International Trade Mock Test Quiz: Trivia!

1. To maximize worldwide gains from trade, the country which should produce a good is the country that

Has the lowest opportunity cost of producing that good

Can produce that good using the fewest resources

Will produce that good using the most expensive resources

None of these

Since specialization makes possible an increase in productivity, the question becomes, what should a country specialize in? The answer is - it has the lowest opportunity cost.

Explanation

Since specialization makes possible an increase in productivity, the question becomes, what should a country specialize in? The answer is - it has the lowest opportunity cost.

2. The source of gains from trade is?

Tariffs

Self-sufficiency

Autarky equilibrium

Comparative advantage

The source of gains from trade is comparative advantage. Comparative advantage refers to the ability of a country or individual to produce a good or service at a lower opportunity cost than others. By specializing in the production of goods or services in which they have a comparative advantage, countries can trade with each other and benefit from the efficiency gains. This allows for the production of a greater variety of goods, lower prices, and higher overall economic welfare. Tariffs, self-sufficiency, and autarky equilibrium do not directly contribute to the gains from trade.

Explanation

The source of gains from trade is comparative advantage. Comparative advantage refers to the ability of a country or individual to produce a good or service at a lower opportunity cost than others. By specializing in the production of goods or services in which they have a comparative advantage, countries can trade with each other and benefit from the efficiency gains. This allows for the production of a greater variety of goods, lower prices, and higher overall economic welfare. Tariffs, self-sufficiency, and autarky equilibrium do not directly contribute to the gains from trade.

3. The terms of trade are?

The countries’ production possibilities curve

The autarky equilibrium

He length of time two individuals or countries have been trading

The exchange rates of two goods

The value of different country’s currency differs from one another in terms of what each currency can buy.

Explanation

The value of different country’s currency differs from one another in terms of what each currency can buy.

4. Autarky implies that

A country’s consumption possibilities are the same as its production possibilities

Equilibrium has been reached with the maximum gains from specialization and trade

Equilibrium has been reached with the maximum amount of international trade

The nation has such a high standard of living that there are technically no poor people

Autarky is a situation of national self-sufficiency in which there is no economic interaction with foreigners.

Explanation

Autarky is a situation of national self-sufficiency in which there is no economic interaction with foreigners.

5. When the world price of an internationally traded product is greater than a country's domestic equilibrium price.

The domestic price will prevail, and the world price is irrelevant

The country’s import line is horizontal

The country’s exports of the product will increase

Can not be determined

Goods are most often bought based on relative price differences between alternatives. If a country’s price of a good is less expensive than the alternative goods offered in the world market, demand will increase along with exports of that good.

Explanation

Goods are most often bought based on relative price differences between alternatives. If a country’s price of a good is less expensive than the alternative goods offered in the world market, demand will increase along with exports of that good.

6. A nation's consumption possibilities frontier is?

The same as its production possibilities frontier only if there is no international trade

Never the same as its production possibilities frontier

The same as its production possibilities frontier only if there is advantageous trade

Always the same as its production possibilities frontier

If there is international trade a country’s consumption possibilities exceed its production possibilities.

Explanation

If there is international trade a country’s consumption possibilities exceed its production possibilities.

7. Mutually beneficial trade cannot occur

When each country has its own comparative advantage

If one country has absolute advantages in the production of every good

When the opportunity costs of producing each good are equal for both trading partners

If total world production equals total world consumption

Countries trade because they have different opportunity costs in producing goods and services.

Explanation

Countries trade because they have different opportunity costs in producing goods and services.

8. Comparative advantage

Exists only when one producer can make the product using fewer resources than any other producer

Leads to the most efficient allocation of resources and the greatest combined output

Eliminates specialization, so that each country produces all of its own needs independently

All the above are correct

When a country produces a good that it has a low opportunity cost, it is taking advantage of its comparative advantage. By producing goods with low opportunity costs it is giving up less in terms of foregone production than producing alternative goods.

Explanation

When a country produces a good that it has a low opportunity cost, it is taking advantage of its comparative advantage. By producing goods with low opportunity costs it is giving up less in terms of foregone production than producing alternative goods.

9. Which of the following is not an economic reason for international specialization?

Some countries have educated, trained workers, which other countries have unskilled workers

Tastes and preferences tend to be different in different countries

The world price of a good is determined by the world supply and demand for the product

There is no reason for specialization

Even though C is a truthful statement, it does not explain why a country should specialize in the production of a particular good or service.

Explanation

Even though C is a truthful statement, it does not explain why a country should specialize in the production of a particular good or service.

10. The gains from trade are due primarily to the fact that?

The wealth of large, industrialized nations can be spread throughout the world

Total world output increases when each country specializes

Countries can boost their economies by increasing exports

All the above

By each county specializing in each country becomes more efficient for several reasons; one reason is that non-productive activity is eliminated. Total world output increases because of the resultant greater efficiency.

Explanation

By each county specializing in each country becomes more efficient for several reasons; one reason is that non-productive activity is eliminated. Total world output increases because of the resultant greater efficiency.