Q.No.

Question Options Answer

1. Customs unions

2. Common market
Differences in factor productivities among member countries is
1. overcome by bringing down the barriers to factor mobility in a 3. FTAs 2
regional bloc. This is true for which of the following:

4. All of the above

5. -

1. Economic union

2. Common market
Which economic integration scheme is solely intended to
2. abolish trade restrictions among member countries, while 3. Free trade area 4
setting up common tariffs against non-members?

4. Customs union

5. -

1. Trade creation-production effect

2. Trade creation-consumption effect

Assume that the formation of a customs union turns out to
include the lowest-cost world producer of the production in
3. 3. Trade diversion 3
question. Which effect could not occur for the participating
countries?
4. Scale economies and competition

5. -

1. Dynamic welfare losses

2. Dynamic welfare gains

When products from high-cost suppliers within a customs
4. union replace imports from a low-cost nation that is not a 3. Trade creation 4
member of the customs union, there exist(s):

4. Trade diversion

5. -

1. Export prices have fallen by 13% in relation to imports

2. Export price have increased by 13% in relation to imports

If the net barter terms of trade decreases from 100 to 87, then
5. 3. Import prices have fallen by 13% in relation to exports 1
which of the following would be true:

4. Import prices have risen by 13% in relation to exports

5. -

1. Trade diversion occurs

2. Trade creation occurs

When the United States, Canada, and Mexico form a free trade
6. area, and Mexico begins importing a product from Canada 3. World welfare rises 1
rather than from the lowest cost world producer then:

4. World welfare falls

5. -

1. Elimination of trade restrictions among member countries

2. A common tax system and monetary union

The implementation of a common market involves all of the

7. 3. No restrictions on factor movements 2
following except:

4. A common tariff levied in imports from nonmembers

5. -
8. Suppose that steel from Japan faces a 20 percent tariff in 1
France and a 25 percent tariff in Italy, while France and Italy 1. Free trade area
maintain free trade between each other. France and Italy are,
therefore, part of a (an): 2. Customs union
 3. Common market

4. Economic union

5. -

1. Trade diversion

2. Trade creation

A dynamic welfare gain resulting from the formation of say,

9. 3. Diseconomies of scale 4
the European Union, would be:

4. Economies of scale

5. -

1. Trade creation, no trade diversion, and overall welfare gains

Suppose that Canada has domestic firms that could supply its 2. Trade creation, no trade diversion, and overall welfare losses
entire market for radios at a price of $50, while U.S. firms could
supply radios at $40 and Mexico at $30. Suppose that Canada
10. 3. Trade diversion, no trade creation, and potential overall welfare losses 1
initially has a 50 per cent tariff on imports of radios and then
forms a free trade area with Mexico. As a result, Canada
realizes:
4. Trade diversion, trade creation, and potential overall welfare gains

5. -

1. A non-member exporting to any of the member countries of FTA

2. A non-member exporting to FTA member countries at higher tariffs

11. Which of the following is an example of trade deflection? 3. A non-member exporting to FTA member countries at lower tariffs 4

4. A non-member routing the exports through FTA member country with lower tariff

5. -

1. Trade diversion

2. Dead weight loss due to production effect

Rules of Origin Certification is necessary to avoid which of the

12. 3. Dead weight loss due to consumption effect 4
following trade effects

4. trade deflection

5. -

1. Highly competitive

2. Highly noncompetitive

Members of a FTA find that "trade creation" is fostered when

13. 3. Small in economic importance 1
their economies are:

4. Geographically distant

5. -

1. Trade diversion effect exceeds trade creation effect

2. Trade production effect exceeds trade consumption effect

Customs Union Theory reasons that the formation of customs

14. 3. Trade consumption effect exceeds trade production effect 1
union will decrease members' real welfare when the:

4. Trade creation effect exceeds trade diversion effect

5. -
15. An import quota is more costly to a country than an import 3
tariff if quota rents are captured by: 1. Domestic importers

2. The domestic government

3. Foreign exporters

4. Foreign Consumers
 5. -

1. The U.S. government

2. Japanese automakers
Suppose the United States and Japan enter into a voluntary
export agreement in which Japan imposes an export quota on
16. 3. American auto consumers 2
its automakers. The largest share of the export quota's
"revenue effect" would tend to be captured by:
4. American autoworkers

5. -

1. Domestic price of the good falls

2. Producer inefficiency costs increases

Suppose the Government grants a subsidy to its export firms
17. that permit them to charge lower prices on goods sold abroad. 3. Either (a) or (b) 1
From an importing country perspective this would result in:

4. Both (a) and (b)

5. -

1. Domestic prices higher than world prices

2. World prices fall when all exporting countries give subsidy

An export subsidy from an exporting country perspective can

18. 3. Difficult to sustain export subsidies 4
result in which of the following:

4. All of the above

5. -

1. import tariff

2. export tax

An export subsidy to be effective, which of the following

19. 3. export quota 1
supporting policy is necessary:

4. domestic production subsidy

5. -

1. Domestic producers

2. Domestic government

If import licenses are given on first come first serve basis, then
20. 3. Foreign producers 4
the quota rents go to:

4. Dead weight loss

5. -

1. Least cost factor inputs not used

2. Economies of scale are not captured

Domestic content requirements is trade distorting because of

21. 3. Production value addition not corresponding to comparative advantage 4
the following factor:

4. All of the above

5. -

1. subsidies shift the country's domestic supply curve

2. domestic consumption increases as domestic pries fall

Domestic production subsidies by a large country are

22. 3. higher export surpluses lead to fall in world prices 3
considered as trade distorting because

4. world production declines

5. -
23. Following an export subsidy policy, if the importing country 2
imposes a countervailing duty, the net loosers will be : 1. Producers in the exporting country

2. Taxpayers in the exporting country

 3. Producers in the importing country

4. Consumers in the importing country

5. -

1. Domestic Government

2. Foreign consumers
If a large country gives production subsidies to promote a
24. specific industry, which of the following would be the net 3. Domestic exporters 4
loosers:

4. Foreign exporters

5. -

1. Improvement in terms of trade

2. Deterioration in terms of trade

Suppose the income terms of trade increases from 100 to 104.

25. 3. Increase in the capacity to import (based on export earnings) 3
Then which of the following would be true:

4. Decrease in the capacity to import (based on export earnings)

5. -

1. Economic union

2. Customs union

Which of the following represents the stage where economic

26. 3. Free Trade Area 1
integration is most complete?

4. Common market

5. -

1. Production shifts from primary agricultural products to industrial products

2. Lower proportion of Labour in agriculture

When income in developing countries increases, development

27. 3. Either (a) or (b) 4
gains can be realized if

4. Both (a) and (b)

5. -

Exposure to foreign competition induces higher productivity in the export and non-
1.
export sectors

2. Productivity in export sector is higher than that of the non-export sector

In 'Export led growth' trade strategy, which of the following is

28. 3. Foreign exchange is not a constraint for growth in demand 3
not true

4. Growth in exports is induced by growth in consumption and or / investment.

5. -

1. Domestic production replaces imports of non-durable goods

2. High rates of protection for intermediate and producer durable goods

In 'Import Substitution' trade strategy, which of the following

29. 3. Production inefficiencies and high cost of production 4
is not true

4. Exchange rate policies promote exports

5. -
30. From developing country perspective, exports of agricultural 4
commodities has resulted in the deterioration of terms of trade. 1. Low income elasticity
This is because of which of the following:
2. Development of synthetic substitutes

3. Industrialisation led development

4. All of the above

5. -
 1. -

2. -

31. - 3. - 0

4. -

5. -