Deck 7: Trade

Question 1

Unlike its neighboring countries, Gafkhan, an Asian country, has abundant natural resources. Gafkhan develops industries that are based on natural resources, such as mining and agriculture. A neighboring country, Lidom, specializes in technology based products. This facilitates trade between both the countries as they have different factor endowments. The trade pattern between Gafkhan and Liam restates the validity of the _____.

A) Ricardian trade theory
B) theory of economies of scale
C) Heckscher-Ohlin theory of trade
D) theory of overlapping demand

Answer 1

C

Question 2

Adam, an entrepreneur, believes that a product's life cycle is important in determining trade patterns. His company's product is currently in the introduction stage of the product life cycle. According to the theory of the international product life cycle, which of the following is most likely to be true in this case?

A) The production will be the most expensive at this stage.
B) There will be focus on foreign consumers.
C) There will be increased competition and capital intensity.
D) The per-unit manufacturing cost of the product will be less.

Answer 2

A

Question 3

Bordunia is a country that is abundant in iron ore. It has developed extensive trade relations with Calzonia, a neighboring country that is rich in oil. Bordunia, however, has limited trade relations with Graznesia, which is equally rich in iron ore. The given scenario reinstates the validity of the _____.

A) Ricardian trade theory
B) theory of economies of scale
C) Heckscher-Ohlin theory of trade
D) theory of overlapping demand

Answer 3

C

Question 4

Praltis Inc., is a company that manufactures cars. One of its new models, a convertible car, is now in its mature phase. According to the theory of the international product life cycle, which of the following statements is most likely to be true in this case?

A) The product will be primarily consumed in less-developed countries.
B) The innovating company will begin to create brand loyalty by selling to new customers.
C) Production by the company will decline and there will be decreased competition and exports.
D) Global sales will taper off and prices will fall.

Question 5

Angardis, a country in East Asia, is perceived as a neo-mercantilist country because of its trade patterns. Given this information, Angardis most likely:

A) uses protectionist actions.
B) focuses on maintaining a trade balance rather than a trade surplus.
C) focuses on military development rather than economic development.
D) encourages more imports than exports.

Question 6

Glinmer Inc. is a medium-sized company that sells car cleaning products. A few years ago, the company launched a line of air conditioner cleaning foams that is now in the maturity phase of its life cycle. According to the theory of the international product life cycle, which of the following statements is most likely to be true in this case?

A) The product will be primarily consumed in less-developed countries.
B) There will be increased competition and capital intensity.
C) Production by the innovating company will decline.
D) Global sales will taper off and prices will fall.

Question 7

Zalzhar, an African country, prefers conducting most of its trade with Rumbasa, another African country. This trade relation has evolved because of the fact that both the countries have consumers that come from the same kind of economic background and thus have similar purchasing power and preferences in goods. Given the information, it can be said that this scenario reflects the _____.

A) Ricardian trade theory
B) theory of economies of scale
C) Heckscher-Ohlin theory of trade
D) theory of overlapping demand

Question 8

Joleen is an economist, and she strongly supports the Heckscher-Ohlin theory of trade. She believes that free-trade theories do not capture the entire picture and often offer a narrow view when it comes to trade aspects that contribute to a nation's economic growth. Which of the following statements supports Joleen's belief?

A) Protectionist policies, subsidies, and taxes form the basis for healthy trade relations.
B) Economic growth primarily depends on trade specialization.
C) Abundant factor endowments of a country form a basis for trade.
D) Consumer preferences play a negligent role in adopting trading patterns.

Question 9

_____ is an interventionist trade theory which suggests that trade generates wealth for a country with a trade surplus, with emphasis on colonization and military conquest.

A) neo-Ricardianism
B) Bolshevism
C) Mercantilism
D) Utilitarianism

Question 10

Which of the following is a similarity between mercantilism and neo-mercantilism?

A) Both favor a positive balance of trade.
B) Both oppose protectionist actions in trade.
C) Both focus on rapid economic development.
D) Both focus on military development.

Question 11

According to the theory of the international product life cycle, which of the following happens when a product becomes standardized?

A) Production by the innovating company declines.
B) The innovating company no longer faces any competition.
C) Sales get boosted globally.
D) Prices get stabilized.

Question 12

_____ refers to the ability of a country to produce a specific good or service more efficiently than any rival.

A) Absolute supremacy
B) Absolute advantage
C) Trade surplus
D) Trade volatility

Question 13

Lacord Inc., a wires and cables manufacturing company, produces water-resistant cables. It has now been ten years since the cables were first introduced in the market. The product is now in its decline phase. In the context of the international product life cycle, which of the following is likely to be true in this case?

A) The product will continue to be sold only in developed countries rather developing countries.
B) The product will experience a decrease in sales in more affluent countries.
C) The investment on the production of the product will increase.
D) There will be increased focus on creating repeat buyers.

Question 14

Acronasia is a country that has had mercantilistic trade policies for decades. In the recent years, however, this policy has caused some major disruptions in the economy of the country. Given the information, which of the following will most likely be a negative effect experienced by the country?

A) Depletion of natural resources
B) An overbearing government
C) High inflation in the home markets
D) Loss of wealth because of trade specialization

Question 15

Krunisia, a Middle Eastern country, has a bilateral trade agreement with Rahoal, a country much richer than itself. Krunisia exports more products to Rahoal than what it imports. This exchange is likely to result in _____ for Krunisia.

A) high trade volatility
B) a negative trade balance
C) subsidies
D) a trade surplus

Question 16

The government of Azcora, a nation that existed in the 1500s, had a trade policy wherein imports were taxed at higher rates than exports. At times, imports into the nation were restricted altogether. The nation sold most of its finished good to the numerous colonies it owned. A large portion of the profits that were accumulated from trading activities was used to strengthen the nation's military forces. In this scenario, which of the following theories of trade does the trade policy of Azcora reflect?

A) neo-Ricardianism
B) Bolshevism
C) Utilitarianism
D) Mercantilism

Question 17

Yumshiren, an Asian country, has better access to high-end manufacturing tools than any of its neighboring countries. As a result, it produces good quality automobiles more efficiently than all of its competitors. In the given scenario, Yumshiren has a(n) _____.

A) absolute supremacy
B) absolute advantage
C) subsidy advantage
D) first-mover advantage

Question 18

Bregonia, a European nation, is able to produce its consumer goods at a lower opportunity cost than its rival nation, Plakeburn. Given this information, it is most likely that Bregonia has a(n) _____ over Plakeburn.

A) absolute supremacy
B) comparative advantage
C) transient advantage
D) territorial advantage

Question 19

Bulchester, a former sovereign country in Northern Europe, had a trading pattern in which most of the business organizations were funded or owned by the government. The government ensured that the country exported more goods than it imported, thereby maintaining a trade surplus at all times. Bulchester's trading pattern reflects the trade theory of _____.

A) neo-Ricardianism
B) Bolshevism
C) mercantilism
D) utilitarianism

Question 20

_____ is a model that assesses the competitive potential of industries.

A) Wilbur Schramm's Model of Communication
B) Maslow's Hierarchy of Needs Model
C) Porter's Diamond Model
D) The Bait and Hook Model

Question 21

The media and communications sector is an emerging industry in the developing nation of Plaesis. The government of Plaesis is taking all the measures needed to protect this sector from foreign competition. The government believes that emerging business sectors need to be protected and nurtured for a period of time until they become established, or they will not be able to compete against established foreign firms. In the given scenario, the beliefs of the country's government most closely reflect _____.

A) neo-mercantilism
B) the theory of underconsumption
C) mercantilism
D) the infant industry theory

Question 22

Which of the following statements is true of the infant industry theory?

A) It argues that adoption of the free trade policy is the best way to empower infant industries.
B) It proposes the idea that new industries generate more revenue than existing ones.
C) It states that all new industries need to be well established from the start to compete against foreign firms.
D) It argues that certain emerging industries need to be protected for a period of time.

Question 23

Cleon, a Korean cosmetics brand, recently launched its range of face oils in an entirely new market where that product has never been introduced by any brand. Exploring the new market turns out to be greatly beneficial for the company as the sales of the face oils shoot up immediately. In the given scenario, Cleon is a _____.

A) cash cow
B) business magnet
C) first mover
D) venture capitalist

Question 24

The government of Gredland, a small country, realizes that Gredland's imports have been disproportionately higher than its exports for the past five years. From the given information, it can be said that Gredland does not have an ideal _____.

A) free-trade policy
B) balance of trade
C) subsidy rate
D) bilateral agreement

Question 25

In efforts to curb the influx of foreign goods into the country, the government of Losvane has set a limit on the number of goods that can be imported in a given year. In this case, the government of Losvane is most likely imposing a _____.

A) subsidy
B) tariff
C) sanction
D) quota

Question 26

Reylons Inc., a private company based in the United States of America, buys 1500 acres of public land in India to set up one of its manufacturing units. In this case, the sum of money received by the Indian government in exchange for the land will be reflected in the country's _____.

A) current account
B) capital account
C) demand account
D) equity account

Question 27

Broston Inc., a bottling company, has state-of-the-art bottling and capping equipment in its manufacturing unit. The manufacturing unit is capable of producing double the quantity than required for the domestic market. The company plans to venture into the global market in order to maximize the utilization of the bottling plant and generate more revenue. This scenario reflects the concept of the _____.

A) theory of computation
B) theory of economies of scale
C) theory of spontaneous generations
D) theory of the international product life cycle

Question 28

To discourage dumping activities and to maintain a trade surplus, the government of Alburnark has imposed high taxes on the import of foreign products in the country. In the given scenario, the government of Alburnark has used _____ to restrict imports.

A) subsidies
B) tariffs
C) block grants
D) quotas

Question 29

The government of Kingsbain believes in backing its domestic firms rather than allowing foreign products to be dumped in the domestic markets. As the domestic firms of Kingsbain are inefficient, the government regularly gives them money to keep them in business. This monetary support provided by the government is called a(n) _____.

A) subsidy
B) tariff
C) embargo
D) quota

Question 30

Jonathan is an entrepreneur who believes that companies pursue international trade in an attempt to achieve cost advantages by spreading fixed costs over more units of output. Jonathan believes in the _____.

A) theory of absolute advantage
B) theory of comparative advantage
C) theory of economies of scale
D) theory of the international product life cycle

Question 31

In the context of the balance of trade, the _____ calculates a country's exports and imports of goods, services, and income.

A) current account
B) capital account
C) credit account
D) equity account

Question 32

Darsana and Meraad, two Middle Eastern countries, have signed a global pact that provides a multilateral forum in which to resolve business-related disputes between member countries. In spite of years of good business relations between the two countries, they have a dispute over each other's import and export policies. In this case, to solve the dispute, both the countries will most likely approach the _____.

A) International Association of Facilitators
B) United Nations Trusteeship Council
C) World Trade Organization
D) United Nations Security Council

Question 33

Quotas and tariffs:

A) restrict imports.
B) reflect a government's lack of support to its domestic firms.
C) induce free trade.
D) serve as threats to domestic markets.

Question 34

Which of the following statements is true of the General Agreement on Tariffs and Trade (GATT) treaty?

A) It was created with the motive to increase import and export tariffs.
B) It was intended to reduce free trade in favor of protectionism.
C) It provided a multilateral forum to resolve trade disputes between member countries.
D) It encouraged countries to buy only from preferred partners.

Question 35

Which of the following scenarios best illustrates a situation that hints at the problem of underconsumption in an economy?

A) Borsworne, a country where the citizens buy the same quantities of common goods and expensive goods
B) Karjestan, a country where less capital flows out of the domestic economy than it flows in
C) Vergonea, a country where there is equal distribution of wealth
D) Glisbane, a country that has income disparity

Question 36

Avancas Inc. is a health food manufacturing company that decides to expand its business. It introduces its products in Crosia, a developing nation, which is a new market altogether. The company's products become an instant hit in the country, and their sales go up. Nutricia, another health food manufacturing company, follows suit and launches its products in Crosia. However, the consumers seem less enthusiastic about Nutricia's products than they were for Avancas' products. In this scenario, Avancas Inc. is a _____.

A) cash cow
B) business magnet
C) first mover
D) business builder

Question 37

Darren, a trade analyst, believes that trade is a function of a specific company's strategic initiatives and not country-level factors, production factors, or even industry characteristics. Darren's belief reflects the _____.

A) theory of absolute advantage
B) theory of comparative advantage
C) theory of economies of scale
D) theory of the international product life cycle

Question 38

Which of the following statements is true of mercantilism?

A) It does not force the capital assets of a country to enter an economy.
B) It does not include export subsidies or import restraints.
C) One of its primary objectives was to generate funds to support the military.
D) The original form of mercantilism emphasized running trade surpluses to fund rapid economic development.

Question 39

Which of the following statements is true of the balance of trade?

A) Adopting mercantilistic policies always result in a balance of trade for countries.
B) At no point in time can a country have a negative trade balance.
C) As the global market is always balanced, individual countries do not need to maintain trade balances.
D) Income disparities in a country can lead to a negative trade balance.

Question 40

The government of Nerland, a European country, wants to find out about the country's exports and imports of goods, services, and income. In this case, the country's Ministry of Finance will have to look into the _____ of Nerland.

A) current account
B) capital account
C) credit account
D) equity account

Question 41

Defend or refute the following argument-Free trade is more advantageous for any economy.

Question 42

Sincland and Ireburn, two Southwestern European countries, decide to form an exclusive trade relation with each other because of certain mutual strategic and geographical advantages. In this case, the two countries are most likely to enter into a _____.

A) trade facilitation agreement
B) bilateral trade agreement
C) preferential trade agreement
D) multilateral agreement on investment

Question 43

The customs authority in Zedania strictly monitors and inspects its imports. It ensures that certain imported goods follow certain standards and come with appropriate labeling and safety requirements. This is especially necessary for products that are perceived as dangerous. Zedania is not a proponent of free trade. Given this information, it can be said that one of Zedania's reasons for establishing strict safety standards of imported goods is to:

A) create more demand for the imported goods in the country.
B) limit the inflow of foreign goods.
C) create a positive image for its trade partners.
D) dissuade people from buying domestically-produced goods.

Question 44

The Jordanian government typically delays most of the imported goods in customs citing various administrative reasons. Although Jordania does not completely support free trade, it also does not openly implement antidumping actions for reasons of diplomacy. In this case, through administrative delays, Jordania is trying to:

A) create more demand for the imported goods in the country.
B) limit the inflow of foreign goods.
C) reduce the taxes levied on the imported goods.
D) determine the import rates and quotas that need to be applied on the goods.

Question 45

A reason for a government to wish to limit international trade is to:

A) develop friendly relations with other nations that are being difficult.
B) protect its infant industries.
C) reduce the cost of goods that are being imported.
D) increase the exportation of goods while decreasing the importation of goods.

Question 46

Do you think China is a neo-mercantilist country? Give reasons to support your answer.

Question 47

Xengmai, an Asian country, forms a business policy which states that all computer manufacturing companies need to ensure that sixty percent parts of their computers are made out of domestically-produced hardware. Imported parts can be used for the remaining forty percent. The given scenario exemplifies _____.

A) a quota
B) a dependent clause
C) reciprocal requirements
D) content requirements

Question 48

The concentration of wealth in an economy contributes to trade imbalances. Support this statement by making logical connections between the two phenomena.

Question 49

Based on government guidelines, Rivoltus Inc., an automobile manufacturing company, ensures that seventy percent of its cars are made out of parts that are produced in the country. The more specialized components of the car are, however, imported from various other countries. In this case, Rivoltus Inc. follows the government mandate of _____.

A) resource requirements
B) reciprocal requirements
C) external interface requirements
D) content requirements

Question 50

A particular type of quota that limits all forms of trade on entire categories of goods and services is referred to as _____.

A) a tariff
B) an embargo
C) an exemption
D) a subsidy

Question 51

After years of being closed economies, Bolonasia and Craebanzo, two African nations, finally open their borders to trade with each other. In this case, the two countries are most likely to sign a _____.

A) trade facilitation agreement
B) bilateral trade agreement
C) preferential trade agreement
D) multilateral agreement on investment

Question 52

Walter is a financial expert. He has always been skeptical when it comes to the concept of free trade and believes that trade between countries should be subjected to certain restrictions. According to him, "Conducting trade without government intervention is laying the ground for anarchy." Which of the following, if true, supports Walter's beliefs?

A) Free-trade policies only cause short-term economic growth.
B) Free trade can lead to dumping activities.
C) Free-trade policies tend to focus more on infant industries rather than exploring bigger opportunities.
D) Free trade creates trade surplus for both the countries that trade with each other.

Question 53

The government of Zandria has adopted an economic policy that it thinks would help it gain favorable political treatment in the future. Under this policy, the government provides direct assistance to domestic producers in the form of tax breaks, grants, cash payments, low-interest loans, and government-owned equity. In this scenario, the government of Zandria is using _____.

A) subsidies
B) tariffs
C) sanctions
D) quotas

Question 54

Which of the following statements best defines subsidy?

A) It refers to the labeling and safety requirements that are designed to protect consumers from products perceived as dangerous.
B) It is a form of direct assistance to domestic producers in the form of tax breaks, grants, cash payments, low-interest loans, and government-owned equity.
C) It refers to a direct limit on the number of goods that can be imported into or exported from a country.
D) It is a particular type of quota that limits all forms of trade on entire categories of goods and services.

Question 55

It has been argued that tariffs harm consumers and benefit producers. Justify this argument.

Question 56

Birkland, a country in central Europe, decides to close its borders to free trade. It implements a quota that limits all forms of trade on all categories of goods or services. In the given scenario, Birkland enacts _____.

A) a natural right
B) an embargo
C) an exemption
D) a subsidy

Question 57

A prisoner's dilemma refers to a situation where two prisoners are questioned, and each prisoner has personal incentives to confess but only if the other person does not confess. Compare international trade to the prisoner's dilemma.

Question 58

_____ are a class of protective tariffs imposed by a domestic government on foreign imports that are thought to be priced below fair market value.

A) Retrenchments
B) Subsidies
C) Predatory pricing policies
D) Antidumping actions

Question 59

Which of the following statements is true of bilateral trade agreements?

A) They have been declared illegal by the World Trade Organization.
B) They aim at restricting trade between nations.
C) They are included in the most favored nation clause agreed to by the World Trade Organization.
D) They refer to agreements regarding trade between just two countries.

Question 60

In 1752, the Scottish philosopher David Hume, one of the first skeptics of mercantilism in Europe, stated that mercantilism was a fallacy. Provide reasons to support his statement.