Deck 16: Globalization

Question 1

Which of the following is a non-economic driver of globalization?

A) Comparative cost advantage.
B) Wars.
C) Trade barriers.
D) Technology and communications.

Answer 1

Technology and communications.

Question 2

Which of the following is likely to improve a country's terms of trade?

A) The price of its imports rises relative to the price of its exports.
B) Its comparative advantage in the production of a good reduces.
C) The demand for its exports rises.
D) The cost of production of domestic goods rises.

Answer 2

The demand for its exports rises.

Question 3

Which of the following statements is correct?

A) Globalization is a natural consequence of comparative advantage.
B) In the short-run, all individuals bene?t from international trade.
C) Two countries can never trade the same good.
D) Self-su?ciency is an easier way of increasing the real income levels of a

Answer 3

Globalization is a natural consequence of comparative advantage.

Question 4

Which of the following is a reason for restricting trade?

A) To promote international peace.
B) To place quotas on imports.
C) To reduce international competitiveness.
D) To prevent environmental degradation.

Question 5

Which of the following is an economic driver for globalization?

A) The convergence of cultures.
B) The media.
C) The law of comparative advantage.
D) Travel and tourism.

Question 6

Suppose the opportunity costs of production of goods differ between two countries. Which of the following statements is true?

A) It will not be possible for either country to gain from trading with the other.
B) If each country specializes and trades with the other, there will be an increase in the
C) Each country should produce all the goods to promote self-su?ciency.
D) Neither country will have a comparative advantage in the production in any of the goods.

Question 7

What does the terms of trade measure?

A) A trade agreement between two countries.
B) The opportunity costs of producing goods within a country.
C) The number of goods that will be traded between two countries.
D) The price ratio of exports to imports.

Question 8

The nation of Chromia exports certain types of computer devices to Alvania and also imports other types of computer devices from Alvania. This is an example of _____.

A) two-way trade
B) domestic trade
C) inter-industry trade
D) restricted trade

Question 9

Suppose country Zoravia can produce 1 unit of good X every 2 hours and 1 unit of good Y every 30 minutes. Another country Alaine needs an hour each to produce 1 unit of X and 1 unit of Y. Which of the following statements must be true?

A) Alaine is more productive in the production of both goods X and Y.
B) Zoravia has a lower opportunity cost in the production of good Y.
C) Alaine has to give up 4 units of Y to produce 1 unit of X.
D) Zoravia has no comparative advantage in the production of either good.

Question 10

If the country of Zebina has a comparative advantage in the production of wheat over the country of Almia, then:

A) the opportunity cost of producing wheat is higher in Zebina than in Almia.
B) the opportunity cost of producing wheat is lower in Zebina than in Almia.
C) neither Almia nor Zebina should specialize in the production of wheat.
D) Zebina will export all of its wheat to Almia.

Question 11

Which of the following is likely to explain why India specializes in the production of textiles?

A) India has witnessed substantial GDP growth over the last decade.
B) Textiles is a labour-intensive industry and India has abundant cheap labour.
C) The opportunity cost of textile production in India is very high.
D) India is a mixed economy and industrial production as a percentage of GDP has grown

Question 12

If the nation of Alphania enjoys an increase in consumption as a result of specialization and trade, then it can be concluded that:

A) it has no trade barriers in any sector.
B) it has a comparative advantage in the production of all goods.
C) the country has a high level of in?ation.
D) it has experienced the gains from trade.

Question 13

If the nation of Erbia can produce 1 laptop in 4 hours and 1 refrigerator in 8 hours, then the opportunity cost of producing one more refrigerator is:

A) 4 laptops.
B) 2 laptops.
C) 1 laptop.
D) 8 laptops.

Question 14

A tariff is:

A) a payment to domestic producers to help them compete in international markets.
B) a mechanism for setting an absolute level on the number of units of a good that can be
C) a tax on a product being exported.
D) a tax on a product being imported.

Question 15

The law of comparative advantage states that:

A) economies should specialize in the good that they are comparatively better at making.
B) economies should import goods that are comparatively cheaper to produce at home.
C) economies should produce goods with comparatively low-quality inputs to reduce costs.
D) economies should price products comparatively lower than the international price.

Question 16

Suppose the USA can produce 1 car every 10 hours and 1 mobile phone every 4 hours. Also assume that Japan can produce 1 car every 5 hours and 1 mobile phone every hour. If the USA and Japan decide to trade, which of the following statements must be true?

A) The USA should specialize in the production of cars.
B) The USA is more productive than Japan in both goods.
C) Only the USA will bene?t from trade in this case.
D) The USA has a comparative advantage over Japan in the production of mobile phones.

Question 17

If there is a steady rise in the ratio of export to import prices for a country, it implies that:

A) the country is unable to fund its imports easily.
B) there has been an improvement in the terms of trade.
C) GDP growth has slowed down.
D) there has been a steady decline in the command GDP.

Question 18

Two-way trade of cars between Germany and Japan is mainly a consequence of:

A) the law of comparative advantage.
B) consumers' demand for differentiated products.
C) protectionism, which has distorted world trade patterns.
D) increased ?ow of FDI between the countries.

Question 19

Suppose that the nation of Rubium has a comparative disadvantage in the production of cocoa. Rubium should:

A) import cocoa.
B) produce cocoa for domestic consumption only.
C) produce cocoa for export only.
D) specialize in the production of cocoa in an attempt to increase productive e?ciency.

Question 20

Suppose the nation of Lathania requires 10 hours to produce one washing machine and 4 hours to produce a mobile phone. The nation of Hafnia requires 3 hours to produce a washing machine and 8 hours to produce a mobile phone. It is bene?cial if:

A) Lathania imports washing machines from Hafnia.
B) Hafnia exports mobile phones to Lathania.
C) Lathania imposes tariffs on the import of washing machines.
D) Hafnia increases the domestic production of mobile phones.

Question 21

Which of the following forms of trade restrictions makes domestic production cheaper?

A) Subsidies
B) Quotas
C) Tariffs
D) Discounts

Question 22

The following graph shows the domestic supply and demand curves for a good. S1 and S2 represent the domestic industry supply before and after the provision of a subsidy by the government respectively, while D represents the domestic demand for the product. Prior to the subsidy, the country was importing 300 units of the good. Refer to the graph to answer the question. The world price for the product is:

A) £9
B) £7
C) £8
D) £6

Question 23

The following graph shows the domestic supply and demand curves for a good. S1 and S2 represent the domestic industry supply before and after the provision of a subsidy by the government respectively, while D represents the domestic demand for the product. Prior to the subsidy, the country was importing 300 units of the good. Refer to the graph to answer the question. At the world price, the quantity supplied by the domestic industry prior to the subsidy is:

A) 100 units.
B) 200 units.
C) 300 units.
D) 400 units.

Question 24

The following graph shows the domestic supply and demand curves for a good. S1 and S2 represent the domestic industry supply before and after the provision of a subsidy by the government respectively, while D represents the domestic demand for the product. Prior to the subsidy, the country was importing 300 units of the good. Refer to the graph to answer the question. Which of the following is true once the subsidy is implemented?

A) The domestic supply curve shifts and the quantity supplied increases to 300 units.
B) The world price changes to £8 per unit.
C) The domestic demand remains unchanged at 400 units.
D) The quantity of imports increases.

Question 25

The following graph shows the domestic supply and demand curves for a good. S1 and S2 represent the domestic industry supply before and after the provision of a subsidy by the government respectively, while D represents the domestic demand for the product. Prior to the subsidy, the country was importing 300 units of the good. Refer to the graph to answer the question. At the world price, the domestic demand is:

A) 100 units.
B) 240 units.
C) 300 units.
D) 400 units.

Question 26

When a tariff is removed this will lead to:

A) a rise in imports and greater domestic demand and supply.
B) a rise in imports and a fall in domestic demand and supply.
C) a rise in imports and domestic demand but lower domestic supply.
D) no change in imports as increased demand is met by increased domestic supply.

Question 27

Suppose the world price of a good is £20 per unit. Country Almia imports this good because the domestic market clearing price is £27 per unit. Domestic producers in country Almia supply 1,000 units of this good at the world price, while another 2,000 units is imported. However, in an attempt to protect the domestic producers of this good, the government of Almia imposes a per unit tariff of £2 on the import of this good. Which of the following conclusions can be drawn from this information?

A) The tariff increases the domestic price to £27 per unit.
B) With the imposition of the tariff, Almia will no longer need to import any amount of this
C) The quantity demanded in the domestic market before the tariff was imposed was 2,000 units.
D) The new quantity demanded at £22 per unit is less than 3,000 units.

Question 28

The following graph shows the domestic supply and demand curves for a good. S1 and S2 represent the domestic industry supply before and after the provision of a subsidy by the government respectively, while D represents the domestic demand for the product. Prior to the subsidy, the country was importing 300 units of the good. Refer to the graph to answer the question. If the government provides a subsidy on domestic production, then the demand for imports is equal to:

A) 100 units.
B) 200 units.
C) 300 units.
D) 400 units.

Question 29

Membership of the EU requires a country to:

A) promote free trade.
B) impose tariffs and quotas among the member nations.
C) prohibit entry and exit of ?rms in the member nations.
D) reduce international competition.

Question 30

Which of the following is true of quotas?

A) Unlike tariffs, it reduces the domestic price level of the good on which the quota is imposed.
B) It forces domestic producers to improve productive e?ciency.
C) It is a source of tax revenue for the domestic government.
D) It makes goods more expensive for domestic consumers.

Question 31

Which of the following restricts trade?

A) Subsidising domestic production.
B) Creation of trade blocs.
C) Increasing the money supply within the economy.
D) Deregulation of ?nancial institutions.

Question 32

_____, an international institution formed in 1947, was created to bring countries together to negotiate the reduction in tariffs.

A) WTO
B) GATT
C) IMF
D) CAP

Question 33

Which of the following is a trade bloc?

A) ASEAN
B) WTO
C) OECD
D) IMF

Question 34

The imposition of a subsidy rather than a tariff will:

A) reduce domestic supply and increase imports.
B) prevent a price increase for the domestic consumers.
C) have no affect on government revenue.
D) shift the domestic supply curve upwards.

Question 35

What is a trade bloc?

A) A group of countries that are self-su?cient and do not trade.
B) A group of countries that has agreed to remove all trade barriers among themselves.
C) A group of neighboring countries that implement the same level of tariffs while trading with each other.
D) A group of countries that use the same currency.

Question 36

What are quotas?

A) They are restrictions on the domestic production of a good.
B) They are quantitative restrictions on the import of a product.
C) They are a form of aid provided by the domestic government to reduce the cost of production.
D) They restrict the amount of a good that can be sold in the country.

Question 37

The infant industry argument for protectionism:

A) is strong because without it industrialisation is impossible.
B) often leads to a situation of longer term protectionism than was ?rst envisaged.
C) over estimates the importance of competition in improving ?rm-level economic e?ciency.
D) has increasingly been accepted by economists as a necessary evil.

Question 38

Which of the following is more likely to be eligible for protection from international competiton?

A) An infant industry.
B) A monopoly.
C) A perfectly competitive industry.
D) An export industry.

Question 39

The imposition of import tariff on a good:

A) causes the domestic price to be higher than the world price.
B) reduces trade barriers.
C) reduces domestic supply of the good.
D) increases the domestic demand for the good.

Question 40

Which of the following acts as a barrier to trade?

A) Quotas
B) Discounts
C) Privatization
D) Trade blocs

Question 41

The transnationality index measures:

A) a ?rm's exposure to foreign markets.
B) the level of intra-industry competition.
C) the price ratios of imports and exports.
D) the standard of living across different countries.

Question 42

Which of the following is a common concern regarding the operation of a multinational enterprise?

A) The existence of minimum wage laws in developing nations.
B) The exploitation of workers.
C) The ine?ciency of the home country's capital market.
D) The existence of a strong legal system in the countries in which the ?rm operates.

Question 43

Which of the following is a potential threat for a country like China whose strength lies in its abundant labour?

A) Exploitation of comparative advantage.
B) Rising exchange rate.
C) Higher wages in other countries.
D) Trade creation.

Question 44

Given that a ?rm's ratio of foreign assets/total assets = 6, foreign workers/total workers = 3 and foreign sales/total sales = 6, what is the value of the index of transnationality?

A) 7
B) 3
C) 5
D) 6

Question 45

Trade blocs such as the EU usually have:

A) a common external tariff to treat developing countries' exports equitably.
B) a common external quota to treat developing countries' exports equitably.
C) a combination of common external quotas and tariffs to treat developing countries' exports equitably.
D) a high level of cross-border competition.

Question 46

Which of the following restricts the exploitation of comparative advantage across countries?

A) Language and cultural differences.
B) Similar social norms.
C) Homogenous quality of inputs.
D) Homogenous tastes and preferences of the consumers.

Question 47

Which of the following statements is true?

A) Europe is a leading source of renewable low-carbon technologies.
B) FDI is of little help in transferring the low-carbon technologies around the world.
C) There has been a fall in the FDI in the low-carbon technologies sector.
D) Low-carbon technologies do not create any externalities.

Question 48

Which of the following is included while calculating the transnationality index?

A) Foreign assets
B) Imports
C) Price of domestic commodities
D) GDP

Question 49

Which of the following will support the claim that the development of the GATT, WTO, and various trade blocs have been successful in promoting international trade?

A) Trade blocs have resulted in a lot of trade diversion from low-cost suppliers.
B) World exports, as a proportion of world GDP, have been growing rapidly over the last few
C) Tariffs are an important source of revenue for the governments of many countries.
D) When one country introduces trade barriers such as import tariffs, trading partners often

Question 50

Which of the following is a likely bene?t of a trade bloc like the EU?

A) It promotes self-su?ciency among member nations.
B) It promotes reduction of trade barriers between non-member countries.
C) The trade bloc reduces cross-border competition.
D) The competition generated by lack of trade barriers promotes innovation.

Question 51

Which of the following is a motive behind foreign direct investments?

A) Overseas operations of multinational enterprises.
B) Alleviation of poverty in less developed countries.
C) Political domination.
D) To avoid migration of labour.

Question 52

Which of the following could be a threat posed by globalization?

A) Dependence on the global market makes an economy susceptible to unfavorable changes in its long-run exchange rate.
B) An increase in the knowledge and familiarity with other cultures.
C) A possible increase in the living standards of developing nations due to job creation.
D) A possible decline in the level of global competition.

Question 53

Which of the following can be termed as trade diversion?

A) The imposition of tariffs on the import of a good.
B) Subsidizing domestic production to reduce imports and support domestic production.
C) Banning trade in a certain good to protect an infant industry in the country.
D) Creation of a trade bloc results in buying a good from a high-cost member nation rather

Question 54

Which of the following could generate economies of scope?

A) Investment in a brand.
B) Launching a product in a single market.
C) Specialization in the single product.
D) Privatization.

Question 55

Which of the following is a macroeconomic source of international competition?

A) Falling in?ation.
B) Falling GDP.
C) Rising cost of input prices.
D) Rising regulations in the capital market.

Question 56

Which of the following is a motive for the ?rms to become global?

A) To increase their revenue.
B) To trigger an in?ation.
C) To increase foreign GDP.
D) To increase domestic employment.

Question 57

Which of the following is likely to be a source of international competitiveness?

A) Improved communications infrastructure.
B) Reduction in aggregate demand.
C) Increase in income tax rates.
D) Increased red-tapism.

Question 58

Which of the following is true of the EU's Common Agricultural Policy (CAP)?

A) The CAP represents about 30 per cent of the EU's budget.
B) The CAP is strongly defended by the UK, while it is opposed by France.
C) It is very important to the EU because agriculture represents more than 10 percent of the EU GDP.
D) It reduces the price of agricultural products in the EU and beyond.

Question 59

The transnationality index was developed by:

A) the Organization for Economic Co-operation and Development.
B) the Common Agricultural Policy.
C) the United Nations Conference for Trade and Development.
D) the European Union.

Question 60

Which of the following is true of FDI?

A) Growth in FDI has slowed down considerably over the last 25 years.
B) Developing Asia is one of the leading recipients of FDI.
C) Contrary to popular belief, Europe is not one of the leading FDI destinations.
D) FDI as a percentage of global GDP peaked in the early 1990s.

Question 61

Comparative advantage reflects differences in factor endowments between countries.

Question 62

In intra-industry trade, a country imports and exports goods produced by a single industry.

Question 63

The failure of the Tokyo Round of negotiations led to the creation of the World Trade Organization in 1947.

Question 64

One of the driving factors behind globalization is advertising and the media.

Question 65

Tariffs and quotas support inefficient domestic producers at the expense of consumers, or taxpayers.

Question 66

The purchase, or building, of a production facility by a foreign firm in a country will be termed foreign direct investment.

Question 67

When the commercial risk of investing in a foreign country is high, firms would prefer investing directly than selling franchises.

Question 68

World trade has increased between the developed economies of the world; it has not included the less-developed economies of the world.

Question 69

The main regions in the world which receive FDI inflows are less developed regions such as Africa.

Question 70

A trade bloc refers to a group of countries that have agreed to remove all trade barriers that may have existed between them.

Question 71

A firm that exhibits a high value on the index of transnationality is likely to be a domestic company with zero exposure to foreign markets.

Question 72

The introduction of quotas on imports will aid trade between two countries.

Question 73

If a tariff is imposed on an imported good, the price that consumers pay for the good will increase.

Question 74

The cost of raw materials and labour used in producing a good decides whether an economy has a comparative advantage in the production of the good.

Question 75

Trade creation occurs when the establishment of a trade bloc diverts trade from low-cost global suppliers, to higher cost member nations.

Question 76

Firms can enter foreign markets through the franchising method: the firm pays a local business to run and build the firm's outlet in that country.

Question 77

Over the period 1980 through to 2007, the UK's terms of trade have been worsening, with a steady fall in the ratio of export to import prices.

Question 78

The Common Agricultural Policy (CAP) is a system that offers direct income payments to farmers.

Question 79

Allowing producers access to larger international markets facilitates the attainment of scale economies.

Question 80

The index of transnationality seeks to measure a firm's exposure to non-domestic markets.