Master International Trade Theories: Enhance Your Understanding of Global Economics

Question 1

Which theory of international trade suggests that countries should specialize in producing and exporting goods they can produce most efficiently, while importing goods they cannot produce as efficiently?

Accepted Answer

Comparative Advantage

Answer

Gravity Model

Answer

Heckscher-Ohlin Theory

Answer

Mercantilism

Question 2

Imposing tariffs on imported goods is an example of:

Accepted Answer

Protectionism

Answer

Free Trade

Answer

Economic Integration

Answer

Globalization

Question 3

According to the Heckscher-Ohlin Theory, countries specialize in producing and exporting goods that utilize their abundant factors of production. Which pairing correctly matches a country's abundant factor with its likely export specialization?

Accepted Answer

Labor-abundant country - Exporting labor-intensive goods

Answer

Capital-abundant country - Exporting labor-intensive goods

Answer

Land-abundant country - Exporting capital-intensive goods

Question 4

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

Accepted Answer

Increased protection for domestic industries

Answer

Greater variety of goods and services

Answer

Increased economic growth

Answer

Lower prices for consumers

Question 5

The 'terms of trade' refer to:

Accepted Answer

The ratio of a country's export prices to its import prices

Answer

The difference between a country's exports and imports

Answer

The total value of a country's exports

Question 6

'New Trade Theory' highlights the importance of ______ in international trade.

Accepted Answer

Economies of scale and network effects

Answer

Factor endowments

Answer

Comparative advantage

Question 7

Which of the following is a potential argument against free trade?

Accepted Answer

Job losses in industries facing foreign competition

Answer

Lower prices for consumers

Answer

Increased consumer choice

Question 8

The 'Gravity Model' in international trade suggests that:

Accepted Answer

Larger economies with closer proximity tend to trade more with each other

Answer

Countries with a shared language and culture trade more with each other

Answer

Countries with similar factor endowments trade more with each other

Question 9

Which of the following is an example of a non-tariff barrier to trade?

Accepted Answer

Strict product safety standards

Answer

Import tariffs

Answer

Export subsidies

Answer

Currency devaluation

Question 10

The 'infant industry argument' for protectionism posits that:

Accepted Answer

Emerging industries need temporary protection to become competitive

Answer

Free trade always benefits developing countries

Answer

All industries need permanent protection from foreign competition