Benefits and Costs of Trade: A Comprehensive Guide for Economics Students

Question 1

Free trade is often said to benefit domestic consumers. Which of the following arguments specifically explains why?

Accepted Answer

It leads to lower prices for domestic consumers.

Answer

It protects infant industries from foreign competition.

Answer

It ensures the country has the resources necessary for national security.

Answer

It improves a country's terms of trade.

Question 2

Which of the following is NOT a recognized benefit of free trade?

Accepted Answer

Protecting domestic industries from international competition

Answer

Expanding consumer choice

Answer

Lowering consumer prices

Answer

Promoting economic growth

Question 3

Which factor primarily determines a country's comparative advantage in producing a specific good or service?

Accepted Answer

Relative production cost

Answer

Absolute production cost

Answer

Worker productivity

Question 4

Discuss the potential negative impacts of protectionist policies on domestic consumers and producers.

Accepted Answer

Higher prices for consumers, a limited selection of goods, and inefficient production.

Answer

Lower prices for consumers, a wider variety of goods, and increased production efficiency.

Answer

Protectionist policies have no significant effect on domestic consumers or producers.

Answer

Protectionism always leads to positive economic outcomes.

Question 5

Which of the following is a potential cost associated with free trade?

Accepted Answer

Increased domestic competition

Answer

Increased consumer choice

Answer

Lower prices

Question 6

A fundamental concept in international trade theory refers to the:

Accepted Answer

Gains from trade

Answer

Balance of payments

Answer

Fiscal policy

Answer

Exchange rate

Question 7

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

Accepted Answer

Unequal distribution of wealth

Answer

Increased consumer choice

Answer

Comparative advantage

Answer

Gains from specialization

Question 8

Comparative advantage pertains to the ability of a country to produce a good or service:

Accepted Answer

At a lower opportunity cost than another country

Answer

At a greater quantity than another country

Answer

At a lower price than another country

Answer

At a higher quality than another country

Question 9

Which of the following does NOT affect the gains from specialization?

Accepted Answer

Natural disasters

Answer

Differences in factor endowments

Answer

Government policies

Answer

Transportation costs

Question 10

A potential benefit of free trade includes:

Accepted Answer

Increased economic growth

Answer

Increased inequality

Answer

Loss of domestic jobs

Answer

Reduced government revenue

Question 11

A key reason for countries to engage in international trade is:

Accepted Answer

To access goods and services not available domestically

Answer

To increase their military power

Answer

To reduce their reliance on foreign aid

Question 12

A possible negative impact of trade barriers is:

Accepted Answer

Reduced competition

Answer

Lower consumer prices

Answer

Increased exports

Question 13

Which of the following is a factor that contributes to gains from international trade?

Accepted Answer

Differences in resource endowments

Answer

Government subsidies

Answer

Similar resource endowments

Answer

High transportation costs

Question 14

Which of the following is NOT a potential cost of international trade?

Accepted Answer

Increased economic growth

Answer

Loss of domestic jobs

Answer

Increased income inequality

Answer

Environmental degradation

Question 15

Which of the following is a benefit of economic specialization?

Accepted Answer

Increased productivity

Answer

Increased unemployment

Answer

Lower quality goods

Answer

Reduced consumer choice

Question 16

Which of the following is NOT a benefit of international trade?

Accepted Answer

Higher prices for consumers

Answer

Economic growth and development

Answer

Lower prices for consumers

Answer

Access to a wider variety of goods and services

Question 17

The principle of comparative advantage suggests that countries should specialize in producing goods and services where they have:

Accepted Answer

A lower opportunity cost

Answer

The highest absolute advantage

Answer

The most advanced technology

Answer

The largest market share

Question 18

A tariff is a:

Accepted Answer

Tax on imported goods

Answer

Subsidy for domestic producers

Answer

Restriction on foreign investment

Question 19

Which of the following is a potential negative consequence of protectionist policies?

Accepted Answer

Higher prices for consumers

Answer

Increased international cooperation

Answer

Increased efficiency in domestic industries

Answer

Improved quality of domestic products

Question 20

The World Trade Organization (WTO) aims to:

Accepted Answer

Promote free and fair trade among member countries

Answer

Impose tariffs on imports from developing countries

Answer

Regulate the flow of foreign investment

Answer

Protect domestic industries from foreign competition

Question 21

Suppose Country A can produce 10 units of wheat or 5 units of cloth with the same resources, while Country B can produce 8 units of wheat or 4 units of cloth with the same resources. Which country has a comparative advantage in producing wheat?

Accepted Answer

Country A

Answer

Both countries have the same comparative advantage

Answer

Country B

Answer

Neither country has a comparative advantage

Question 22

A quota is a:

Accepted Answer

Limit on the quantity of a good that can be imported

Answer

Subsidy for domestic producers

Answer

Tax on imported goods

Question 23

Which of the following is NOT a factor that can influence the pattern of international trade?

Accepted Answer

Political stability in the trading partner

Answer

Technological advancements

Answer

Consumer preferences

Answer

Differences in factor endowments

Question 24

Free trade refers to:

Accepted Answer

The absence of government intervention in international trade

Answer

Trade between countries with similar economic systems

Answer

Trade between countries with no tariffs or quotas

Question 25

The term 'dumping' refers to:

Accepted Answer

Selling goods in a foreign market at a price lower than their cost of production

Answer

Importing goods from a country with a lower standard of living

Answer

Exporting goods to a country with a higher standard of living

Question 26

Which of the following is a key benefit of specialization and trade between countries?

Accepted Answer

Increased total output of goods and services

Answer

Higher prices for all goods and services

Answer

Reduced competition in domestic markets

Answer

Decreased reliance on foreign producers

Question 27

Country A can produce 1 unit of cloth in 2 hours and 1 unit of wine in 4 hours. Country B can produce 1 unit of cloth in 3 hours and 1 unit of wine in 1 hour. Which country has a comparative advantage in producing wine?

Accepted Answer

Country B

Answer

Neither country has a comparative advantage

Answer

Both countries have equal comparative advantage

Answer

Country A

Question 28

What is a potential cost of free trade for a country?

Accepted Answer

Job losses in less competitive industries

Answer

Greater access to foreign markets for domestic producers

Answer

Improved efficiency and innovation due to competition

Answer

Increased consumer choice and lower prices

Question 29

What is a common argument used by governments to justify protectionist policies?

Accepted Answer

Protecting domestic jobs and industries

Answer

Increasing consumer choice and lowering prices

Answer

Promoting fair competition with foreign companies

Answer

Encouraging specialization and comparative advantage

Question 30

How can trade contribute to economic growth?

Accepted Answer

By expanding market access and promoting efficiency

Answer

By reducing consumer choice and increasing prices

Answer

By limiting competition and protecting domestic industries

Question 31

What is a potential consequence of a trade war?

Accepted Answer

Higher prices for consumers and businesses

Answer

Lower production costs and increased efficiency

Answer

Increased trade and economic cooperation between countries

Answer

Greater access to a wider variety of goods and services

Question 32

Which organization aims to promote free trade by reducing trade barriers and resolving trade disputes?

Accepted Answer

World Trade Organization (WTO)

Answer

International Monetary Fund (IMF)

Answer

Organization for Economic Co-operation and Development (OECD)

Answer

United Nations (UN)

Question 33

A country has a trade surplus when:

Accepted Answer

Its exports exceed its imports

Answer

It has a trade deficit with another country

Answer

Its imports and exports are equal

Answer

Its imports exceed its exports

Question 34

How can trade potentially benefit developing countries?

Accepted Answer

By providing access to new markets and technologies

Answer

By limiting opportunities for domestic industries to grow

Answer

By increasing dependence on developed countries

Question 35

Which of the following is NOT a benefit of international trade?

Accepted Answer

Increased economic inequality

Answer

Increased specialization

Answer

Increased competition

Answer

Increased consumer choice

Question 36

What is the concept that explains why countries should specialize in producing goods in which they have a comparative advantage?

Accepted Answer

Comparative advantage

Answer

Protectionism

Answer

Gains from trade

Answer

Absolute advantage

Question 37

Which of the following is a consequence of protectionism?

Accepted Answer

Reduced consumer welfare

Answer

Increased innovation

Answer

Increased economic growth

Answer

Increased trade volume

Question 38

What is the term used to describe the gains that result from increased specialization and trade?

Accepted Answer

Gains from trade

Answer

Efficiency gains

Answer

Welfare gains

Question 39

Which of the following is a measure of a country's overall competitiveness in international trade?

Accepted Answer

Balance of payments

Answer

GDP

Answer

Exchange rate

Answer

Inflation rate

Question 40

What is the purpose of tariffs?

Accepted Answer

To protect domestic industries from foreign competition

Answer

To promote free trade

Answer

To increase government revenue

Question 41

Which of the following is a type of trade barrier that restricts the quantity of goods that can be imported or exported?

Accepted Answer

Quota

Answer

Tariff

Answer

Subsidy

Question 42

What is the term used to describe a government policy that aims to reduce its reliance on imported goods?

Accepted Answer

Import substitution industrialization

Answer

Free trade

Answer

Protectionism

Answer

Export-led growth

Question 43

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

Accepted Answer

Increased economic efficiency

Answer

Reduced consumer choice

Answer

Reduced innovation

Answer

Increased unemployment

Question 44

What is the term used to describe the net difference between a country's imports and exports of goods and services?

Accepted Answer

Balance of trade

Answer

Trade deficit

Answer

Current account

Answer

Trade surplus

Question 45

Which of the following is NOT a benefit of trade?

Accepted Answer

Increased unemployment

Answer

Improved technological innovation

Answer

Increased economic growth

Answer

Lower consumer prices

Question 46

The concept of comparative advantage suggests that countries should:

Accepted Answer

Specialize in producing and exporting goods where they are relatively more efficient

Answer

Produce all goods domestically

Answer

Import goods from countries with lower production costs

Question 47

Which of the following is a potential cost of trade?

Accepted Answer

Loss of domestic jobs in certain industries

Answer

Higher standards of living

Answer

Increased competition in domestic markets

Answer

Expanded consumer choice

Question 48

Protectionism refers to government policies that:

Accepted Answer

Restrict international trade through measures such as tariffs and quotas

Answer

Promote free and unrestricted trade

Answer

Encourage foreign investment

Question 49

Which of the following is a consequence of protectionism?

Accepted Answer

Higher consumer prices for imported goods

Answer

Reduced choice for consumers

Answer

Increased economic growth

Question 50

Gains from specialization occur when countries:

Accepted Answer

Produce more of the goods they are relatively more efficient at producing

Answer

Produce less of the goods they are relatively less efficient at producing

Answer

Import all goods from other countries

Question 51

Which of the following factors can influence the pattern of trade between countries?

Accepted Answer

Natural resources, technology, and consumer preferences

Answer

Geographical proximity only

Answer

Government policies only

Question 52

Free trade is a trade policy that:

Accepted Answer

Eliminates government restrictions on international trade

Answer

Imposes tariffs on imported goods

Answer

Provides subsidies to domestic exporters

Question 53

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

Accepted Answer

Increased consumer choice and lower prices

Answer

Increased unemployment

Answer

Reduced economic growth

Answer

Diminished environmental protection

Question 54

The World Trade Organization (WTO) is an international organization that:

Accepted Answer

Promotes free trade and resolves trade disputes

Answer

Restricts the movement of labor across borders

Answer

Provides financial assistance to developing countries

Answer

Imposes tariffs on imported goods