Question 1

The media and communications sector is an emerging industry in the developing nation of Plaesis. The government of Plaesis is taking all the measures needed to protect this sector from foreign competition. The government believes that emerging business sectors need to be protected and nurtured for a period of time until they become established, or they will not be able to compete against established foreign firms. In the given scenario, the beliefs of the country's government most closely reflect _____.
A) neo-mercantilism
B) the theory of underconsumption
C) mercantilism
D) the infant industry theory

Accepted Answer

The government's belief in protecting and nurturing emerging business sectors until they can compete on their own aligns with the infant industry theory. This theory advocates for temporary protectionism to help new industries develop.

Question 2

Which of the following statements is true of the infant industry theory?
A) It argues that adoption of the free trade policy is the best way to empower infant industries.
B) It proposes the idea that new industries generate more revenue than existing ones.
C) It states that all new industries need to be well established from the start to compete against foreign firms.
D) It argues that certain emerging industries need to be protected for a period of time.

Accepted Answer

The infant industry theory suggests that emerging industries may need temporary protection from international competition to develop and become competitive. This can involve tariffs, quotas, or other trade barriers to shield the nascent industries from established foreign competitors.

Question 3

Cleon, a Korean cosmetics brand, recently launched its range of face oils in an entirely new market where that product has never been introduced by any brand. Exploring the new market turns out to be greatly beneficial for the company as the sales of the face oils shoot up immediately. In the given scenario, Cleon is a _____.
A) cash cow
B) business magnet
C) first mover
D) venture capitalist

Accepted Answer

Cleon is a "first mover" because it is the first company to introduce face oils in a new market, gaining an advantage over potential future competitors.

Question 4

The government of Gredland, a small country, realizes that Gredland's imports have been disproportionately higher than its exports for the past five years. From the given information, it can be said that Gredland does not have an ideal _____.
A) free-trade policy
B) balance of trade
C) subsidy rate
D) bilateral agreement

Accepted Answer

A balance of trade refers to the difference between the value of a country's imports and exports. If imports are higher than exports, the balance of trade is not ideal.

Question 5

In efforts to curb the influx of foreign goods into the country, the government of Losvane has set a limit on the number of goods that can be imported in a given year. In this case, the government of Losvane is most likely imposing a _____.
A) subsidy
B) tariff
C) sanction
D) quota

Accepted Answer

Setting a limit on the number of goods that can be imported is the definition of a quota. Quotas are used to control the volume of trade by limiting the quantity of goods that can enter or leave a country.

Question 6

Reylons Inc., a private company based in the United States of America, buys 1500 acres of public land in India to set up one of its manufacturing units. In this case, the sum of money received by the Indian government in exchange for the land will be reflected in the country's _____.
A) current account
B) capital account
C) demand account
D) equity account

Accepted Answer

The sum of money received by the Indian government in exchange for the land will be reflected in the country's capital account, as it involves the sale of a real asset to a foreign entity, which is a part of capital transactions.

Question 7

Broston Inc., a bottling company, has state-of-the-art bottling and capping equipment in its manufacturing unit. The manufacturing unit is capable of producing double the quantity than required for the domestic market. The company plans to venture into the global market in order to maximize the utilization of the bottling plant and generate more revenue. This scenario reflects the concept of the _____.
A) theory of computation
B) theory of economies of scale
C) theory of spontaneous generations
D) theory of the international product life cycle

Accepted Answer

The scenario reflects the theory of economies of scale, which suggests that as production increases, the cost per unit decreases, allowing the company to maximize utilization and generate more revenue.

Question 8

To discourage dumping activities and to maintain a trade surplus, the government of Alburnark has imposed high taxes on the import of foreign products in the country. In the given scenario, the government of Alburnark has used _____ to restrict imports.
A) subsidies
B) tariffs
C) block grants
D) quotas

Accepted Answer

The government of Alburnark has used tariffs, which are taxes imposed on imported goods, to restrict imports. This measure makes foreign products more expensive, thereby discouraging dumping and protecting domestic industries.

Question 9

The government of Kingsbain believes in backing its domestic firms rather than allowing foreign products to be dumped in the domestic markets. As the domestic firms of Kingsbain are inefficient, the government regularly gives them money to keep them in business. This monetary support provided by the government is called a(n) _____.
A) subsidy
B) tariff
C) embargo
D) quota

Accepted Answer

A subsidy is financial assistance provided by the government to domestic firms to support them, especially when they are not competitive or efficient enough on their own. This helps the firms stay in business despite inefficiencies.

Question 10

Jonathan is an entrepreneur who believes that companies pursue international trade in an attempt to achieve cost advantages by spreading fixed costs over more units of output. Jonathan believes in the _____.
A) theory of absolute advantage
B) theory of comparative advantage
C) theory of economies of scale
D) theory of the international product life cycle

Accepted Answer

Jonathan's belief aligns with the theory of economies of scale, which suggests that companies can achieve cost advantages by increasing their output to spread fixed costs over more units, thereby reducing the cost per unit.

Question 11

In the context of the balance of trade, the _____ calculates a country's exports and imports of goods, services, and income.
A) current account
B) capital account
C) credit account
D) equity account

Accepted Answer

The current account calculates a country's exports and imports of goods, services, and income, reflecting the balance of trade and earnings on foreign investments versus payments made to foreign investors.

Question 12

Darsana and Meraad, two Middle Eastern countries, have signed a global pact that provides a multilateral forum in which to resolve business-related disputes between member countries. In spite of years of good business relations between the two countries, they have a dispute over each other's import and export policies. In this case, to solve the dispute, both the countries will most likely approach the _____.
A) International Association of Facilitators
B) United Nations Trusteeship Council
C) World Trade Organization
D) United Nations Security Council

Accepted Answer

The World Trade Organization (WTO) is the most relevant entity for resolving business-related disputes between member countries, especially those concerning import and export policies.

Question 13

Quotas and tariffs:
A) restrict imports.
B) reflect a government's lack of support to its domestic firms.
C) induce free trade.
D) serve as threats to domestic markets.

Accepted Answer

Quotas and tariffs are tools used by governments to restrict imports by setting limits on the amount or value of goods that can be imported (quotas) or by imposing taxes on imports (tariffs). These measures are often used to protect domestic industries from foreign competition.

Question 14

Which of the following statements is true of the General Agreement on Tariffs and Trade (GATT) treaty?
A) It was created with the motive to increase import and export tariffs.
B) It was intended to reduce free trade in favor of protectionism.
C) It provided a multilateral forum to resolve trade disputes between member countries.
D) It encouraged countries to buy only from preferred partners.

Accepted Answer

The General Agreement on Tariffs and Trade (GATT) was established to provide a multilateral forum where member countries could negotiate trade agreements and resolve disputes, aiming to reduce tariffs and other trade barriers.

Question 15

Which of the following scenarios best illustrates a situation that hints at the problem of underconsumption in an economy?
A) Borsworne, a country where the citizens buy the same quantities of common goods and expensive goods
B) Karjestan, a country where less capital flows out of the domestic economy than it flows in
C) Vergonea, a country where there is equal distribution of wealth
D) Glisbane, a country that has income disparity

Accepted Answer

Underconsumption occurs when there's not enough demand for goods and services in an economy, often due to income disparity. In Glisbane, income disparity means that a significant portion of the population might not have enough disposable income to purchase goods and services, leading to underconsumption.

Question 16

Avancas Inc. is a health food manufacturing company that decides to expand its business. It introduces its products in Crosia, a developing nation, which is a new market altogether. The company's products become an instant hit in the country, and their sales go up. Nutricia, another health food manufacturing company, follows suit and launches its products in Crosia. However, the consumers seem less enthusiastic about Nutricia's products than they were for Avancas' products. In this scenario, Avancas Inc. is a _____.
A) cash cow
B) business magnet
C) first mover
D) business builder

Accepted Answer

Avancas Inc. is considered a "first mover" because it was the first company to enter the Crosia market with its health food products, gaining an advantage over later entrants like Nutricia.

Question 17

Darren, a trade analyst, believes that trade is a function of a specific company's strategic initiatives and not country-level factors, production factors, or even industry characteristics. Darren's belief reflects the _____.
A) theory of absolute advantage
B) theory of comparative advantage
C) theory of economies of scale
D) theory of the international product life cycle

Accepted Answer

Darren's belief aligns with the theory of economies of scale, which focuses on the efficiencies and advantages a company can achieve through its own strategic initiatives, rather than external factors like country-level or industry characteristics.

Question 18

Which of the following statements is true of mercantilism?
A) It does not force the capital assets of a country to enter an economy.
B) It does not include export subsidies or import restraints.
C) One of its primary objectives was to generate funds to support the military.
D) The original form of mercantilism emphasized running trade surpluses to fund rapid economic development.

Accepted Answer

Mercantilism, a dominant economic theory in Europe from the 16th to the 18th century, aimed at increasing a nation's wealth by imposing government regulation concerning all of the nation's commercial interests. It was characterized by the belief that a country's power depended on its wealth, particularly its gold and silver reserves. One of the primary objectives of mercantilism was indeed to generate funds to support the military, as a strong military was considered essential for defending and expanding a country's trade networks and colonial possessions.

Question 19

Which of the following statements is true of the balance of trade?
A) Adopting mercantilistic policies always result in a balance of trade for countries.
B) At no point in time can a country have a negative trade balance.
C) As the global market is always balanced, individual countries do not need to maintain trade balances.
D) Income disparities in a country can lead to a negative trade balance.

Accepted Answer

Income disparities within a country can affect its consumption patterns, potentially leading to increased imports over exports, which can result in a negative trade balance. This is because a higher income segment might demand more imported goods, influencing the trade balance negatively if not matched by equivalent exports.

Question 20

The government of Nerland, a European country, wants to find out about the country's exports and imports of goods, services, and income. In this case, the country's Ministry of Finance will have to look into the _____ of Nerland.
A) current account
B) capital account
C) credit account
D) equity account

Accepted Answer

The current account includes all transactions related to exports and imports of goods, services, and income. It is the part of the balance of payments that records a nation's transactions with the rest of the world in these areas.

Quiz 7: Trade

Which of the following statements is true of the infant industry theory?

The government of Gredland, a small country, realizes that Gredland's imports have been disproportionately higher than its exports for the past five years. From the given information, it can be said that Gredland does not have an ideal _____.

In efforts to curb the influx of foreign goods into the country, the government of Losvane has set a limit on the number of goods that can be imported in a given year. In this case, the government of Losvane is most likely imposing a _____.

Reylons Inc., a private company based in the United States of America, buys 1500 acres of public land in India to set up one of its manufacturing units. In this case, the sum of money received by the Indian government in exchange for the land will be reflected in the country's _____.

To discourage dumping activities and to maintain a trade surplus, the government of Alburnark has imposed high taxes on the import of foreign products in the country. In the given scenario, the government of Alburnark has used _____ to restrict imports.

Jonathan is an entrepreneur who believes that companies pursue international trade in an attempt to achieve cost advantages by spreading fixed costs over more units of output. Jonathan believes in the _____.

In the context of the balance of trade, the _____ calculates a country's exports and imports of goods, services, and income.

Quotas and tariffs:

Which of the following statements is true of the General Agreement on Tariffs and Trade (GATT) treaty?

Which of the following scenarios best illustrates a situation that hints at the problem of underconsumption in an economy?

Darren, a trade analyst, believes that trade is a function of a specific company's strategic initiatives and not country-level factors, production factors, or even industry characteristics. Darren's belief reflects the _____.

Which of the following statements is true of mercantilism?

Which of the following statements is true of the balance of trade?

The government of Nerland, a European country, wants to find out about the country's exports and imports of goods, services, and income. In this case, the country's Ministry of Finance will have to look into the _____ of Nerland.