Question

MCQ

1. International trade in a single product:

a. would tend to lower the price in the exporting country.

b. would tend to increase the price in the importing country.

c. would tend to increase the price in the exporting country.

d. would not affect the price in either country.

2. The Mercantilists believed:

a. that international trade was a zero-sum game.

b. that international trade was an n-sum game.

c. that maximizing a country’s imports would improve its welfare.

d. that exports were detrimental to a country’s economy.

3. The Mercantilists advocated:

a. lower labor costs to increase exports.

b. tariffs and quotas to reduce imports.

c. trade policies designed to cause an inflow of gold.

d. All of the above

4. Specialization and trade by countries based on absolute advantage results in:

a. a faster depletion of the world’s resources.

b. products produced at higher cost.

c. the world using its resources more efficiently causing an increase in world output.

d. the world using its resources more efficiently causing a decrease in world output.

5. The theory of absolute advantage developed by Adam Smith was based on the assumption that:

a. capital was the only factor of production.

b. labor was the only factor of production.

c. capital and labor were the only factors of production.

d. absolute advantage was a myth.

6. If a country has a(n) _____ advantage in the production of a particular good, its opportunity cost of producing that good is lower than the opportunity cost for the trading partner for producing the same good.

a. comparative

b. absolute

c. interim

d. mercantilist

7. If a country has lower overall productivity levels than its trading partners, then:

a. it will be unable to export.

b. it will have a trade deficit.

c. it will not be able to obtain gains from trade.

d. it will have a lower standard of living than its trading partners.

8. To say that the U.S. possesses a comparative advantage over Japan in the production of certain types of music implies that (for a similar quality of music) the:

a. opportunity cost of production is less in Japan.

b. absolute cost of production is less in the U.S.

c. absolute cost of production is less in Japan.

d. opportunity cost of production is less in the U.S. Output per unit of Labor Scooters Picture Frames Holland 8 2 U.S. 5 2

9. With free trade, the minimum limit on the amount paid for one picture frame is _____ scooters.

a. 0.25

b. 0.80

c. 2.50

d. 4.00 Assume that a unit of labor in Bulgaria can produce 12 brooms or 15 hats per day. For Albania assume that a unit of labor can produce 18 brooms or 24 hats per day.

10. In Bulgaria the price of brooms in terms of hats is:

a. 1B = 1.25H.

b. 1B = 1H.

c. 1B = .75H.

d. 12B = 18H.

Answer 1

1. The Answer will be (C) Would tend to increase the price in the Exporting country.

Comparing the autarky situation the country exporting the goods will have increased marginal cost.

When there is a trade between two countries producing the same product and deal with each other, then the tariffs and subsidies provided by the importer will certainly affect the prices of the Exporter as it will increase in the home country (Exporter).

2. The answer is (a) That International trade was a zero-sum Game.

Mercantilism is an economic theory where Government Regulates the trade and economy of the country to increase the production capacity of the home based industries. This policy strictly restricted Imports, protecting the domestic industry and Increasing the gold reserves.

Mercantilism is a philosophy based on a Zero-Sum game where an individual is getting benefit of expenses done by another individual. The basics of this belief that If Britain exports it will get benefit but if Imports goods it will loose. This theory was developed during the Colonial Times.

3. The Answer is (d) All the above.

Mercantilists believed Restricting the Imports, Protecting Domestic industry and Increasing gold reserves. Because of the same reason they advocated to reduce the labor costs so that exports can be increased, Tariffs and quotas will again restrict the imported goods and developed trade policies so that they can regain the Gold reserve.

4. The answer is (c) The world using its resources more efficiently causing an increase in world output.

Hours of work necessary to produce one Unit-

Country	Steel	Coal
India	80	100
Australia	120	90

Hours of work to commit after the specialization -

Country	Steel	Coal
India	80 + 100	0
Australia	0	120 + 90

India produces (80 + 100)80 = 2.25 Units of Steel and on the other hand Australia produces ( 90 + 120 )90 = 2.23 Units of Coal. The total production if 2.25 Units of Steel and 2.23 Units of Coal which is greater than the production before specialization.

5. The answer is (b) Labor was the only factor of production.

Adam Smith Proposed the theory of Absolute advantage for a healthy International trade, using labor as only input. As the theory was based on scaling up the productivity in which the country is competitive enough and resourceful, and to scale up the productivity the basic tool is cheap labor.

6. The answer is (a) If a country has an Comparative advantage in the production of a particular good, its opportunity cost of producing that good is lower than the opportunity cost for the trading partner for producing the same good.

7. The answer is (d) It will have lower standard of living than its trading partners.

A country has lower productivity level that means the GDP of the country more or less volatile. This further showcases the dis-balance between production and consumption. This further leads to Lower standard of living. As the economy is small and the resources are not properly demarcated.

8. The answer is (b) Opportunity cost of production is less in the U.S.

9. The answer is (c) If we go through the chart we will find -

	Scooters	Picture Frames
Holland	8	2
U.S.	5	2

Step 1. The Minimum cost of Scooters:Picture frame is 5:2.

Step 2. Comparative Advantage = 52 = 2.5

Step 3. With free trade the minimum amount paid for one frame is 2.5 Scooters.

10. The answer is (a).

	Brooms	Hats
Bulgaria	12	15
Albania	18	24

Step 1. Comparative cost of Bulgaria with respect to Brooms:Hats = 12:15

Step 2. 1512 = 1.25

Step 3. In Bulgaria the price of brooms in terms of hats will be 1 Broom = 1.25 Hats