Deck 14: Globalisation and International Trade

Question 1

If consumers in developed countries import low cost clothing from China:

A) Chinese workers will be exploited
B) the wages of Chinese workers will rise
C) the wages of Chinese workers will fall
D) the working conditions in Chinese factories will worsen

Answer 1

B

Question 2

The total value of world exports in 2011 was:

A) 16.3 trillion dollars
B) 14.3 trillion dollars
C) 10.3 trillion dollars
D) 22.4 trillion dollars

Answer 2

D

Question 3

The case for free trade is based on the:

A) theory of comparative advantage
B) theory of balanced growth
C) theory of absolute advantage
D) argument for a diversified economy

Answer 3

A

Question 4

The United States placed a limit on the amount of steel that can be imported into the United States. This is an example of:

A) an export subsidy
B) a quota
C) dumping
D) a tariff

Question 5

A tariff imposed on imported shoes will cause the domestic price of shoes to and the domestic production of shoes to .

A) decrease; decrease
B) increase; increase
C) increase; decrease
D) decrease; increase

Question 6

A nation which trades with the rest of the world will be vulnerable to changes in the global economy.

A) more; less
B) less, less
C) more; more
D) less; more

Question 7

A tariff is:

A) a limit on the quantity of a good that can be imported into a country
B) a tax on imports
C) a government payment made to domestic firms to encourage exports
D) the difference between the price a product sells for in the country it is produced in and the price it is sold for in another country

Question 8

Which of the following is a FALSE statement about protection?

A) It can allow firms to become inefficient.
B) It leads to a net loss to society.
C) It is a solution which may fail to address a real economic problem.
D) It always increases the efficiency of production in the protected economy.

Question 9

Suppose there are two small island nations in the South Pacific which both produce only fish and bananas. If the people on Island One devote all their time to fishing, they can catch ten kilograms of fish per day. If they devote all their time to picking bananas they can pick ten kilograms per day. On Island Two the people can catch only eight kilograms of fish from a day's fishing, but they can pick 12 kilograms of bananas. The opportunity cost of one fish for Island One is bananas, and the people on Island One should specialise in _ .

A) 0.67; bananas
B) 1.0; bananas
C) 1.0; fish
D) 0.67; fish

Question 10

If the terms of trade rise, then export prices have and exports now purchase a given quantity of imports.

A) decreased; more
B) decreased; fewer
C) increased; more
D) increased; fewer

Question 11

According to the theory of comparative advantage, specialisation will benefit all trading partners:

A) except those that may be relatively more efficient producers
B) even those that may be absolutely less efficient producers
C) except those that may be absolutely less efficient producers
D) except those that may be relatively less efficient producers

Question 12

Which of the following statements is FALSE?

A) If Australia imposes a quota on Japanese car imports, the price of cars in Australia is likely to increase.
B) If the Japanese government provides a subsidy for cars exported to Australia, the price of cars in Australia is likely to increase.
C) If the Australian customs department impounds cars imported from Japan for vehicle safety checks the price of cars in Australia is likely to increase.
D) If Australia imposes a tariff on Japanese car imports, the price of cars in Australia is likely to increase.

Question 13

Which of the following is NOT a goal of the International Monetary Fund (IMF)?

A) to negotiate nuclear non- proliferation treaties
B) to assist countries experiencing economic difficulty
C) to promote global growth
D) to reduce poverty

Question 14

The Closer Economic Trade Agreement between Australia and New Zealand should have had which of the following effects?

A) the price of New Zealand goods sold in Australia will increase
B) the amount that Australia exports to New Zealand and the amount that Australia imports from New Zealand should increase
C) the price of Australian goods sold in New Zealand will increase
D) all of the above

Question 15

The common currency, the Euro, adopted by many members of the European Union is an example of:

A) a common monetary policy
B) a common agricultural policy
C) common tariff barriers
D) a common social policy

Question 16

The argument for protection to develop local industries that can compete internationally is called:

A) the infant industry argument
B) the balanced growth argument
C) the industrial policy argument
D) the industrial promotion argument

Question 17

Australia exports large quantities of exports to China. If GDP in China falls, we would expect:

A) there is no connection between GDP in Australia and China
B) GDP in Australia will rise
C) GDP in Australia will also fall
D) GDP in Australia might rise or fall

Question 18

Which of the following preferential trading agreements is an example of a common market?

A) the Singapore- Australia free trade agreement
B) NAFTA
C) the Southern Common market
D) the EU

Question 19

It costs a computer manufacturer $2000 to produce a personal computer. This manufacturer sells these computers abroad for $1800. This is an example of:

A) dumping
B) a negative tariff
C) export subsidy
D) a trade- related economy of scale

Question 20

Suppose the North American Free Trade Agreement (NAFTA) results in Canada and Mexico replacing low- cost beef produced in Australia with high- cost beef produced in the United States. This is an example of:

A) regional policy
B) trade creation
C) trade diversion
D) the common agricultural policy

Question 21

Which of the following statements is TRUE?

A) Protection will reduce the level of domestic unemployment.
B) Imports should be reduced because the money goes abroad, thereby reducing the domestic standard of living.
C) Computer software manufacturers in some countries may need protection if take- over by the US company Microsoft were to give it a monopoly in other countries.
D) Protection is needed from cheap foreign labour.

Question 22

Which of the following is NOT a valid argument for protection?

A) to allow infant industries to survive foreign competition
B) to prevent dumping by other countries from giving them an unfair advantage over domestic suppliers
C) to allow senile industries a chance to make heavy investments
D) to prevent the domestic market being dominated by a foreign monopoly

Question 23

A group of countries who have common external tariffs and free movement of labour and capital is called a:

A) Common Market
B) Free Trade Area
C) Customs Union
D) Preferential Trading Arrangement

Question 24

Suppose that Argentina and Chile are both engaged in the production of copper and wheat, and that Argentina has an absolute advantage in the production of both goods. If Chile has a lower opportunity cost for producing copper, then:

A) Chile has a comparative advantage in wheat production, but there will be no gains from specialisation and trade
B) Chile has a comparative advantage in the production of copper, but it is outweighed by Argentina's absolute advantage in wheat production
C) Argentina still has a comparative advantage in the production of both goods
D) Chile has a comparative advantage in the production of copper, and specialisation and trade between the two countries can be mutually beneficial

Question 25

The theory that specialisation and free trade will benefit all trading partners is known as the theory of:

A) unilateral advantage
B) absolute advantage
C) mutual advantage
D) comparative advantage

Question 26

If the Australian government increases the tariff on imported automobiles, this will:

A) reduce the number of automobiles imported into Australia and reduce production of automobiles in Australia
B) increase the number of automobiles imported into Australia and increase the production of automobiles in Australia
C) reduce the number of automobiles imported in Australia and increase the production of automobiles in Australia
D) increase the number of automobiles imported in Australia and reduce the production of automobiles in Australia

Question 27

When countries specialise in producing those goods in which they have a comparative advantage, they:

A) allocate their resources more efficiently, but they do not necessarily maximise their combined output
B) do not necessarily maximise their combined output, and they also do not necessarily allocate their resources more efficiently
C) maximise their combined output, but they do not necessarily allocate their resources more efficiently
D) maximise their combined output and allocate their resources more efficiently

Question 28

The terms of trade are expressed as:

A) the value of imports divided by the value of exports multiplied by prices in the base year
B) the price of exports expressed as a price index
C) the average price of imports divided by the average price of exports
D) the average price of exports divided by the average price of imports

Question 29

The advantage in the production of a product enjoyed by one country over another when it uses fewer resources to produce that product than the other country does is:

A) a comparative advantage
B) a relative advantage
C) an absolute advantage
D) a productive advantage

Question 30

If two countries engage in trade with one another, what determines which country will gain the most from trade?

A) exchange ratio
B) exchange rate
C) balance of payments
D) terms of trade

Question 31

The advantage enjoyed by one country over another, when it has a lower opportunity cost in producing a product is:

A) an absolute advantage
B) a productive advantage
C) a relative advantage
D) a comparative advantage

Question 32

The international organisation which came into being in 1995 to replace the General Agreement on Tariffs and Trade is:

A) ASEAN
B) the EU
C) the IMF
D) the WTO

Question 33

A reduction in a tariff imposed on imported cars will cause the domestic price of cars to and the domestic production of cars to .

A) increase; increase
B) decrease; decrease
C) decrease; increase
D) increase; decrease

Question 34

The ratio at which a country can trade domestic products for imported products is the:

A) exchange ratio
B) balance of repayments
C) terms of trade
D) exchange rate

Question 35

According to the theory of comparative advantage, trade between two countries:

A) guarantees that consumption levels will be equal in the two countries
B) will benefit all the industries in each of the countries
C) allows each of the trading countries to use its resources most efficiently
D) maximises the amount of inputs that are used in the production of all products

Question 36

If Argentina has an absolute advantage in the production of wheat and Chile has an absolute advantage in the production of copper, then:

A) neither country has anything to gain from specialisation and trade
B) it is reasonable to expect that specialisation will benefit both countries, but that trade will not
C) it is reasonable to expect that trade will benefit both countries, but that specialisation will not
D) it is reasonable to expect that specialisation and trade will benefit both countries

Question 37

The main advantage of trade between two countries is that:

A) both countries move beyond their previous resource and productivity constraints
B) employment in both countries will increase
C) trade makes both countries more self- sufficient
D) trade will lead to a more equitable distribution of income in both countries

Question 38

Explain the meaning of 'trade diversion' that occurs under a customs union.

Question 39

Assume that Outland specialises in producing skateboards and Inland specialises in producing surfboards. After trade, Outland exports 500 skateboards and imports 100 surfboards. The exchange ratio:

A) is 1/5:1 skateboards to surfboards
B) is 5:1 skateboards to surfboards
C) is 1:5 skateboards to surfboards
D) cannot be determined from this information

Question 40

Which of the following is NOT an advantage gained from joining a customs union?

A) a shift in production from a lower cost external producer to a lower cost internal producer
B) removal of trade barriers between member countries
C) greater specialisation according to comparative advantage
D) internal economies of scale

Question 41

Explain three of the arguments that are made to justify trade barriers such as tariffs and quotas.

Question 42

For any pair of nations and goods, if each country has an absolute advantage in the production of one product, it is reasonable to expect that specialisation and trade will benefit both countries.

Question 43

The impact of the US credit crisis in 2007/08 on global markets illustrates the degree of integration between economies around the world.

Question 44

The 'infant industry' argument is a potentially valid reason for protection.

Question 45

What is the relative value of the growth in world exports and the value of international financial flows?

Question 46

A country is said to enjoy an absolute advantage over another country in the production of a product if it uses fewer resources to produce that product than the other country does.

Question 47

Explain the meaning of 'trade creation' that occurs under a customs union.

Question 48

A country enjoys a comparative advantage in the production of a good if that good can be produced at a lower cost in terms of other goods.

Question 49

Explain how specialisation and comparative advantage have contributed to China's 'economic miracle'.

Question 50

Distinguish between the following three types of preferential trading arrangement; a free trade area; a customs union and a perfect common market.

Question 51

Correctly complete the following statements from the options below.
Statement
a() A tax that is levied on imports is a:
b() Money given by the government to domestic industries to give them a price advantage is a:
c() A limit placed on the number of imports is a:
Answer

Question 52

Correctly complete the following statements from the options below.
Statement
a() If a country can produce a good at a lower opportunity cost than another country, then it has in the production of that good.
b() If one country can produce a good using fewer resources than another country, then it has in the production of that good.
c() If the ratio of a country's average price of exports relative to imports rises, then that country has .
Answer

Question 53

Explain how specialisation and trade benefit all trading partners, even those that may be inefficient producers in an absolute sense.

Question 54

Explain why countries which specialise in a small range of commodities are especially vulnerable to fluctuations in the global market?

Question 55

Australia has a comparative advantage in the production of coal and other resources, therefore Australia should completely specialise in the production of these goods.

Question 56

Strategic trade theory supports the protection of all industries until they are able to compete successfully with imported goods.

Question 57

The WTO has not had any success as it does not yet have the power to impose trade sanctions on countries that break trade agreements.

Question 58

A rise in a country's terms of trade means that the country will now need to sell more exports to purchase the same quantity of imports.

Question 59

How do the terms of trade facilitate the realisation of the gains from specialisation and comparative advantage?

Question 60

Protecting firms from foreign competition increases the incentive for firms to reduce costs.

Question 61

Nations which specialise in the production of commodities sold in international markets are very vulnerable to fluctuations in the global economy.

Question 62

The World Trade Organisation (WTO) is an example of a preferential trading arrangement.

Question 63

Trade barriers prevent a nation from reaping the benefits of specialisation, lead to relatively inefficient production techniques, and mean consumers pay higher prices for protected products than they would otherwise pay.

Question 64

Does the existence of overseas preferential trading arrangements such as NAFTA and the EU have any effect on Australia? Explain.

Question 65

Australia is isolated in the world economy because it is not a member of a trading block and has no free- trade agreements with other nations.

Question 66

For any pair of countries, there is only a single exchange ratio that can lead to both countries realising the gains from specialisation and comparative advantage.

Question 67

How could a change in domestic economic policy in China impact the Australian economy?

Question 68

Discuss the merits of the argument that buying cheap foreign imports exploits foreign workers.

Question 69

Members of customs unions take a common approach when applying external tariffs to non- member countries.

Question 70

Distinguish between the concepts of comparative advantage and absolute advantage, and provide an example to illustrate these concepts.

Question 71

Explain, with the use of a diagram, the effect of a tariff.

Question 72

International trade in goods and services continues to grow more rapidly than the flow of international finance.

Question 73

Government subsidies to particular industries can lead to 'dumping' of products on international markets.

Question 74

When customs unions are set up there is trade creation that is harmful and trade diversion that is beneficial.