International Economics I, Revision Questions, By: Bedada Teressa (MSc)

International Economics I

Multiple choice Questions With Answers

Prepared by: Bedada Teressa (MSc)

Department of Economics

June, 2023
Hawassa, Ethiopia

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

1. If a country has open economy, then it can be concluded that, it:

A. Has flexible wages and prices
B. Conducts trade with other countries
C. Has flexible interest and exchange rates
D. Is self-sufficient
2. The exchange of goods and services among the residents of a given country is:
A. Domestic or internal trade C. Foreign trade
B. International trade D. External trade
3. Internal trade and foreign trade are different in all of the following except:
A. Factor and product mobility C. Monetary units
B. Economic environment D. None of the above
4. Which one of the following does not cause international trade?
A. Differences in factor endowments
B. Division of labor and specialization
C. Gains form exchange of goods and services
D. Price consistencies
5. International trade forces domestic firms to become more competent in terms of:
A. New product introduction C. Product price
B. Product quality D. All of the above
6. Price differences in different countries can be arise due to:
A. Supply conditions C. Both price and demand conditions
B. Demand conditions D. All of the above
7. If a country is completely more productive or efficient in producing a particular product than
others, then that country has ______ over others.
A. Absolute advantage C. Comparative cost advantage
B. Comparative advantage D. All of the above
8. International trade and specialization are determined by:
A. Absolute advantage C. Absolute cost
B. Comparative advantage D. Production possibility frontier
9. Based on Adam Smith’s theory of absolute advantage, all of the following are correct except:
A. A country that produce with fewer inputs has absolute cost advantage and will be more
productive than others.
B. If input prices are the same in two countries, the country with an absolute advantage has
lower unit cost of production.
C. A country should produce and export products in which it has an absolute advantage.
D. A country should import products in which it has an absolute advantage.
10. Based on David Ricardo’s theory of comparative advantage, which one of the following is
wrong?
A. Each country specializes in the production of a commodity in which its comparative cost
of production is the least.
B. A country will export those commodities in which its comparative costs are high.
C. A country will import those commodities in which its comparative costs are high.
D. Comparative advantage cannot cause foreign trade.

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

11. Gains from trade which measured in terms of economic growth and development of
participants is known as:
A. Dynamic gains C. Utility gains
B. Static gains D. Welfare gains
12. International trade promotes economic development; because it:
A. Provides products that cannot be readily found domestically for greater consumer choices
B. Provides employment, shares technical knowhow, generates income, and rises GDP
C. Creates specialization and improves resource utilization
D. All of the above
13. Which of the following is not an assumption of the factor proportions theory?
A. Perfect competition in product and factor markets
B. Homogenous labor and capital in trading countries
C. Different tastes and preferences between countries
D. Constant returns to scale
14. Stolper-Samuelson theorem captures the relationship between:
A. Product prices and factor prices C. Factor supplies and product outputs
B. Factor supplies and product prices D. Factor supplies and pattern of trade
15. According to mercantilists, all of the following are true except:
A. Country’s wealth could be determined by the amount of its gold and silver holdings.
B. Every country should increase its exports and reducing imports.
C. Every country should experience trade surplus.
D. Every country should experience balanced trade.
16. Mercantilists believed that:
A. Exporting goods will leave fewer goods for the local economy.
B. Importing goods is beneficial for the economy.
C. Any kind of trade is a bad trade.
D. Exports are good and imports are bad
17. Which one of the following is false?
A. Mercantilism theory justifies empire building on the expense of others.
B. Application of mercantilism ideology leads to tit for tat policies.
C. Mercantilism is a philosophy of zero sum game.
D. Mercantilism considers the importance of absolute and comparative advantages.
18. Smith and Ricardo argued that, the main determinant of terms of trade and gains from trade is?
A. Supply or production costs C. Government policies
B. Demand for the product D. Institutions
19. The quantity of one good that a country export and the quantity of the other good that a country
import is shown by:
A. Philips curve C. Offer curve
B. Lorenz curve D. Okun’s curve
20. Which one of the following is not the assumption of classicalist absolute advantage?
A. Perfect mobility of factors C. Constant return to scale
B. Balanced trade D. No trade barriers

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

21. The theory of absolute advantage ignores all of the following issues in explaining international
trade except:
A. Technological & transportation costs C. Trade protections
B. Labor costs D. Multilateral trade
22. Comparative advantage theory is explained based on all of the following assumptions except:
A. There is free bilateral trade
B. There is no transportation cost and technological change
C. Cost of production is expressed in terms of capital
D. Perfect immobility in factor of production with constant return to scale
23. Which one of the following is not a modern international trade theory?
A. The Factor-Endowment theory C. Factor-Price Equalization Theorem
B. H-O theorem D. Classical theory
24. All of the following are the Prebisch-Singer thesis arguments except:
A. Prices of primary goods decline in relative to manufactured goods in the long run
B. Developing countries terms of trade deteriorates
C. Developing countries terms of trade appreciates over the long run
D. Import substitution industry strategies are necessary
25. Factor endowment theory is developed by:
A. John Stuart Mill C. Adam Smith and David Ricardo
B. Paul Samuelson D. Eli Heckscher and Bertil Ohlin
26. According to H-O theory of international trade, the immediate cause of international trade is:
A. Difference in relative commodities prices in different countries
B. Abundance of resource endowment
C. Comparative advantage
D. Absolute advantage
27. According to H-O theory, the cause of difference in the relative prices of the goods is:
A. Difference in the amount of factor endowments
B. Difference in the relative demand and supply of factors
C. Difference in factor prices
D. All of the above
28. All of the following are the assumption of new trade theory except:
A. Learn by doing C. First move advantage
B. No government intervention D. Economies of scale
29. All of the following are used as international trade policy instruments except:
A. Tariffs, export subsidies, and import quotas
B. Voluntary Export Restraints
C. Regulations of trade in services and restrictions on foreign-owned businesses
D. None of the above
30. All of the following justify the importance or the need for trade protectionism except:
A. Safeguarding infant or strategic home industries
B. Demotion of employment and specialization
C. Protection against dumping and national security
D. Balance of Payments” and “Terms of Trade

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

31. A direct limitation of the physical quantity of exports and imports permitted in a country is:
A. Quota C. Subsidy
B. Tariff D. A and B
32. A grant given by a government to domestic import-competing industries that sell their products
overseas is known as:
A. Domestic subsidy C. Tariff
B. Export subsidy D. Quota
33. Trading policy or strategy that focuses on building and developing domestic industries is:
A. Inward looking trade policies C. Tit for tat strategy
B. Outward looking trade strategy D. Zero sum game strategy
34. Countries that follow outward looking trade strategies focus on:
A. International trade C. Lifting subsidies and increasing FDI
B. Reducing protection D. All of the above
35. Who suffers under protectionism trade policy?
A. Governments C. Domestic consumers
B. Domestic producers D. All of them
36. What do governments create when two or more join together and agree to not impose any trade
restriction among the member countries?
A. Free trade agreement C. Protection agreement
B. Political agreement D. None
37. International trade policy helps a country to:
A. Run its trade smoothly, efficiently, and transparently
B. Support the domestic markets by influencing prices
C. Regulate its imports and exports
D. All of the above
38. A charge that a government impose on an importer as a percentage of the value of the imported
product is called:
A. Quota C. Subsidy
B. Tariff D. Externality
39. The two main types of trade policies are:
A. Price and income policies C. Import and export policies
B. Employment and exchange policies D. Fiscal and monetary policies
40. A government policy that designed to influence the amount and direction of goods and services
that a country export and import is:
A. Fiscal policy C. Trade policy
B. Monetary policy D. Price policy
41. Which one of the following is a benefit of free trade policies?
A. Increase in the selection of goods available to the consumers
B. Higher supply and lower prices
C. Economic efficiency and global price stability
D. All of the above

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

42. Which of the following is not the benefit of export promoting strategy?
A. Domestic infant industries suffer
B. Larger consumer base
C. Brings in income and foreign currency
D. Trade surplus
43. Governments may limit exports if:
A. Too much of the resource is leaving the country
B. Domestic demand is not satisfied
C. Domestic demand is low than abroad
D. A and B
44. A voluntary export restraint is:
A. Export quota that restricts the quantity of a good that can be exported
B. Export promoting strategy
C. Import tariff
D. Reducing dependency on international trade
45. Local content requirements help to:
A. Reduce a country's dependence on international trade
B. Provide opportunities for domestic production
C. Increase imports to local market
D. A and B
46. The international trade agreement that made among in 1947 to eliminate or to reduce trade
barriers is:
A. WTO C. GATT
B. IMF D. IGAD
47. WTO has established to provide the following functions except:
A. Regulating and facilitating international trade
B. Serving developed countries to meet their trade goals
C. Implementation and administration of world trade policies
D. Promoting cooperation and integration throughout the world
48. The main objectives of international trade institutions include:
A. Reducing inequality
B. Environmental protection and national security
C. Sustainable development
D. All of the following
49. International institutions that were created to support international trade in a fair and
sustainable way that benefits all nations involved are:
A. United nations C. WHO
B. WTO and IMF D. UNESCO
50. Which one of the following is the con of globalization?
A. It increases market for products.
B. It enables the world to share resources, knowledge, and culture.
C. It causes environmental problems and exploitations.
D. It creates job opportunities and money revenues.

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 International Economics I, Revision Questions, By: Bedada Teressa (MSc)

51. The form of economic integration in which trade barriers are eliminated and similar trade
policies are implemented in member countries is:
A. Free trade area C. Common market
B. Customs union D. Economic union
52. Trade liberalization promotes all of the following except:
A. Globalization C. Factor mobility
B. Regional integration D. Trade barriers
53. International economics concerned with:
A. Global and regional economic interactions
B. Patterns and effects of international trade and its policies
C. Global economic development and challenges
D. All of the above
54. The new modern trade theory is attributed to:
A. Paul Krugman C. Samuelson
B. Heckscher and Ohlin D. Stolper and Samuelson

Answers
1 B 12 D 23 D 34 D 45 D
2 A 13 B 24 C 35 C 46 C
3 D 14 A 25 D 36 A 47 B
4 D 15 D 26 A 37 D 48 D
5 D 16 D 27 D 38 B 49 B
6 D 17 D 28 B 39 C 50 C
7 A 18 A 29 D 40 C 51 B
8 B 19 C 30 B 41 D 52 D
9 D 20 A 31 A 42 A 53 D
10 B 21 B 32 B 43 D 54 A
11 A 22 C 33 A 44 A

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