International Trade (Question Bank)

CBCS

VI SEMESTER

DEPARTMENT OF ECONOMICS;

OBJECTIVES

NAME OF THE PAPER: INTERNATIONAL TRADE

PAPER- XII(B)

SECTION –A

MULTIPLE CHOICE QUESTIONS (200X1=200)

UNIT-1

Tick the correct answer:

1. Adam Smith favoured

a. Free trade among nations ( )

b. Regulation of trade among nations ( )

c. Closed economies ( )

d. None of the above ( )

2. Which of the following is the cause of international trade as per Heckscher-Ohlin trade

theory?

a. Difference in factor availability ( )

b. Difference in cost of production ( )

c. Difference in trade ( )

d. Difference in currency system ( )

3. The theory of comparative advantage in international trade was propounded by

a. Kindleberger ( )

b. Adam Smith ( )

c. David Ricardo ( )

d. J.S. Mill ( )

4. According to Ohlin, the comparative cost differences arise because of

a. Labour cost differences ( )

b. Factor endowment differences ( )

c. Exchange rate differences ( )

d. None of the above ( )

5. Adam Smith’s theory of international trade is based on

a. Absolute differences in costs ( )

b. Homogeneity of labour ( )

c. Differences of exchange ratios ( )

d. Mobility of factors of production between countires ( )

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6. According to comparative advantage theory

a. Capital is the only factor of production ( )

b. Labour is the only factor of production ( )

c. Both capital and labour are factors of production ( )

d. None of the above ( )

7. Heckscher-Ohlin theory of trade is based on

a. Two-by-two-by-two model ( )

b. Three-by-three-by-three model ( )

c. Four-by-four-by-four model ( )

d. All of the above ( )

8. In Ricardian theory of international trade, the only factor of production is

a. Land ( )

b. Labour ( )

c. Capital ( )

d. All of the above ( )

9. The Absolute Advantage theory of international trade was propounded by

a. Adam Smith ( )

b. David Ricardo ( )

c. Alfred Marshall ( )

d. Lionel Robbins ( )

10. Haberler’s Opportunity cost theory explains the doctrine of comparative cost in terms of

a. The saving’s curve ( )

b. The consumption curve ( )

c. The substitution curve ( )

d. The supply curve ( )

11. According to the Heckscher-Ohlin theory of trade, the most important cause of

difference in relative commodity prices and trade between nations is a difference in

a. Factor endowment ( )

b. Tastes ( )

c. Demand conditions ( )

d. All of the above ( )

12. Under constant opportunity cost, the production possibility curve is

a. Convex to the origin ( )

b. Straight line ( )

c. Concave to the origin ( )

d. Upward sloping ( )

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13. According to the theory of comparative advantage, countries gain from trade, because

a. Trade makes firms more competitive, reducing their market

power ( )

b. Every country has an absolute advantage in producing something ( )

c. World output can rise when each country specializes in what it does relatively

best ( )

d. None of the above ( )

14. Among the difference between inter-regional and international trade, the reason for

international factor immobility includes

a. Difference in languages ( )

b. Difference in occupational skills ( )

c. Restrictions imposed by foreign country on labour immigration ( )

d. All of the above ( )

15. According to Adam Smith, free trade is the result of

a. Division of labour and specialisation both at the national and international

level ( )

b. Specialisation only at the national level ( )

c. Division of labour and specialisation at the national level only ( )

d. Division of labour only at the international level ( )

16. According to Ricardo, trade is possible between two countries when

a. One country has absolute advantage in production of both

commodities ( )

b. One country has an absolute advantage for production of both commodities but

comparative advantage in the production of one commodity than the other

country ( )

c. One country does not have any advantage in the production of both

commodities ( )

d. A country does not have any line of production ( )

17. David Ricardo believed that the international trade is governed by

a. Absolute cost advantage only ( )

b. Absolute cost and comparative cost advantage ( )

c. Comparative cost advantage ( )

d. Mobility of factors ( )

18. The basics and gains from international trade under the theory of opportunity cost is

determined by

a. Homogeneity of labours ( )

b. The shape of the substitution curve or production possibility curve under

different cost conditions ( )

c. Imperfect competition in factor and commodity markets ( )

d. Change in technology ( )

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19. The production possibility curve under increasing opportunity costs is concave to the

origin because

a. The opportunity cost of leaving a unit of one commodity to have an additional

unit of the other is constant ( )

b. Each country completely specializes in the production of only one commodity

after trade ( )

c. They are the same at all points ( )

d. When a country in the production of one commodity in which it has comparative

advantage, its opportunity costs increases ( )

20. The importance of international trade includes

a. Adverse terms of trade ( )

b. Lack of industrial diversification ( )

c. Balance of Payments deficit ( )

d. None of the above ( )

21. According to classical view, one of the main difference between inter-regional and

international trade is

a. Factor mobility ( )

b. Wage flexibility ( )

c. Both (a) and (b) ( )

d. None of the above ( )

22. According to Adam Smith, diversification of labour at the international level requires the

a. Existence of absolute differences in costs ( )

b. Existence of comparative differences in costs ( )

c. Existence of least cost combination of factors ( )

d. Existence of labour involved in production of a commodity ( )

23. The basic of international trade according to Ricardo is that

a. A country will export those commodities in which its comparative production

costs are high or will import those commodities in which its comparative

production costs are less ( )

b. A country will import those commodities in which its comparative production

cost are the same with other countries ( )

c. A country will export those commodities in which its comparative production

costs are less or will import those commodities in which its comparative

production costs are high ( )

d. A country will export those commodities in which its comparative production

cost are the same with other countries ( )

24. According to physical criterion of the H-O theory of trade, a country is said to be

relatively capital abundant if and only if

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a. A country is having capital relatively cheap and labour relative

costly ( )

b. A country is endowed with a higher proportion of capital to labour than the

other country ( )

c. A country is having labour relatively cheap and capital relatively

costly ( )

d. A country is endowed with a higher proportion of labour to capital than the

other country ( )

25. The price criterion if the H-O theory of trade lays down that

a. A country having labour relatively cheap and capital relatively costly is capital-

abundant ( )

b. A country having capital relatively cheap and labour relatively costly is labour-

abundant ( )

c. A country having both capital and labour cheap is

capital-abundant ( )

d. A country having capital relatively cheap and labour relatively costly is capital

abundant ( )

26. The main reason for different nations to enter into trade is that

a. Every nation can produce by itself all the commodities and services required by

its citizens/people ( )

b. Some nations are capable to produce all the goods and services required by its

people ( )

c. No country has the capacity to produce all the goods and services required by its

citizens/people ( )

d. None of the above ( )

27. According to the absolute differences in cost theory of trade

a. No country should specialize in the production of any

commodity ( )

b. Every country should specialize in the production of commodities which it can

produce more cheaply than other countries and exchange it for commodities

which are cheaper in other countries ( )

c. Every country should specialize in production of goods which it can produce at

higher cost than other countries and exchange it for commodities which are

costlier than other countries ( )

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d. All of the above ( )

28. International trade refers to

a. Domestic trade ( )

b. Inter-regional trade ( )

c. Trade between two nations or countries ( )

d. Internal trade ( )

29. The classical theory of international trade is based on

a. Labour theory of value ( )

b. Less than full employment ( )

c. Exchange rate differences ( )

d. None of the above ( )

30. The necessity of absolute differences in costs of international trade is associated with

a. Comparative advantage theory ( )

b. Opportunity Cost theory ( )

c. Absolute advantage theory ( )

d. Theory of Reciprocal Demand ( )

31. The opportunity cost theory considers

a. Labour as the only factor of production ( )

b. Capital as the only factor of production ( )

c. Both labour and capital ( )

d. Land, labour and capital ( )

32. The Comparative theory of international trade is based on

a. Constant costs ( )

b. Variable costs ( )

c. Increasing costs ( )

d. Decreasing costs ( )

33. The H-O theory of international trade was propounded by Ohlin in

a. 1932 ( )

b. 1933 ( )

c. 1934 ( )

d. 1935 ( )

34. Community indifference curves have the same characteristics as

a. Transformation curve ( )

b. Offer curve ( )

c. Indifference curve ( )

d. Production possibility curve ( )

35. The factor price ratio(P

C

/P

L

)

A

< (P

C

/P

L

)

B

of countries A & B

implies

a. Country A is abundant in labour ( )

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b. Country B is abundant in capital ( )

c. Country B is abundant in labour ( )

d. Country A is abundant in capital ( )

36. The H-O theory assumed the prevalence of

a. Monopolistic forms of market ( )

b. Perfect competition ( )

c. Oligopolistic forms of market ( )

d. Monopoly ( )

37. The production possibility curve represents

a. The supply side ( )

b. The demand side ( )

c. Combination of four commodities ( )

d. None of the above ( )

38. Relative factor abundance in H-O theory of trade can be defined in terms of

a. The physical & price criterion of relative factor abundance(and the price criterion

of relative factor abundance) ( )

b. Perfect mobility of factors of production ( )

c. Production governed by increasing returns to scale ( )

d. Similar factor intensities ( )

39. The slope of the production possibility curve under Opportunity costs theory is also

called

a. The average production curve ( )

b. Marginal rate of transformation ( )

c. Indifference curve ( )

d. Isoquant curve ( )

40. The term ‘factor intensity’ refers to

a. The relative proportion of two commodities produced in a given

period ( )

b. The relative amount of resources each country possesses ( )

c. The relative proportion of various factors of production used to produce a

commodity ( )

d. None of the above ( )

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Key answer

1. a

2. a

3. c

4. b

5. a

6. b

7. a

8. b

9. a

10. c

11. a

12. b

13. c

14. d

15. a

16. b

17. c

18. b

19. d

20. d

21. a

22. a

23. c

24. b

25. d

26. c

27. b

28. c

29. a

30. c

31. c

32. a

33. b

34. c

35. d

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36. b

37. a

38. c

39. b

40. c

Fill in the blanks:

1. Every country cannot produce all the commodities due to geographical and _________

conditions. (gains/climatic/tariff)

2. Laissez-faire means _______________. (free trade or no government

intervention/protection/quotas)

3. In Haberler’s theory, the exchange ratio between the two commodities is expressed in

terms of their ___________ costs. (oppourtunity/absolute/comparative)

4. The H-O theory is a _______________ model. (two-by-two-by-two/two-by-two-by

three/three-by-three-by-three)

5. The shape of production possibility curve under different cost conditions determines the

basis and the __________ from international trade under opportunity cost theory.

(cost/gains/supply)

6. In the ratio P

C

/P

L

, P implies price, while C & L indicates, _____________ and

_____________. (capital and labour/ cost and labour/capital and land)

7. The production possibility curve under increasing opportunity costs is

_________________ to the origin. (concave/convex/parallel)

8. __________________________ advocated the policy of laissez-faire. (Adam

Smith/Ricardo/Robbins)

9. A country will import those commodities in which its comparative ________________ is

the least. (disadvantage/advantage/mobility)

10. The production possibility curves under decreasing opportunity costs are

_________________ to the origin. (convex/concave/constant)

11. Adam Smith favoured free trade which is the result of advantages of division of labour

and ____________________ both at the national and international levels.

(distribution/specialization/supply)

12. Adam Smith, advocated the principle of __________________ advantage as the basis of

international trade. (absolute/comparative/reciprocal demand)

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13. According to David Ricardo, it is not absolute advantage but __________________

differences in costs that determine trade between two countries.

(comparative/mobility/transportation)

14. The Ricardian theory of comparative advantage is based on the assumption that all units

of _________ are homogeneous. (capital/labour/land)

15. A country will ___________ those commodities which its comparative advantage is the

greatest. (export/import/buy)

16. Under comparative advantage theory, factors of production are perfectly mobile within

each country but perfectly__________ between countries.

(employed/immobile/homogeneous)

17. The opportunity costs theory was propounded by_______________.

(Haberler/J.S.Mill/Jacob Viner)

18. Under the opportunity costs theory, there is perfect competition in both the factor and

__________ markets. (labour/commodity/capital)

19. In H-O theory, two-by-two-by-two model implies ______________, two commodities

and two factors of production. (two prices/two markets/two countries)

20. The H-O theory explains richness in factor endowment in terms of

__________________. (factor prices/transportation cause/demand)

Key answers:

1. climatic

2. free trade or no government intervention

3. opportunity

4. two-by-two-by-two

5. gains

6. capital and labour

7. concave

8. Adam Smith

9. disadvantage

10. convex

11. specialization

12. absolute

13. comparative

14. labour

15. export

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International Trade

International Trade

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