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foundations of modern trade theory MCQs

Practise focused foundations of modern trade theory questions with marked answers for exam preparation and subject revision.

foundations of modern trade theory Mcqs
1. Country B has an absolute advantage in ?
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A. Product X

B. Product Y

C. Neither X nor Y

D. Both X and Y

2. G. MacDougal compared export ratios and labor productivity ratios for the United States and the United Kingdom in order to test the:
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A. Heckscher Ohl in theory of comparative advantage

B. Linder theory of overlapping demand all of the above

C. None of these

D. Ricardian theory of comparative
3. The relative price (MRT) of T in terms of S is ?
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A. 2

B. 1000

C. 500

D. 2-Jan

4. In autarky, the relative price of X, in terms of Y in A would be ?
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A. 3/4 Y

B. 1 Y

C. 4/3 Y

D. 1/2 Y

5. In the classical model of Ricardo, the direction of trade is determined by ?
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A. Absolute advantage

B. Physical advantage

C. Comparative advantage

D. Which way the wind blows

6. If the relative price (MRT) of S were to increase, then the price line would ?
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A. shift out in a parallel fashion

B. Become steeper

C. Become flatter

D. shift in a parallel fashion

7. According to the Principle of absolute advantage Japan should ?
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A. Export DVDs

B. Export steel

C. Exports steel and DVDs

D. There is no basis for gainful specialization and trade
8. The earliest statement of the principle of comparative advantage is associated with ?
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A. Adam Smith

B. Berti IOhlin

C. David Ricardo

D. Eli Heckscher

9. If the autarky price of S were lower in country A than in country B then if trade were allowed ?
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A. neither country would want to trade

B. None of the above

C. A would likely export S to B

D. A would likely import S from B

10. The terms of trade is given by the prices ?
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A. Of primary products as opposed to manufactured products

B. Paid for all goods exported by the home country

C. Received for all goods exported by the home country

D. Received for exports and paid for imports
11. With international trade, what would be the maximum number of DVDs that Japan would be willing to export to South Korea in exchange for each ton of steel ?
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A. Two DVDs

B. Four DVDs

C. One DVD

D. Three DVDs

12. Country B has the comparative advantage in ?
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A. Wine

B. Beer

C. Both wine and beer

D. Neither wine nor beer

13. International trade is based on the nation that ?
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A. Different currencies are an obstacle to international trade

B. Goods are more mobile internationally than are resources

C. A countrys exports should always exceed its imports

D. Resources are more mobile internationally that are goods

14. If Hong Kong and Taiwan have identical production possibilities curves that are subject to increasing opportunity costs ?
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A. Trade would depend on the use of different currencies

B. Trade would depend on difference in demand conditions

C. There would be no basis for gainful trade

D. Trade would depend on economies of large-scale production

15. John Stuart Mill was the founder of the ?
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A. Theory of mercantilism

B. Theory of reciprocal demand

C. Theory of comarative advantage

D. Theory of absolute advantage

16. The opportunity cost of one DVD in Japan is ?
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A. Four tons of steel

B. One ton of steel

C. Three tons of steel

D. Two tons of steel

17. Country A has an absolute advantage in ?
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A. Beer

B. Wine

C. Both products

D. neither products
18. Dynamic gains from trade could result from ?
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A. The stimulus of additional investment spending as market open

B. Economies of large scale production as markets open

C. Additional competition made possible by the opening of markets

D. All of the above
19. With International trade, what would be the maximum amount of steel that South Korea would be willing to export to Japan in exchange for each DVD ?
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A. One ton of steel

B. One-half ton of steel

C. Two and one-half tons of steel

D. Two tons of steel
20. The gains from international trade are closely related to ?
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A. The labor theory of value

B. How much the autarky price differs from international terms of trade change

C. The fact that a country must lose from trade

D. All of the above

21. In autarky, the relative price of wine, in terms of beer, in country A is ?
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A. 1W = 3B

B. 1W = 1/3B

C. 1W = 1B

D. 1W = 2B

22. Given free trade, small nations tend to benefit the most from trade since they ?
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A. Are more productive than their large trading partners

B. Are less productive than their large trading partners

C. Have demand preferences and income levels lower than their large trading partners

D. Realize terms of trade lying near the MRTs of their large trading partners
23. Under free trade, Canada would not realize any gains from trade with Sweden if Canada ?
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A. Specializes partially in the production of its exports goods

B. Specializes completely in the production of its export good

C. Trades at Canadas marginal rate of transformation

D. Trade at Swedens marginal rate of transformation

24. In autarky, when a community maximizes its standard of living its production point is ?
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A. on the production possibility frontier

B. below the production possibility frontier

C. above the production possibility frontier

D. cant tell without more information

25. Mercantilism ?
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A. Is the philosophy of free international trade?

B. Was a system of export promotion and barriers to imports practiced by governments?

C. Was praised by Adam Smith in the Wealth of Nations

D. Both (a) and (c)

26. In autarky the relative price of wine, in terms of beer, in Country B is ?
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A. 1W = 6B

B. 1W = 5B

C. 1W = 3B

D. 1W = 4 1/2B
27. If the countries were to trade along the lines of absolute advantage ?
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A. None of the above

B. Neither country would want to trade

C. B would import Y from A

D. A would export X to B

28. If a country has a bowed out (concave to the origin) production possibility frontier then production is said to be subject to ?
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A. constant opportunity costs

B. increasing opportunity costs

C. first increasing and then decreasing opportunity costs

D. decreasing opportunity costs

29. G. MecDougall showed in his tests that ?
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A. None of the above

B. relatively higher U.S labor productivity was associated with relatively higher U.K export ratios

C. Labor productivity ratios and export ratios were not associated with each other

D. relatively high U.K labor productivity was associated with relatively higher U.K export ratios
30. According to the principle of comparative advantage ?
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A. South Korea should export steel and DVDs

B. South Korea should export steel

C. Japan should export steel

D. Japan should export steel and DVDs

31. Country A has the comparative advantage in ?
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A. Wine

B. Beer

C. Both wine and beer

D. Neither wine nor beer

32. The opportunity cost of one DVD in South Korea is ?
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A. One ton of steel

B. One and one-half tons of steel

C. Two tons of steel

D. One-half ton of steel

33. The classical trade theories of Smith and Ricardo predict that ?
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A. Considerable trade will occur between countries with different levels of technology

B. Small countries could obtain of the gains from trade when trading with large countries

C. All of the above

D. Countries will completely specialize in the production of export goods

34. If the relative Price (MRT) of T were to increase, then the price line would ?
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A. Become flatter

B. shift in a parallel fashion

C. Shift out in a parallel fashion

D. become steeper

35. G. MacDougalls empirical results can be interpreted as ?
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A. evidence against the classical model

B. Support for the Ricardian modal

C. Support for the Heckscher-Ohlin model

D. evidence against the Heckscher-Ohlin model

36. Country A has an absolute advantage in__________?
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A. Product X

B. Product Y

C. Neither X nor Y

D. Both X and Y

37. Absolute advantage is determined by ?
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A. actual differences in labor production between countries

B. relative differences in labor productivity between countries

C. Both (a) and (b)

D. Neither (a) nor (b)

38. Which countries terms of trade improved between 1990 and 2000 ?
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A. Mexico and Sweden

B. Mexico and Denmark

C. Sweden and Denmark

D. Sweden and Spain

39. If the international terms of trade settle at a level that is between each countrys opportunity cost ?
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A. There is no basis for gainful trade for either country

B. Both countries gain from trade

C. Only one country gains from trade

D. One country gain and the other country loses from trade

40. In autarky equilibrium ?
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A. All of the above

B. Exports equal imports

C. there is no trade

D. Production equals consumption

41. If countries were to trade along the lines of comparative advantage ?
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A. A would export X to B

B. None of the above

C. A would export Y to B

D. Neither country would want to trade

42. If a country has a liner (downward sloping) production possibilities frontier, then production is said to be subjected to ?
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A. increasing opportunity costs

B. decreasing opportunity costs

C. first increasing and then decreasing opportunity costs

D. constant opportunity costs
43. In aukarky, when a community maximizes its standard of living, its production and consumption point is ?
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A. cant tell without more information

B. below the production possibility frontier

C. On the production possibility frontier

D. above the production possibility frontier

44. Comparative advantage is determined by ?
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A. actual differences in labor productivity between countries

B. relative differences in labor productivity between countries

C. Both (a) and (b)

D. Neither (a) nor (b)

45. The Relative price (MRT)of S in terms of T i ?
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A. 1/2

B. 2

C. 1000

D. 0

46. According to the Classical theory of international trade ?
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A. Only countries with high wages will import

B. Only countries with low wages will export

C. All of the above are false

D. Countries with high wages will have higher prices