) The microeconomics aspects of international trade
(B) The macroeconomics aspects of international trade
(C) The international finance
(D) The open economy macroeconomics
(13) Which of the following is not an assumption generally made in the study of international trade theory?
(A) Two nations
(B) Two commodities
(C) Perfect international mobility of factors
(D) Two factor of production
(14) The economists, namely _______ received Nobel Prize for his theory of international trade.
(A) Dr. Manmohan Singh
(B) Adam smith
(C) Paul Krugman
(D) Heckscher-Ohlin
(15) At equilibrium, Heckscher-Ohlin model hypothesizes _______.
(A) Equal advantage to trading nations
(B) Factors price equalization
(C) Equality of factors in use
(D) None of the above
Given that 2004 is the base year, for the year 2007 the import quantity index increases to 137.5 & the export quantiy index. Also increase to 110, where as the price index of imports and exports rises by 25% and 10% respectively- attempt the following
(16) The gross barter terms of trade index for the vear 2007 will be...
(A) 125
(b) 110
(C) 113.5
(D) 117.5
(17) The net barter terms of trade index for the year 2007 will be
(A) 127
(B) 105
(C) 90
(D) 88
(18) The income terms of trade index for the year 2007 will be,
(A) 125
(B) 96.8
(C) 90
(D) 110
(19) For the year 2007, the single factor at terms of trade will be
(A) Favorable
(B) unfavorable
(C) No change
(D) Inadequate information
In a two countries world (A & B) with help of all the available resources & given technique, country A can produce 100 units of X commodity or 80 units of Y commodities, unde constant cost conditions. Similarly country B can produce A 90 units of x & 120 units of Y. in the absence of internation trade couptry A produces 50 units of X & country B produces 60 units of Y. Answer the following...
(20) Country A produces how many units of Y ?
(A) 20
(B) 40
(C) 60
(D) 30
(21) Country B produces how many units of X?
(A) 45
(B) 50
(C) 40
(D) 60
(22) What would the total world production?
(A) 100x+120Y
(B) 60X+100Y
(C) 95X-100Y
(D) 95X+110Y
When the international trade is open between country A & B
(23) Country A will produce..
(A) 60X+40Y
(B) 100X+0Y
(C) 0X+80Y
(D)50X+60Y
(24) Country B will produce...
(A) 90X+0Y
(B) 0X+120Y
(C) 60X+30Y
(D) 45X+60Y
(25) Total world production will be..
(A) 190X+200Y
(B) 100X+120Y
(C) 95X+100Y
(D)170X+220Y
(26) World production increase by
(A) 10X+40Y
(B) 20X+10Y
(C) 0X+25Y
(D) 5X+20Y
Equilibrium exchange rate between X & Y in the international market is 1:1 at this rate country A's import of Y from country B's is 45 units?
(27) So A's export of X to country B will be...
(A) 45
(B)50
(C)40
(D) 60
(28) Contry B's consumption of X & Y will be...
(A) 50X+60Y
(B) 45X+75Y
(C) 60X+50Y
(D) 40X+80Y
(29) Relative gain from international trade to country A as compare to country B is
(A) lower
(B) higher
(C) no difference
(D) Nil
Fill in the blanks (Use most suitable):
(30) Difference in _______ are the basic cause of trade
(A)taste
(B) qualities
(C) price
(D) taxes
(31) The economist's terms of expressing cost in the terms of forgone altermatives is
(A) Absolute cost
(B) comparative cost
(C) opportunity cost
(d) real cost
(32) One of the key difference between national trade and international trade is ______
(A) Use of different quality units
(B) Use of different monetary units
(C) Use of different packing units
(D) Use of different price units
(33) International trade will not take place unless and until from it.
(A) Some countries gain
(B) Some gain other losses
(C) All countries gain
(D) home country gain
(34) International trade leads to higher...
(A) production
(B) conflicts
(C) prices
(D) Utility
(35) Modern theory of international trade is propounded by
(A) Adam Smith
(B) J.S.Mill
(C) Heckschar-Ohlin
(D) A.K.Sen
(36) in a labour aboundant country
(A) Labour is highly educated
(B) Labour is relatively costly
(C) Labour is highly skilled
(D) Capital is relatively costly
(37) The production possibility or transformation curves can be of
(A) two types
(B) different types
(C) only one type
(D) three types
In two country (A &B), two commodity (X & Y) model , one manday's labour in the country A can produce, 12 units of Y. In Contry B the same can produce 2 units of X or 1 units of Y. answer the following...
(38) Country A enjoy's absolute advantage in the production of...
(A) X
(B) Y
(C) X & Y
(D) None
(39) Country B has comparative disadvantage in the production of
(A) X
(B) Y
(C) X & Y
(D) None
(40) In the absence of international trade the domestic exchange ratio between X & Y in country A will be...
(A) 3:2
(B) 2:1
(C) 6:1
(D) 4:1
(41) Now the countries are open to international trade, the equilibrium exchange rate is 3X:1Y, country B will gain bv-X for every 1 unit of export of Y.
(A)1
(B) 2
(C) 3
(D) 0
(42) ______ refer to the rate at which the goods of one country are exchanged against the goods of other coutnries.
(A) Gross bater TOT
(B) Net barter TOT
(C) TOT
(D) none
(43) _______ is defined as the ratio of quantity index of imports to quantity indes of exports
(A) Gross bater TOT
(B) Net barter TOT
(C) ToT
(D) None
(44) When the net barter terms of trade are corrected for changed in the productivity of factors in producing exports as well as imports
(A) single factoral TOT
(B) Net barter TOT
(C) Income TOT
(D) none
(45) ______ is defined as a ratio of export productivity index and real cost multiplied by net barter terms of trade
(A) Real cost TOT
(B) Double factoral TOT
(C) Income TOT
(D) none
(46) _______ means an official reduction in the external value of our currency in terms of foreign currency.
(A) offer curve
(B) devaluation
(C) terms of trade
(D) none
(47) _______ means the raltive strength and elasticity of demand of two countries for each other product.
(A) devaluation
(B)Offer curve
(C) terms of trade
(D) none
(48) ______ shows that how much amount of one commodity a country is ready to offer for the given amount of another commodity.
(A) demand curve
(B) sapply curve
(C) reciprocal demand
(D) offer curve
(49) Theory of reciprocal demand was developcd by _______
(A) Edgeworth/Marshall
(B) J S mill
(C) Marshall
(D) None
(50) To exlain the law of reciprocal demand _______ have developed the technique of offer curve.
(A) Edgeworth/Marshall
(B) J S mill
(C) Marshall
(D) None
(51) _______ concept was introduced by Jacob viner.
(A) Single factoral TOT
(B) Income TOT
(C) Utility TOT
(D) None
(52) Utility TOT was developed by _______
(A) G.S. Dorrance
(B) Jacob viner
(C) Taussig
(D) D.H.Robertson
(53) The concept of income terms of trade was developed in _______.
(A) 1947-48
(B) 1949-50
(C) 1948-49
(D)None
(54) The most famous statement of ______ the foreign trade is an engine of economic growth.
(A) D.H. Robertson
(B) Jacob viner
(C) David Ricardo
(D) None
(55) Price difference arise because of the difference in _______ conditions.
(A) demand
(B) supply
(C) both (a) and(b)
(D) None
(56) With free competition international trade _____the explitation of consumer.
(A) increase
(B) reduces
(C) remain constant
(D) none
(57) With divison of labour international trade _______ the exploitation of consumer.
(A) increase
(B) decreases
(C) remain constant
(D) none
(58) In international trade factor mobility is ______
(A) not free
(B) free
(C) perfect
(D) none
(59) Movement of goods in internal trade is _____
(A) not free
(B) free
(C) perfect
(D) none
(60) In ______ adam smith brough a book named "Wealth of nation"
(A) 1676
(B) 1876
(C) 1976
(D) none
(61) According to adam smith, _______ in the basis of trade
(A) Absolute cost advantage
(B) Comparative cost advantage
(C) both
(D) none
(62) Monetary laws and financial systems are _______ in internal trade.
(A) Different
(B) Same
(C) Complex
(D) none
(63) In international trade market are _______.
(A) Heterogeneous
(B) same
(C) Homogeneous
(D) None
(64) If there is no trade is also called as _______
(A) Situation autarky
(B) situation of equilibrium
(C) situation of autokey
(D) none
(65) _______ has developed the theory of comparative cost advantage.
(A) JS Mill
(B) David ricardo
(C) Marshall
(D) Adam Smith
66. The offer curve of a nation bulges towards the axis that measures its ______
a. Export commodity
b. Import commodity
C. Export-Import commodity
d. Non-Traded commodity
67. The slope of community indifference curve expresses _______
a. Exchange ratio between two commodities
b. Marginal rate of substitution in consumption
C. Marginal rate of transformation in production
d. None of the above
68. The achievement of gains from trade requires _____
a. Comparative advantage
b. Absolute advantage
c. Net Advantage
d. Both comparative and absolute advantage
69. Which of following statements is incorrect?
a. Countries normally specialize in production because they differ in resources, skills & other endowments
b. A country may in fact export a commodity in which it does not have a absolute advantage
C. If one country is extremely efficient in the production of all goods, it will normally export all of its goods rather than import.
d. If the relative price ratio of two goods is the same for a country whether or not it engages in international trade, that country will not gain from trade.
70. According to theory of comparative costs there are types of cost differences.
b. Two
a. One
c. No Specified
d. Three
71. The terms of trade _____
a. Measures relative prices in the importing country
b. Measure relative prices in the exporting country
c. Measure how many units of goods must be given up for each unit received in trade by a trading country
d. Measures the volume of exports
72. According to Heckscher- Ohlin theory, trade results mainly form the fact that different countries have _______
a. Differences in tastes and preferences
b. Difference in factor endowments
c. Differences in technology
d. Differences in demand conditions
73. International and inter-regional trade differ primarily because ______
a. Comparative advantage is relevant to the former but not to the latter
b. Comparative advantage is relevant to the latter but not to the former
c. Commodities flow across national boundaries
d. Resources supplies vary as between different nations of the world
74. Vertical straight line portion of the offer curve depicts elasticity equal to _____
a. Infinity
b. Less than Unity
c. Greater than unity
d. Unity
75. According to Leontief, USA Exports _____
a. Capital intensive goods
b. Labor intensive goods
c. Both (a) & (b)
d. None of the above
76. According to Heckscher-Ohlin theory, production function of different countries for same product is _____
C. Either (a) or (b)
d. None of the above
MCQ of international trade
Q1. Trade between two countries can be useful if cost ratios of goods are:
A. Undetermined
B. Decreasing
C. Equal
D. Different
Answer: D
Q2. The term Euro Currency market refers to
A. The international foreign exchange market
B. The market where the borrowing and lending of currencies take place outside the country of issue
C. The countries which have adopted Euro as their currency
D. The market in which Euro is exchanged for other currencies
Answer: B
Q3. Which of the following theories suggests that firms seek to penetrate new markets over time?
A. Imperfect Market Theory
B. Product cycle theory
C. Theory of Comparative Advantage
D. None of the above
Answer: B
Q4.Dumping refers to:
A. Reducing tariffs
B. Sale of goods abroad at low a price, below their cost and price in home market
C. Buying goods at low prices abroad and selling at higher prices locally
D. Expensive goods selling for low prices
Answer: B
Q5. International trade and domestic trade differ because of:
A. Different government policies
B. Immobility of factors
C. Trade restrictions
D. All of the above
Answer: D
Q6. The margin for a currency future should be maintained with the clearing house by
A. The seller
B. The buyer
C. Either the buyer or the seller as per the agreement between them
D. Both the buyer and the seller
Answer: D
Q7.The following statement with respect to currency option is wrong
A. Foreign currency- Rupee option is available in India
B. An American option can be executed on any day during its currency
C. Put option gives the buyer the right to sell the foreign currency
D. Call option will be used by exporters
Answer: D
Q8. Govt. policy about exports and imports is called:
A. Commercial policy
B. Fiscal policy
C. Monetary policy
D. Finance policy
Answer: A
Q9.Which of the following is international trade:
A. Trade between countries
B. Trade between regions
C. Trade between provinces
D. Both (b) and (c)
Answer: A
Q10. Market in which currencies buy and sell and their prices settle on is called the
A. International bond market
B. International capital market
C. Foreign exchange market
D. Eurocurrency market
Answer: C
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