School of Distance Education

University of Calicut
MA Economics – III Semester

International Trade (ECO3C09)

Multiple choice Question Bank

1.International trade contributes and increases the world _________

A. Population

B. Inflation

C. Economy

D. Trade Barriers

2. Free international trade maximizes world output through________.

A. Countries reducing various taxes imposed.

B. Countries specializing in production of goods they are best suited for.

C. Perfect competition between countries and other special regions

D. The diluting the international business laws & conditions between countries.

3. Domestic company limits it’s operations to ___________ political boundaries.

A. International

B. National

C. Transnational

D. Global

4. Trade between two or more than two countries is known as ________.

A. Internal Business

B. External Trade

C. International Trade

D. Unilateral Trade

5. _____refers to the tax imposed on imports.

A. Imported Tax

ECO3C09- International Trade Page 1

 School of Distance Education

B. Tariffs

C. Subsidies

D. Import Quotas

6. _____ means selling the products at a price less than on going price in the market.

A. Quota
B. Tariff

C. Subsidy

D. Dumping

7. _______is the oldest International Trade theory.

A. Country Similarity Theory

B. Theory of Absolute Cost advantage

C. Product Life Cycle Theory

D. Mercantilism Theory

8. A voluntary export restraint is the opposite form of _____.

A. Import quotas

B. International tariffs

C. Subsidies

D. Dumping

9. ____ is a group of countries agree to abolish all trade restrictions and barriers.

A. Common market

B. Economic Union

C. Custom Union

D. Free Trade Area

10. EU stands for _____

A. Export Union

B. European Union

C. EXIM Union

ECO3C09- International Trade Page 2

 School of Distance Education

D. Export Union

11. The abbreviation SAARC stands for _______

A. South American Association for Regional Cooperation

B. South African Association for Regional Cooperation

C. South ASEAN Association for Regional Cooperation

D. South Asian Association for Regional Cooperation

12. The full form of WTO is __________

A. World Tariff Organization

B. World Trade Organization

C. Western Trade Organization

D. World Transport Organization

13. ________was replaced by WTO on January 1, 1995.

A. NAFTA

B. IMF

C. IRDB

D. GATT

14. n International Trade, Full form of NAFTA is ___________.

A. National American Free Trade Agreement

B. North Asian Free Trade Agreement

C. New Anti-Tariff Free Trade Agreement

D. North American Free Trade Agreement

15. ASEAN stands for ___________.

A. The Association of Southeast American Nations

B. The Association of Southeast Asian Nations

C. The Agreement of Southeast American Nations

D. The Agreement of Southeast Asian Nations

ECO3C09- International Trade Page 3

 School of Distance Education

16. __________was established by a multilateral treaty of 23 countries in 1947.

A. WTO

B. UN

C. GATT

D. NAFTA

17. In International Trade, IMF stands for ___________.

A. International Monetary Fund

B. International Money Fund

C. International Market Fund

D. International Monetary Firm

18. An import tariff is a tax or duty levied on ___________ commodities.

A. Imported

B. Exported

C. Transported

D. Both A & B

19. An _____________ is a tax or duty levied on exported commodities.

A. Import Tariff

B. Export Tariff

C. Transport Tariff

D. Free Trade Tariff (FTT)

20. __________refers to purchase of goods from a foreign country.

A. Foreign Trade

B. Export Trade

C. Import Trade

D. EXIM Trade

21. _______is a fixed percentage on the value of the traded commodity.

ECO3C09- International Trade Page 4

 School of Distance Education

A. Anti dumping duty

B. Specific tariff

C. Ad Valorem tariff

D. A compound tariff

22. In most countries, foreign trade represents a significant share of ______

A. EXIM

B. FDI

C. Income Per Capita

D. GDP

23. Cash grants, loans at low rate and tax holidays are examples of ______.

A. Quotas

B. Tarifs

C. Subsidies

D. Discounts

24. _________refers to the sale of goods to a foreign country.

A. Foreign Trade

B. Export Trade

C. Import Trade

D. EXIM Trade

25. _______is a combination of an ad valorem and specific tariff.

A. Anti dumping tariff

B. Specified Valorem Tariff

C. EXIM Tariff

D. A compound tariff

26. _______ refers to goods imported from one country and are exported to another country.

A. Third Party Trade

ECO3C09- International Trade Page 5

 School of Distance Education

B. Entrepot trade

C. Export Trade

D. EXIM Trade

27. Theory of comparative advantage was presented by:

A. Adam Smith

B. Ricardo

C. Hicks

D. Arshad

28. Trade between two countries can be useful if cost ratios of goods are:

A. Equal

B. Different

C. Undetermined

D. Decreasing

29. Modern theory of international trade is based n the views of:

A. Robbins and Ricardo

B. Adam Smith and Marshall

C. Heckcsher and Ohlin

D. Saleem and Kareem

30. Net exports equal:

A. Exports x Imports

B. Exports + Imports

C. Exports - Imports

D. Exports of services only

31. A tariff:

A. Increases the volume of trade

ECO3C09- International Trade Page 6

 School of Distance Education

B. Reduces the volume of trade

C. Has no effect on volume of trade

D. (a) and (c) of above

32. A tariff is:

A. A restriction on the number of export firms

B. Limit on the amount of imported goods

C. Tax and imports

D. (b) and (c) of above

33. Which of the following theories suggests that firms seek to penetrate new markets over
time?

A.Imperfect Market Theory

B.Product cycle theory

C. Theory of Comparative Advantage

D. None of the above

34.Dumping refers to:

A. Reducing tariffs

B. Sale of goods abroad at low a price, below their cost and price in home market

C. Buying goods at low prices abroad and selling at higher prices locally

D. Expensive goods selling for low prices

35. Hecksher-ohlin theorem states that a capital rich country

A. Exports Capital intensive goods

B. imports capital intensive goods

C. exports labour intensive goods

D. imports labour intensive goods

36. According to Ricardo, international trade is useful under ______

a) Absolute cost

ECO3C09- International Trade Page 7

 School of Distance Education

b) comparative cost,

c) equal difference in cost,

d) Zero cost.

37. Ricardian theory assumes perfect mobility of labour______

a) Within the country,

b) between the countries,

c) both within and between the countries,

d) none of these.

38. Heckscher-Ohlin theory is about _______

a) inter-regional trade,

b) international trade,

c) domestic trade,

d) a and b both

39. According to Heckscher-Ohlin theory, product price depends on _______

a) Factor intensity,

b) factor abundance,

c) factor cost,

d) all of these.

40. A reciprocal demand is _______

a) Mutual demand of two countries to each other’s good

b) Mutual supply

c)Price of export and import

d ) Derived demand

41. An offer curve ________

a) Differs from usual demand curve only

ECO3C09- International Trade Page 8

 School of Distance Education

b) Differs from usual supply curve only

c) same as usual demand curve

d) Differs from both demand and supply curves

42. International trade _______

a) Stimulates innovations,

b) Reduces cost of production

c)Diversifies consumption

d)All the above

43. Tariff is expressed as either a specific or an ad valorem rate, whichever is higher, is

known as__________

a) General Tariff,

b) Mixed Tariff,

c) Compound Tariff,

d) Countervailing Tariff

44. Which one of the following is not a Non-Tariff Barrier (NTB)?

a) Voluntary export restriction,

b) Local content requirement

c) Administrative barrier

d) Tariff rate quotas

45. The reduction in domestic consumption due to imposition of quota results in

a) Increase in government revenue,

b) Increase in consumer’s surplus

c) Loss of social welfare,

d) Increase in social welfare

46. The ASEAN was formed in ________

ECO3C09- International Trade Page 9

 School of Distance Education

a) 1967,

b) 1945

c) 1999,

d) 2000

47. Graphical representation of reciprocal demand is referred to as_______

a) Offer curve,

b) Demand curve,

c) Supply curves,

d) Contract curve

48. The Protectionist Policy ________

a) Encourages international specialization,

b) Promotes global trade,

c) Prevents dumping

d) Reduces government’s interference in trade

49. ________ is/ are controversies in trade policy

a) Labour standards,

b) IPR,

c) Environment,

d) All of these

50. SAARC was formed in

a) 1995,

b)1985,

c) 1980,

d) 1990

51. Regional trade agreement is treaty signed by countries to____

ECO3C09- International Trade Page 10

 School of Distance Education

a) Encourage free movement of goods and services across borders

b) Encourage free movement of goods and services within borders

c) Discourage free movement of goods and services across borders

d) None of the above

52. Trade is not possible if countries operate under____

a) Absolute cost difference

b) equal cost difference

c) Comparative cost difference

d) None of the above

53. Heckscher – Ohlin theory of International trade assumes ______ (Countries*

Commodities* factors of production)

a) 2*2*2

b) 2*2*1

c) 2*3*2

d) 3*2*2

54. When Leontief tested the predictions of the Heckscher-Ohlin theory, he found that in
1947 the United States was exporting relatively labor-intensive goods and importing
relatively capital-intensive goods. This was called the Leontief Paradox. This finding:

a. Justified the imposition of import tariffs on capital-intensive goods

b. Contradicted the Heckscher-Ohlin theory as the United States was relatively labor-
abundant.

c. Fit the predictions of the Heckscher-Ohlin theory concerning the trading patterns of a
capital-abundant country.

d. Contradicted the Heckscher-Ohlin theory as the United States was relatively capital-
abundant.

55. Which of the following statements refers to as Immiserizing Growth?

a. Labor abundant country should produce and export labor intensive products to promote
growth

ECO3C09- International Trade Page 11

 School of Distance Education

b. A country which enjoys economic growth but reduced welfare

c. A country which enjoys both economic growth and welfare increase

d. An increase in labor resource in a country will lead to a reduction in production of the

labor-intensive product.

56. ‘Immiserizing growth’ is the term given by

A. Amartya Sen

B. N Kaldor

C. Paul Krugman

D. Jagdish Bhagwati

57. The Rybczynski theorem argues that if one factor of production (e.g. capital) increases in
a country, than the output of goods which are intensive in that factor will
_________________. *

a. increase

b. decrease

c. remain the same

d. none of the above

58. The Rybczynski theorem implies that immigration will lower wages. *

a. true

b. false

c. uncertain

d. none of the above

59. A change in the price of a traded good results in a more than proportional change, in the
same direction, in the price of the factor that is used in the production of that good ore
intensively.” This is the definition of the ___________________. *

a. Stolper-Samuelson theorem

b. Heckscher-Ohlin theorem

c. Rybczynski theorem

d. none of the above

ECO3C09- International Trade Page 12

 School of Distance Education

60. The idea of factor price equalization implies that, in perfect competition and free trade,
wages across two trading countries will __________________. *

a. converge

b. diverge

c. remain the same

d. none of the above

61. According to the Prebisch-Singer thesis

a. demand for primary products has steadily fallen.

b. profits of primary producers have steadily fallen.

c. primary producers' terms of trade have steadily fallen.

d. prices of primary products have risen over time

62. The Dutch Disease problem arises when a country has such a strong commodity export
that it _________________ the value of that country’s real exchange rate. *

a. stagnates

b. deflates

c. raises

d. lowers

63. The appreciation in the exchange rate due to the strength of a single commodity make is
harder for a country to __________________ goods. *

a. import

b. export

c. price

d. destroy

64. Canada may be a current example of the Dutch Disease. It has lately been exporting more
_______________, but its ______________ sector has been declining.

a. manufactured goods; natural resource

b. natural resources; manufacturing

ECO3C09- International Trade Page 13

 School of Distance Education

c. manufactured goods; agricultural

d. natural resources; agricultural

65. When the value of a country’s currency rises relative to other world currencies, this is an
_______________ of the real exchange rate.

a. appreciation

b. depreciation

c. disinflation

d. stagnation

66. Which trade theory holds that nations can increase their economic well-being by
specializing in the production of goods they produce more efficiently than anyone else?

a. The international product life cycle theory.

b. The theory of comparative advantage.
c. The factor endowment theory.
d. The theory of absolute advantage.

67. Which of the following holds that a government can improve the economic well-being of
a country by encouraging exports and discouraging imports without a reliance on previous
metals?

a. Mercantilism.
b. Neo-mercantilism.
c. The Leontief paradox.
d. Quotas.

68. Which of the following theories holds that countries will produce and export products that
use large amounts of production factors that they have in abundance?

a. The factor endowment theory.

b. The theory of absolute advantage.
c. Mercantilism.
d. None of the above.

69. Vernon's international product life cycle theory:

a. helps explain the movement from absolute advantage to comparative advantage.

b. shows why the United States, surprisingly, exports relatively more labor-intensive
goods and imports capital-intensive goods.
c. extends the concept of comparative advantage by bringing into consideration the
endowment and cost of factors of production.
d. helps explain why a product that begins as a nation export often ends up becoming an
import.

70. Which of the following is not a reason to erect trade barriers?

ECO3C09- International Trade Page 14

 School of Distance Education

a. Encourage local production.

b. Reduce reliance on foreign suppliers.
c. Protect local jobs.
d. Promote import activity.

71. A company of the US has excess products that it does not want to sell into the US market
because it will bring down the domestic price and instead sells it at another country at below
the cost of production. What is this called?

a. Countervailing.
b. International trade
c. Dumping.
d. None of the above.

72. The Stolper-Samuelson Theorem postulates that the imposition of tariff by a nation
causes the real income of the nation’s

a. both and abundant factors to rise

b. abundant factor to rise
c. scarce factor to fall
d. scarce factor to rise

73. Which theorem from the Heckcsher-Ohlin model suggests that output will fall in an
industry when there is an increase in the endowment that industry uses least intensively?

a) Stolper-Samuelson theorem

b) Rybczynski theorem

c) Factor price equalization

d) None of the above

74. Which paradox is contradictory of H-O theory?

a. Samuelson paradox.
b. Leontief paradox.
c. Haberlar paradox.
d. Lerner paradox.

75. According to the Stopler-Samuelson theorem a tariff benefits

a. The abundant factor.

b. The scarce factor.
c. Both A and B.
d. None of the above.

76. Availability theory was developed by?

a. Marshall.
b. Nurkse.

ECO3C09- International Trade Page 15

 School of Distance Education

c. Porter.
d. Kravis

77. Factor price equalization theorem was proved by?

a. Schumpeter.
b. Heckschser-Ohlin.
c. Lerner.
d. Samuelson.

78. According to the trade theory of Staffan Linder trade tends to be most pronounced in
manufactured goods when trading countries have ?

a. similar endowments of natural resources

b. similar levels of technology
c. similar per-capita incomes
d. similar wage levels

79. The Heckscher-Ohlin theory explains comparative advantage as the result of differences
in countries ?

a. Economies of large-scale production

b. Relative abundance of various resources
c. Relative costs of labor
d. Research and development expenditures

80. According to the factor endowment model of Heckscher and Ohlin, countries heavily
endowed with land will ?

a. Devote excessive amounts of resources to agricultural production

b. Devote insufficient amounts of resources to agricultural production
c. Export products that are land-intensive
d. Import products that are land-intensive

81. hould international transportation costs decrease the effect on international trade would
include a (an) ?

a. increase in the volume of trade

b. Smaller gain from trade
c. Decline in the income of home producers
d. Decrease in the level of specialization in production

82. The terms of trade measure ?

a. The income of one country compared to another

b. The GDP of one country compared to another
c. The quantity of exports of one country compared to another
d. Export prices compared to import prices

83. Terms of trade of developing countries are generally unfavourable because:

ECO3C09- International Trade Page 16

 School of Distance Education

A. They export primary goods

B. They import value added goods

C. They export few goods

D. (a) and (b) of above

84. The value of foreign trade multiplier will be high under the condition when

(A) marginal propensity to save is high

(B) marginal propensity to import is high

(C) there is increase in exports

(D) marginal propensity to consume domestic goods is high

85. The Foreign Trade Multiplier is the ratio of;

A) the change in equilibrium output to a change in import.

B) the change in the money supply to a change in the monetary base.

C) the change in the money supply to a change in the autonomous expenditure.

D) the change in equilibrium output to a change in the autonomous expenditure.

86. Technological gap model or Imitation Gap Model was developed by:

a. M.V. Posner

b. Samuelson

c. Ricardo

d. Kravis

87. Direct payments made by the government to domestic companies to encourage exports or
to protect them from imports are known as —

a. voluntary export restraints

b. aids
c. export tariffs
d. subsidies

88. A quantitative import or export restriction which prohibits or limits the quantity of a
product being exported or imported is called a(n) —

a. import tariff
b. restraint
c. embargo

ECO3C09- International Trade Page 17

 School of Distance Education

d. quota

89. Bilateral agreements that restrict exports are called —

a. transit tariffs
b. voluntary export restraints
c. orderly marketing arrangements
d. export quotas

90. Which economic growth strategy involves extensive use of trade barriers to protect
developing country industries from the rigors of foreign competition
a. lower prices
b. stable prices
c. higher prices
d. none of the above
91. Strategies for development include
a. import substitution
b. export-led growth
c. (a) and (b)
d. none of the above
92. John Stuart Mill was the founder of the

a. Theory of reciprocal demand

b. Theory of absolute advantage

c. Theory of comparative advantage

d. Theory of mercantilism
93. The factor endowment model of international trade was developed by

a. Adam Smith

b. David Ricardo

c. John Stuart Mill

d. Eli Heckscher and Bertil Ohlin

94. Which trade theory contends that a country that initially develops and exports a new
product may eventually become an importer of it, and may no longer manufacture the
product:

a. Theory of factor endowments

b. Theory of overlapping demands

c. Economies of scale theory

d. Product life cycle theory

ECO3C09- International Trade Page 18

 School of Distance Education

95. ______ 1954 study of U.S. trade patterns showed that U.S. exports were labor-
intensive compared with U.S. imports, even though the United States was widely
regarded as a relatively capital-abundant nation.

a. Paul Samuelson’s

b. Wolfgang Stolpher’s

c. Staffan Linder’s

d. Wassily Leontief’s

96. That the division of labor is limited by the size of the market best applies to which
explanation of

trade:

a. Factor endowment theory

b. Product life cycle theory

c. Economies of scale theory

d. Overlapping demand theory

97. The product cycle theory of trade is essentially a

a. static, short run trade theory

b. dynamic, long run trade theory

c. zero-sum theory of trade

d. negative-sum theory of trade

98. Antidumping duties are used to

a. offset the ―margin of dumping

b. punish domestic consumers for buying high-priced imported goods

c. discourage foreign governments from subsidizing their exporters

d. reduce the tariff revenues of the domestic government

99. The organization that currently establishes rules of conduct for firms engaging in
international trade is the

a. World Bank

b. International Trade Commission

ECO3C09- International Trade Page 19

 School of Distance Education

c. Department of Justice

d. World Trade Organization

100. Which round of international trade negotiations resulted in the creation of the World
Trade Organization?

a. Kennedy Round of 1964-1967

b. Tokyo Round of 1973-1979

c. Uruguay Round of 1986-1993

d. Doha Round of 2003-200

ANSWERS

1.c 11.d 21.c 31.b 41.d 51.a 61.c 71.c 81.a 91.c

2.b 12.b 22.d 32.b 42.d 52.b 62.c 72.d 82.d 92.a

3.b 13.d 23.c 33.b 43.b 53.a 63.b 73.b 83.d 93.d

4.c 14.d 24.b 34.b 44.d 54.d 64.b 74.b 84.c 94d

5.b 15.b 25.d 35.a 45.c 55.b 65.a 75.a 85.a 95.d

6.d 16.c 26.b 36.b 46.a 56.d 66.d 76.d 86.a 96.c

7.d 17.a 27.b 37.a 47.a 57.a 67.b 77.d 87.d 97.b

8.a 18.a 28.b 38.d 48.c 58.b 68.a 78.c 88.d 98.a

9.d 19.b 29.c 39.d 49.d 59.a 69.d 79.b 89.b 99.d

10.b 20.c 30.c 40.a 50.b 60.a 70.d 80.c 90.a 100.c

ECO3C09- International Trade Page 20