International Trade

Question 1

Which of the following statements best describes the benefits of international trade?
A. Countries gain from exchange and specialization.
B. Countries receive lower prices for their exports and pay higher prices for imports.
C. Countries gain from trade because all individuals and companies benefit in the long term.

Answer 1

A. Countries gain from exchange and specialization.

Question 2

Which of the following statements best describes the costs of international trade?
A. Countries without an absolute advantage in producing a good cannot benefit significantly from international trade.
B. Resources may need to be allocated into or out of an industry and less-efficient companies may be forced to exit an industry, which in turn may lead to higher unemployment.
C. Loss of manufacturing jobs in developed countries as a result of import competition means that developed countries benefit far less than developing countries from trade.

Answer 2

B. Resources may need to be allocated into or out of an industry and less-efficient companies may be forced to exit an industry, which in turn may lead to higher unemployment.

Question 3

Suppose the cost of producing tea relative to copper is lower in Tealand than in Copperland. With trade, the copper industry in Copperland would most likely:
A. expand.
B. contract.
C. remain stable.

Answer 3

A. expand.

Question 4

Which type of trade restriction would most likely increase domestic government revenue?
A. Tariff
B. Import quota
C. Export subsidy

Answer 4

A. Tariff

Question 5

Which of the following trade restrictions is likely to result in the greatest welfare loss for the importing country?
A. A tariff
B. An import quota
C. A voluntary export restraint

Answer 5

C. A voluntary export restraint

Question 6

A large country can:
A. benefit by imposing a tariff.
B. benefit with an export subsidy.
C. not benefit from any trade restriction.

Answer 6

A. benefit by imposing a tariff.

Question 7

If Brazil and South Africa have free trade with each other, a common trade policy against all other countries, but no free movement of factors of production between them, then Brazil and South Africa are part of a(n):
A. customs union.
B. common market.
C. FTA.

Answer 7

A. customs union.

Question 8

Which of the following factors best explains why regional trading agreements are more popular than larger multilateral trade agreements?
A. Minimal displacement costs
B. Trade diversions benefit members
C. Quicker and easier policy coordination

Answer 8

C. Quicker and easier policy coordination