Multiple Choice Questions
1. International economics mainly studies:
A. Production and consumption within a country
B. Domestic employment rates
C. Economic interdependence among nations
D. Political relationships between nations
2. Which of the following is not a component of international economics?
A. International trade theory
B. International trade policy
C. Agricultural economics
D. International monetary theory
3. Which of the following explains why countries trade?
A. Trade reduces innovation
B. Scarcity of natural resources
C. Common culture
D. Similar consumer preferences
4. What is the immediate cause of international trade?
A. Factor mobility
B. Government intervention
C. Price differentials
D. Cultural diversity
5. One major difference between domestic and international trade is:
A. Domestic trade is not affected by tariffs
B. Domestic trade uses different currencies
C. International trade involves different currencies and more legal barriers
D. Domestic trade always has higher profits
6. Dynamic gains from trade include:
A. Reducing national savings
B. Access to foreign investment and technology
C. Importing more consumer goods
D. Eliminating income differences
7. Mercantilism advocated for:
A. Maximum imports and minimum exports
B. Free movement of capital
C. Accumulation of gold through export surplus
D. Elimination of all trade
8. Who developed the theory of comparative advantage?
A. Adam Smith
B. David Ricardo
C. J.S. Mill
D. François Quesnay
9. Adam Smith’s Absolute Advantage theory assumes:
A. Government controls trade
B. Trade benefits only strong nations
C. Countries specialize in goods they produce more efficiently
D. Labor is perfectly mobile across countries
10. The law of reciprocal demand was introduced by:
A. Adam Smith
B. Ricardo
C. J.S. Mill
D. Marshall
11. The H-O theory attributes comparative advantage to:
A. Differences in tastes
B. Differences in production efficiency
C. Factor endowments
D. Transportation costs
12. Which assumption is part of the H-O model?
A. Labor is mobile internationally
B. Countries produce goods under increasing returns
C. Factors of production are immobile internationally
D. Each country uses different technologies
13. According to the Leontief Paradox, the U.S. exported:
A. Capital-intensive goods
B. Labor-intensive goods
C. Agricultural products
D. Services only
14. Free trade leads to:
A. Less innovation
B. Higher consumer prices
C. Efficient resource allocation
D. Reduced employment
15. Which of the following is an argument against free trade?
A. Dynamic gains
B. Encourages innovation
C. Infant industry protection
D. Economies of scale
16. What is a potential danger of long-term protection?
A. Increased export earnings
B. Monopoly and corruption
C. Decrease in domestic production
D. Lower profits for producers
17. A country may use protectionist policies to:
A. Promote monopolies
B. Encourage consumer spending
C. Ensure national security
D. Reduce labor mobility
18. Which of the following is a non-tariff barrier?
A. Ad valorem tax
B. Import quota
C. Export tariff
D. Revenue duty
19. What is a key industry argument in protectionism?
A. Only profitable industries deserve protection
B. Industries with the most labor must be protected
C. Some industries are crucial to the overall economy and must be protected
D. Industries should not rely on government at all
20. The consumption effect of a tariff refers to:
A. Increase in consumption due to low prices
B. Reduction in consumption due to high prices
C. Government consumption increase
D. Export increase
21. The revenue effect of a tariff:
A. Reduces national income
B. Increases imports
C. Provides income to the government
D. Encourages black market
22. What does the protective effect of a tariff describe?
A. Subsidy to foreign producers
B. Increase in domestic production
C. Elimination of government duties
D. Reduction in exports
23. The terms of trade effect under a tariff results in:
A. More imports at lower prices
B. Improved trade balance for the exporting country
C. Potential improvement for the tariff-imposing country
D. Elimination of trade
24. A deadweight loss from a tariff means:
A. The increase in government revenue
B. The loss in consumer surplus not transferred to producers or government
C. The rise in labor demand
D. The fall in export prices
25. Non-tariff barriers are sometimes preferred over tariffs because:
A. They generate more revenue
B. Their effects are more visible
C. They are less politically visible and more restrictive
D. They are WTO-approved