MCQs
- What is the primary concept behind the theory of comparative advantage? a) Countries should focus on producing goods they can produce more efficiently than others. b) Countries should produce all goods they need domestically to ensure self-sufficiency. c) Countries should prioritize absolute advantage over comparative advantage in trade. d) Countries should engage in protectionist policies to shield domestic industries.
Answer: a) Countries should focus on producing goods they can produce more efficiently than others.
- How does the opportunity cost relate to the theory of comparative advantage? a) It represents the value of the next best alternative when choosing one option over another. b) It determines the absolute advantage a country has in producing a particular good. c) It measures the total cost of production for a specific industry. d) It defines the efficiency level of a country's production capabilities.
Answer: a) It represents the value of the next best alternative when choosing one option over another.
- Country A requires 8 hours to produce one unit of Product X and 12 hours to produce one unit of Product Y. Country B requires 6 hours to produce Product X and 9 hours to produce Product Y. Which country has a comparative advantage in producing Product Y? a) Country A b) Country B c) Both countries have the same comparative advantage. d) Neither country has a comparative advantage.
Answer: a) Country A
- Which advantage does the theory of absolute advantage focus on? a) Opportunity cost b) Efficiency in production c) Comparative advantage d) Resource availability
Answer: b) Efficiency in production
- What is the primary goal of protectionist policies? a) To promote global economic cooperation b) To increase economic growth and job creation c) To shield domestic industries from foreign competition d) To encourage free trade and globalization
Answer: c) To shield domestic industries from foreign competition
- What is the purpose of imposing tariffs on imported goods in protectionist policies? a) To generate revenue for the government b) To discourage consumers from buying foreign products c) To reduce trade deficits and balance payments d) To increase efficiency in domestic industries
Answer: a) To generate revenue for the government
- Which historical event contributed to the shift in the United States' trade policy towards free trade? a) The establishment of the World Trade Organization (WTO) b) The adoption of protectionist measures during its early industrialization phase c) The repeal of the Corn Laws in 1846 d) The signing of the General Agreement on Tariffs and Trade (GATT)
Answer: a) The establishment of the World Trade Organization (WTO)
- During the 19th century, the United Kingdom became a proponent of free trade through: a) The establishment of tariffs on grain imports. b) The adoption of protectionist policies to support domestic industries. c) The implementation of quotas on certain manufactured goods. d) The repeal of the Corn Laws to promote free trade.
Answer: d) The repeal of the Corn Laws to promote free trade.
- What factor may influence a country's trade policies and lead to shifts over time? a) The prevalence of infant industries in the economy. b) The country's political ideologies and government preferences. c) The level of international cooperation in trade agreements. d) The absolute advantage a country has in specific industries.
Answer: b) The country's political ideologies and government preferences.
- What does the UK's historical adoption of protectionist policies during its early industrialization phase demonstrate? a) The importance of nurturing infant industries for long-term development. b) The significance of maintaining a free trade stance throughout history. c) The priority of trade deficits and balancing foreign trade. d) The role of international trade agreements in shaping policies.
Answer: a) The importance of nurturing infant industries for long-term development.
---
Long Answer Questions
How does the theory of comparative advantage differ from the theory of absolute advantage, and how do these concepts influence a country's trade policies?
Analyze the advantages and disadvantages of unrestricted free trade policies and protectionist policies for developing countries, considering their specific economic and political contexts.
Evaluate the historical shifts in trade policies of the United States and the United Kingdom, and discuss the factors that contributed to their transition from protectionism to a more open trade regime.
What are the potential risks associated with unrestricted free trade, such as the vulnerability to external market fluctuations and unequal bargaining power, and how can countries mitigate these risks?
Assess the impact of protectionist policies on domestic industries, economic stability, and global trade relationships, and discuss the implications of using such policies as bargaining tools in international trade negotiations.