Deck 2: Understanding International Trade Theories and Terms

Question 1

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

Answer 1

No country has the capacity to produce all the goods and services required by its citizens/people

Question 2

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
D)All of the above

Answer 2

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

Question 3

International trade refers to

A)Domestic trade
B)Inter-regional trade
C)Trade between two nations or countries
D)Internal trade

Answer 3

Trade between two nations or countries

Question 4

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

Question 5

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

Question 6

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

Question 7

The Comparative theory of international trade is based on

A)Constant costs
B)Variable costs
C)Increasing costs
D)Decreasing costs

Question 8

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

A)1932
B)1933
C)1934
D)1935

Question 9

Community indifference curves have the same characteristics as

A)Transformation curve
B)Offer curve
C)Indifference curve
D)Production possibility curve

Question 10

The factor price ratio(PC/PL)A < (PC/PL)B of countries A & B implies

A)Country A is abundant in labour
B)Country B is abundant in capital
C)Country B is abundant in labour
D)Country A is abundant in capital

Question 11

The H-O theory assumed the prevalence of

A)Monopolistic forms of market
B)Perfect competition
C)Oligopolistic forms of market
D)Monopoly

Question 12

The production possibility curve represents

A)The supply side
B)The demand side
C)Combination of four commodities
D)None of the above

Question 13

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

Question 14

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

Question 15

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

Question 16

The fundamental reason why different countries involve in transactions with one another is the

A)Theory of absolute differences in costs
B)Production of goods
C)Gains from trade
D)Supply of goods

Question 17

If a country has favourable terms of trade, it will claim

A)A larger share in the distribution of gains
B)An equal share in the distribution of gains
C)A smaller share in the distribution of gains
D)None of the above

Question 18

The income terms of trade is

A)The net barter terms of trade of a country multiplied by its export volume index
B)The ratio between the quantities of a country's imports and exports
C)The ratio between the price of a country's export goods and import goods
D)None of the above

Question 19

Which factor does not influence terms of trade?

A)Devaluation
B)Overpopulation
C)Trade policy
D)Immigration

Question 20

Gains from trade depends on

A)Relative strength of elasticity of demand for export and import good
B)Size of the country
C)Change in technology
D)All of the above

Question 21

The principle of reciprocal demand was introduced by

A)J.S.Mill
B)Lionel Robbins
C)Alfred Marshall
D)Adam Smith

Question 22

Terms of trade expresses the relationship between

A)Balance of payments between two countries
B)The export price and import price of a country
C)Gains and loss of a country in international trade
D)None of the above

Question 23

The difference in the domestic cost ratios of producing two commodities in two countries is known as

A)Actual gains
B)Partial gains
C)Potential gains
D)Price gains

Question 24

The two types of gains from trade are

A)Internal and external gains
B)Static and dynamic gains
C)Relative and reactive gains
D)All of the above

Question 25

In case of Mill's theory, where country A produces good X and country B produces good Y, if country A's demand for product Y increases, then country A's offer curve will

A)Shift to the left
B)Shift to the right
C)Shift backwards
D)Remain constant