INTRODUCTION TO INTERNATIONAL TRADE
Gap-Filling Exercise (Paragraph 1 of 2)
International trade is the (1) __________ of goods and services across international borders or territories.
It allows nations to (2) __________ their markets to goods and services that may not be available
domestically. This exchange is fundamental to the modern global economy. The principle of (3)
__________ advantage, developed by David Ricardo, explains why countries benefit from trade even
when one is more efficient in producing all goods. By specializing in products where they have a relative
efficiency and trading for others, countries can (4) __________ overall output and consumption. Trade is
facilitated by various (5) __________, such as tariffs, quotas, and subsidies, which can either promote or
restrict the flow of goods. The removal of such barriers, known as trade (6) __________, is often pursued
through agreements between countries. Furthermore, international trade requires a system for (7)
__________ exchange, as different countries use different currencies. The rate at which one currency can
be exchanged for another is crucial for determining the (8) __________ of exports and imports.
Options for Gaps 1-8:
1. A) exchange | B) stagnation | C) isolation | D) consumption
2. A) limit | B) expand | C) reduce | D) close
3. A) absolute | B) competitive | C) comparative | D) total
4. A) decrease | B) maximize | C) waste | D) ignore
5. A) incentives | B) policies | C) outcomes | D) holidays
6. A) wars | B) deficits | C) liberalism | D) surpluses
7. A) foreign | B) local | C) digital | D) barter
8. A) quality | B) color | C) price | D) weight
Gap-Filling Exercise (Paragraph 2 of 2)
The (9) __________ of international trade is often measured by a country's balance of trade, which is the
difference between the value of its exports and imports. A positive balance, or a (10) __________, occurs
when exports exceed imports. Conversely, a negative balance is a trade (11) __________. While trade
deficits are often viewed negatively, they can also indicate a strong domestic economy with high
consumer demand. International trade involves inherent risks, such as (12) __________ risk due to
fluctuating exchange rates, and political risk from changing government policies. To mitigate these
risks, firms engage in (13) __________ trade, using contracts and instruments like letters of credit. Major
global institutions, such as the World Trade Organization (WTO), work to (14) __________ trade
negotiations and settle disputes. The complex network of global trade relies on efficient (15) __________
and logistics to move goods from producers to international consumers. Ultimately, the integration of
world markets through trade is a powerful driver of economic (16) __________, innovation, and
interdependence among nations.
Options for Gaps 9-16:
9. A) speed | B) volume | C) sound | D) temperature
10. A) surplus | B) equilibrium | C) loss | D) barrier
11. A) surplus | B) advantage | C) deficit | D) agreement
12. A) culinary | B) currency | C) athletic | D) literary
13. A) domestic | B) illegal | C) documented | D) informal
14. A) complicate | B) facilitate | C) hinder | D) ignore
15. A) agriculture | B) transportation | C) philosophy | D) recreation
16. A) decline | B) stagnation | C) growth | D) isolation
READING COMPREHENSION TEST
1. What is the core benefit of international trade for nations, as mentioned in the first paragraph?
A) It allows countries to become self-sufficient.
B) It lets countries access goods and services not available
domestically.
C) It guarantees a permanent trade surplus for all participants.
D) It eliminates the need for domestic production.
2. According to the text, what does the principle of comparative advantage explain?
A) That only the most technologically advanced countries should trade.
B) Why countries should try to produce everything they need.
C) Why countries benefit from trade by specializing in relatively
efficient production.
D) That trade benefits are based on absolute efficiency in all
products.
3. What are tariffs and quotas examples of, as described in the text?
A) Trade promotion policies.
B) Trade barriers or policies.
C) International exchange rates.
D) Types of trade surpluses.
4. What does "trade liberalism" refer to in the context of the passage?
A) Increasing taxes on imports.
B) The removal of barriers to trade.
C) The imposition of strict import quotas.
D) A policy of economic isolationism.
5. What does a country have when the value of its exports exceeds the value of its imports?
A) A trade deficit.
B) A balance of payments crisis.
C) A trade surplus.
D) A currency devaluation.
6. According to the second paragraph, what can a trade deficit potentially indicate?
A) A weak and failing economy.
B) A lack of natural resources.
C) A strong domestic economy with high demand.
D) The success of trade barriers.
7. What is one role of the World Trade Organization (WTO) as mentioned in the text?
A) To impose trade sanctions on all member countries.
B) To facilitate trade negotiations and settle disputes.
C) To manage currency exchange rates globally.
D) To directly transport goods between countries.
8. What is cited as a final, broad outcome of global market integration through trade?
A) Economic decline and cultural isolation.
B) A decrease in international innovation.
C) Economic growth, innovation, and interdependence.
D) The elimination of all business risks.
MATCHING EXERCISE (DEFINITIONS & TERMS)
Match the specialized term on the left with its correct definition on the right.
1. Comparative Advantage
A) A tax imposed on imported goods.
B) The ability to produce a good using fewer resources than another producer.
C) The ability to produce a good at a lower opportunity cost than another producer.
D) A limit on the quantity of a good that can be imported.
2. Trade Surplus
A) A situation where the value of imports exceeds the value of exports.
B) A situation where a country does not engage in international trade.
C) A situation where the value of exports exceeds the value of imports.
D) An agreement to reduce trade barriers between countries.
3. Tariff
A) A subsidy given to domestic producers.
B) A limit on the quantity of imports.
C) A tax imposed on imported goods.
D) A ban on trade with a specific country.
4. Exchange Rate
A) The rate at which domestic goods are produced.
B) The price of one currency in terms of another currency.
C) The interest rate set by a central bank.
D) The difference between export and import values.
5. Quota
A) A financial incentive for exporters.
B) A tax refund on exported goods.
C) A physical limit on the quantity of a good that can be imported.
D) A minimum price for an imported good.
6. Balance of Trade
A) The total value of a nation's financial assets abroad.
B) The difference between a country's savings and investment.
C) The difference between the value of a country's exports and imports of goods.
D) The rate of economic growth from trade.
7. World Trade Organization (WTO)
A) An organization that provides loans for development projects.
B) A global institution that sets binding global interest rates.
C) An international organization that regulates and facilitates
international trade.
D) A union that creates a common currency for member states.
8. Trade Liberalization
A) The increase of tariffs to protect domestic industries.
B) The process of increasing restrictions on cross-border trade.
C) The process of reducing or eliminating trade barriers.
D) The policy of running a consistent trade deficit.
9. Absolute Advantage
A) The ability to produce more of a good with the same resources as another producer.
B) The ability to produce a good at a lower opportunity cost.
C) The benefit of being the only producer of a good.
D) The advantage of having a trade surplus.
10. Letter of Credit
A) A document issued by a bank guaranteeing a buyer's payment to a seller.
B) A certificate of origin for exported goods.
C) A contract for chartering a shipping vessel.
D) A list of tariffs applied to a specific product.