200+ International Trade Solved MCQs

Chapters

Chapter: Unit 1
1.

Adam Smith favoured

A. Free trade among nations
B. Regulation of trade among nations
C. Closed economies
D. None of the above
Answer» A. Free trade among nations
2.

Which of the following is the cause of international trade as per Heckscher-Ohlin trade theory?

A. Difference in factor availability
B. Difference in cost of production
C. Difference in trade
D. Difference in currency system
Answer» A. Difference in factor availability
3.

The theory of comparative advantage in international trade was propounded by

A. Kindleberger
B. Adam Smith
C. David Ricardo
D. J.S. Mill
Answer» C. David Ricardo
4.

According to Ohlin, the comparative cost differences arise because of

A. Labour cost differences
B. Factor endowment differences
C. Exchange rate differences
D. None of the above
Answer» B. Factor endowment differences
5.

Adam Smith’s theory of international trade is based on

A. Absolute differences in costs
B. Homogeneity of labour
C. Differences of exchange ratios
D. Mobility of factors of production between countires
Answer» A. Absolute differences in costs
6.

According to comparative advantage theory

A. Capital is the only factor of production
B. Labour is the only factor of production
C. Both capital and labour are factors of production
D. None of the above
Answer» B. Labour is the only factor of production
7.

Heckscher-Ohlin theory of trade is based on

A. Two-by-two-by-two model
B. Three-by-three-by-three model
C. Four-by-four-by-four model
D. All of the above
Answer» A. Two-by-two-by-two model
8.

In Ricardian theory of international trade, the only factor of production is

A. Land
B. Labour
C. Capital
D. All of the above
Answer» B. Labour
9.

The Absolute Advantage theory of international trade was propounded by

A. Adam Smith
B. David Ricardo
C. Alfred Marshall
D. Lionel Robbins
Answer» A. Adam Smith
10.

Haberler’s Opportunity cost theory explains the doctrine of comparative cost in terms of

A. The saving’s curve
B. The consumption curve
C. The substitution curve
D. The supply curve
Answer» C. The substitution curve
11.

According to the Heckscher-Ohlin theory of trade, the most important cause of difference in relative commodity prices and trade between nations is a difference in

A. Factor endowment
B. Tastes
C. Demand conditions
D. All of the above
Answer» A. Factor endowment
12.

Under constant opportunity cost, the production possibility curve is

A. Convex to the origin
B. Straight line
C. Concave to the origin
D. Upward sloping
Answer» B. Straight line
13.

According to the theory of comparative advantage, countries gain from trade, because

A. Trade makes firms more competitive, reducing their market power
B. Every country has an absolute advantage in producing something
C. World output can rise when each country specializes in what it does relatively best
D. None of the above
Answer» C. World output can rise when each country specializes in what it does relatively best
14.

Among the difference between inter-regional and international trade, the reason for international factor immobility includes

A. Difference in languages
B. Difference in occupational skills
C. Restrictions imposed by foreign country on labour immigration
D. All of the above
Answer» D. All of the above
15.

According to Adam Smith, free trade is the result of

A. Division of labour and specialisation both at the national and international level
B. Specialisation only at the national level
C. Division of labour and specialisation at the national level only
D. Division of labour only at the international level
Answer» A. Division of labour and specialisation both at the national and international level
16.

According to Ricardo, trade is possible between two countries when

A. One country has absolute advantage in production of both commodities
B. One country has an absolute advantage for production of both commodities but comparative advantage in the production of one commodity than the other country
C. One country does not have any advantage in the production of both commodities
D. A country does not have any line of production
Answer» B. One country has an absolute advantage for production of both commodities but comparative advantage in the production of one commodity than the other country
17.

David Ricardo believed that the international trade is governed by

A. Absolute cost advantage only
B. Absolute cost and comparative cost advantage
C. Comparative cost advantage
D. Mobility of factors
Answer» C. Comparative cost advantage
18.

The basics and gains from international trade under the theory of opportunity cost is determined by

A. Homogeneity of labours
B. The shape of the substitution curve or production possibility curve under different cost conditions
C. Imperfect competition in factor and commodity markets
D. Change in technology
Answer» B. The shape of the substitution curve or production possibility curve under different cost conditions
19.

The production possibility curve under increasing opportunity costs is concave to the origin because

A. The opportunity cost of leaving a unit of one commodity to have an additional unit of the other is constant
B. Each country completely specializes in the production of only one commodity after trade
C. They are the same at all points
D. When a country in the production of one commodity in which it has comparative advantage, its opportunity costs increases
Answer» D. When a country in the production of one commodity in which it has comparative advantage, its opportunity costs increases
20.

The importance of international trade includes

A. Adverse terms of trade
B. Lack of industrial diversification
C. Balance of Payments deficit
D. None of the above
Answer» D. None of the above
21.

According to classical view, one of the main difference between inter-regional and international trade is

A. Factor mobility
B. Wage flexibility
C. Both (a) and (b
D. None of the above
Answer» A. Factor mobility
22.

According to Adam Smith, diversification of labour at the international level requires the

A. Existence of absolute differences in costs
B. Existence of comparative differences in costs
C. Existence of least cost combination of factors
D. Existence of labour involved in production of a commodity
Answer» A. Existence of absolute differences in costs
23.

The basic of international trade according to Ricardo is that

A. A country will export those commodities in which its comparative production costs are high or will import those commodities in which its comparative production costs are less
B. A country will import those commodities in which its comparative production cost are the same with other countries
C. A country will export those commodities in which its comparative production costs are less or will import those commodities in which its comparative production costs are high
D. A country will export those commodities in which its comparative production
Answer» C. A country will export those commodities in which its comparative production costs are less or will import those commodities in which its comparative production costs are high
24.

According to physical criterion of the H-O theory of trade, a country is said to be relatively capital abundant if and only if

A. A country is having capital relatively cheap and labour relative costly
B. A country is endowed with a higher proportion of capital to labour than the other country
C. A country is having labour relatively cheap and capital relatively costly
D. A country is endowed with a higher proportion of labour to capital than the other country
Answer» B. A country is endowed with a higher proportion of capital to labour than the other country
25.

The price criterion if the H-O theory of trade lays down that

A. A country having labour relatively cheap and capital relatively costly is capitalabundant
B. A country having capital relatively cheap and labour relatively costly is labourabundant
C. A country having both capital and labour cheap is capital-abundant
D. A country having capital relatively cheap and labour relatively costly is capital abundant
Answer» D. A country having capital relatively cheap and labour relatively costly is capital abundant
26.

The main reason for different nations to enter into trade is that

A. Every nation can produce by itself all the commodities and services required by its citizens/people
B. Some nations are capable to produce all the goods and services required by its people
C. No country has the capacity to produce all the goods and services required by its citizens/people
D. None of the above
Answer» C. No country has the capacity to produce all the goods and services required by its citizens/people
27.

According to the absolute differences in cost theory of trade

A. No country should specialize in the production of any commodity
B. Every country should specialize in the production of commodities which it can produce more cheaply than other countries and exchange it for commodities which are cheaper in other countries
C. Every country should specialize in production of goods which it can produce at higher cost than other countries and exchange it for commodities which are costlier than other countries
D. All of the above
Answer» B. Every country should specialize in the production of commodities which it can produce more cheaply than other countries and exchange it for commodities which are cheaper in other countries
28.

International trade refers to

A. Domestic trade
B. Inter-regional trade
C. Trade between two nations or countries
D. Internal trade
Answer» C. Trade between two nations or countries
29.

The classical theory of international trade is based on

A. Labour theory of value
B. Less than full employment
C. Exchange rate differences
D. None of the above
Answer» A. Labour theory of value
30.

The necessity of absolute differences in costs of international trade is associated with

A. Comparative advantage theory
B. Opportunity Cost theory
C. Absolute advantage theory
D. Theory of Reciprocal Demand
Answer» C. Absolute advantage theory
31.

The opportunity cost theory considers

A. Labour as the only factor of production
B. Capital as the only factor of production
C. Both labour and capital
D. Land, labour and capital
Answer» C. Both labour and capital
32.

The Comparative theory of international trade is based on

A. Constant costs
B. Variable costs
C. Increasing costs
D. Decreasing costs
Answer» A. Constant costs
33.

The H-O theory of international trade was propounded by Ohlin in

A. 1932
B. 1933
C. 1934
D. 1935
Answer» B. 1933
34.

Community indifference curves have the same characteristics as

A. Transformation curve
B. Offer curve
C. Indifference curve
D. Production possibility curve
Answer» C. Indifference curve
35.

The factor price ratio(PC/PL)A < (PC/PL)B of countries A & B implies

A. Country A is abundant in labour
B. Country B is abundant in capital
C. Country B is abundant in labour
D. Country A is abundant in capital
Answer» D. Country A is abundant in capital
36.

The H-O theory assumed the prevalence of

A. Monopolistic forms of market
B. Perfect competition
C. Oligopolistic forms of market
D. Monopoly
Answer» B. Perfect competition
37.

The production possibility curve represents

A. The supply side
B. The demand side
C. Combination of four commodities
D. None of the above
Answer» A. The supply side
38.

Relative factor abundance in H-O theory of trade can be defined in terms of

A. The physical & price criterion of relative factor abundance(and the price criterion of relative factor abundance
B. Perfect mobility of factors of production
C. Production governed by increasing returns to scale
D. Similar factor intensities
Answer» C. Production governed by increasing returns to scale
39.

The slope of the production possibility curve under Opportunity costs theory is also called

A. The average production curve
B. Marginal rate of transformation
C. Indifference curve
D. Isoquant curve
Answer» B. Marginal rate of transformation
40.

The term ‘factor intensity’ refers to

A. The relative proportion of two commodities produced in a given period
B. The relative amount of resources each country possesses
C. The relative proportion of various factors of production used to produce a commodity
D. None of the above
Answer» C. The relative proportion of various factors of production used to produce a commodity
Chapter: Unit 2
41.

The fundamental reason why different countries involve in transactions with one another is the

A. Theory of absolute differences in costs
B. Production of goods
C. Gains from trade
D. Supply of goods
Answer» B. Production of goods
42.

If a country has favourable terms of trade, it will claim

A. A larger share in the distribution of gains
B. An equal share in the distribution of gains
C. A smaller share in the distribution of gains
D. None of the above
Answer» A. A larger share in the distribution of gains
43.

The income terms of trade is

A. The net barter terms of trade of a country multiplied by its export volume index
B. The ratio between the quantities of a country’s imports and exports
C. The ratio between the price of a country’s export goods and import goods
D. None of the above
Answer» A. The net barter terms of trade of a country multiplied by its export volume index
44.

Which factor does not influence terms of trade?

A. Devaluation
B. Overpopulation
C. Trade policy
D. Immigration
Answer» D. Immigration
45.

Gains from trade depends on

A. Relative strength of elasticity of demand for export and import good
B. Size of the country
C. Change in technology
D. All of the above
Answer» D. All of the above
46.

The principle of reciprocal demand was introduced by

A. J.S.Mill
B. Lionel Robbins
C. Alfred Marshall
D. Adam Smith
Answer» A. J.S.Mill
47.

Terms of trade expresses the relationship between

A. Balance of payments between two countries
B. The export price and import price of a country
C. Gains and loss of a country in international trade
D. None of the above
Answer» B. The export price and import price of a country
48.

The difference in the domestic cost ratios of producing two commodities in two countries is known as

A. Actual gains
B. Partial gains
C. Potential gains
D. Price gains
Answer» C. Potential gains
49.

The two types of gains from trade are

A. Internal and external gains
B. Static and dynamic gains
C. Relative and reactive gains
D. All of the above
Answer» B. Static and dynamic gains
50.

In case of Mill’s theory, where country A produces good X and country B produces good Y, if country A’s demand for product Y increases, then country A’s offer curve will

A. Shift to the left
B. Shift to the right
C. Shift backwards
D. Remain constant
Answer» B. Shift to the right
51.

The difference in price ratios of two commodities in the two trading countries is

A. Potential gains
B. Partial gains
C. Actual gains
D. None of the above
Answer» C. Actual gains
52.

The ratio between the quantities of a country’s imports to its exports is known as

A. Commodity or net barter terms of trade
B. Single factoral terms of trade
C. Gross barter terms of trade
D. Double factoral terms trade
Answer» C. Gross barter terms of trade
53.

J.S.Mill introduced the theory of reciprocal demand to explain

A. Determination of factor endowments
B. Determination of equilibrium terms of trade
C. Determination of availability of resources
D. Determination of equilibrium in balance of payments
Answer» B. Determination of equilibrium terms of trade
54.

Mill’s theory of reciprocal demand indicates a

A. Country’s demand for one commodity in terms of the quantities of the other country it is prepared to give up in exchange
B. Country’s supply of a commodity in terms of the quantities of the other country it is prepared to give up in exchange
C. Country’s balance of payments
D. Country’s labour cost
Answer» A. Country’s demand for one commodity in terms of the quantities of the other country it is prepared to give up in exchange
55.

The gains from trade refers to

A. A duty levied on goods when they enter and leave a country’s national boundary
B. A tariff that maximizes a country’s welfare
C. Net benefits or increases in goods that a country gets by trading with other countries
D. The demand and supply curve of a country
Answer» C. Net benefits or increases in goods that a country gets by trading with other countries
56.

The ratio between the price of a country’s export goods to its import goods is called

A. Income terms of trade
B. Gross barter terms of trade
C. Real cost terms of trade
D. Commodity or net barter terms of trade
Answer» D. Commodity or net barter terms of trade
57.

An increase in the index of income terms of trade implies that

A. A country cannot import more goods in exchange for its exports
B. A country can import more goods in exchange for its exports
C. A country cannot export more goods in exchange for its imports
D. None of the above
Answer» B. A country can import more goods in exchange for its exports
58.

The terms of trade refers to the rate

A. At which the goods of one country is exchanged for the goods of another country
B. At which the price of a country’s import is calculated
C. At which the price of a country’s export is calculated
D. All of the above
Answer» A. At which the goods of one country is exchanged for the goods of another country
59.

The types of terms of trade does not include

A. Utility terms of trade
B. Real cost terms of trade
C. Productive capacity terms of trade
D. Double factoral terms of trade
Answer» C. Productive capacity terms of trade
60.

In the modern trade theory, the gains from international trade are clearly differentiated between

A. The gains from exchange and the gains from specialization
B. The gains from exchange and income
C. The gains from exchange and price
D. All of the above
Answer» A. The gains from exchange and the gains from specialization
61.

Under the gains from international trade, the gains from exchange is also known as the

A. Partial gains
B. Consumption gains
C. Domestic gains
D. Price gains
Answer» B. Consumption gains
62.

In modern trade theory, the gains from specialization is also known as the

A. Constant gains
B. Consumption gains
C. Production gains
D. Internal gains
Answer» C. Production gains
63.

The terms of trade of a country improves when

A. The import price of a country relatively rises to its export prices
B. The import price of a country is the same with its export prices
C. The export price of a country does not rise in relation to its import prices
D. The export price of a country relatively rises to its import prices
Answer» D. The export price of a country relatively rises to its import prices
64.

When a country’s import price relatively rises to its export prices,

A. The terms of trade of a country remains the same
B. The terms of trade of a country becomes worsened
C. The terms of trade of a country improves
D. None of the above
Answer» B. The terms of trade of a country becomes worsened
65.

The various methods of measuring gains from trade does not include

A. Haberler’s approach
B. Ricardo’s-Malthus approach
C. Modern approach
D. Mill’s approach
Answer» A. Haberler’s approach
66.

According to Jacob Viner, the classical economists measured the gains from trade in terms of

A. Increase in national income
B. Difference in comparative costs
C. Terms of trade
D. All of the above
Answer» D. All of the above
67.

The classical theorists believed that the gains from trade resulted from

A. Stabilisation of price level
B. Increased production and specialization
C. Exchange and specialization
D. Perfect competition
Answer» B. Increased production and specialization
68.

The modern economists considered the gains from trade resulted from

A. Increased production and specialization
B. Increased competition
C. Exchange and specialization
D. All of the above
Answer» C. Exchange and specialization
69.

The concept of single factoral terms of trade was developed by

A. Jacob Viner
B. G.S. Dorrance
C. G.Haberler
D. F.W. Taussig
Answer» A. Jacob Viner
70.

Mill’s theory of reciprocal demand is based on one of the assumptions that

A. There is less than full employment
B. There is imperfect competition
C. The commodities are produced under the law of constant returns
D. There are transport costs involved
Answer» C. The commodities are produced under the law of constant returns
71.

When the export prices of a country relatively rises to its import prices, its terms of trade are said to have

A. Deteriorated
B. Improved
C. Remain constant
D. None of the above
Answer» B. Improved
72.

The concept of gross barter terms of trade was introduced by

A. Jacob Viner
B. Adam Smith
C. Lionel Robbins
D. F.W. Taussig
Answer» D. F.W. Taussig
73.

A single factoral terms of trade shows that a country’s factoral terms of trade improve as productivity

A. Remains constant in its export industries
B. Improves in its export industries
C. Deteriorates in its export industries
D. Increases in its import industries
Answer» B. Improves in its export industries
74.

The concept of commodity or net barter terms of trade has been used by economists to measure

A. The gains from domestic trade
B. The gains from internal trade
C. The gains from international trade
D. The gains from prices
Answer» C. The gains from international trade
75.

The term ‘terms of trade’ between two countries refers to

A. The barter terms of trade
B. The quantity of exports
C. Both (a) and (b
D. The price
Answer» A. The barter terms of trade
76.

The actual exchange ratio between two countries will depend upon the

A. Supply
B. Price
C. Reciprocal demand
D. All of the above
Answer» C. Reciprocal demand
77.

In world markets, the actual gain is always less than the potential gain since there is always

A. Perfect completion
B. Imperfect completion
C. Stability
D. None of the above
Answer» B. Imperfect completion
78.

The theory of gains from trade was at the core of the

A. Technical progress
B. Change in employment
C. Modern theory of international trade
D. Classical theory of international trade
Answer» D. Classical theory of international trade
79.

Prof. Ronald Findlay modified Ricardo’s measure of gains from trade using

A. A straight line
B. Balance of payments
C. The community indifference curve
D. Short-term and long-term lendings and borrowings
Answer» C. The community indifference curve
80.

The income terms of trade is called the

A. Capacity to export
B. Capacity to import
C. Capacity to change
D. Capacity to remain constant
Answer» B. Capacity to import
Chapter: Unit 3
81.

The tariff that maximizes a country’s welfare is called the

A. Double column tariff
B. Maximum and minimum tariff
C. Optimum tariff
D. None of the above
Answer» C. Optimum tariff
82.

Ad valorem tariffs are

A. Duties levied per physical unit of the commodity imported
B. Duties levied as fixed percentage of the value of the imported commodity
C. Duties which tend to vary with the prices of the imported commodities
D. None of the above
Answer» B. Duties levied as fixed percentage of the value of the imported commodity
83.

On the basis of origin and destination of goods, tariff may be classified into

A. Specific duties, ad valorem duties and compound duties
B. Single-column tariff, double-column tariff and triple column tariff
C. Export duties, import duties and transit duties
D. All of the above
Answer» B. Single-column tariff, double-column tariff and triple column tariff
84.

Specific tariffs are assessed

A. On the value of product
B. On the basis of subsidies
C. On the basis of physical weight
D. On the basis rate fixed by the government
Answer» C. On the basis of physical weight
85.

A quota which established thorough mutual agreements or negotiation between countries is

A. Allocated quota
B. Unilateral quota
C. Import-export quota
D. Bilateral quota
Answer» D. Bilateral quota
86.

Effects of tariffs included

A. Income effect
B. Effect on demand
C. Effect on supply
D. All of the above
Answer» A. Income effect
87.

When a uniform rate of duty is imposed on all similar commodities irrespective of the country from which they are imported, it is called

A. Single-column tariff
B. Protective tariff
C. Conventional tariff
D. Double-column tariff
Answer» A. Single-column tariff
88.

A quota system which allows a certain specified quantity of a commodity to be imported duty free or at a low rate of import duty is

A. Bilateral quota
B. Global quota
C. Tariff or custom quota
D. Unilateral quota
Answer» C. Tariff or custom quota
89.

The tariff rates which are based on trade agreements or treaties with other countries is known as

A. Revenue tariffs
B. Protective tariffs
C. Multiple column tariff
D. Conventional tariff
Answer» D. Conventional tariff
90.

Which of the following is not included in the effects of quotas

A. Price effect
B. Consumption effect
C. Income effect
D. Protective effect
Answer» C. Income effect
91.

imposition of a tariff improves the terms of trade of the imposing country but reduces its

A. Commodity prices
B. Volume of trade
C. Cost of production
D. None of the above
Answer» B. Volume of trade
92.

A tariff results in an improvement in terms of trade on one hand and on the other hand, increases the

A. Demand of the commodity
B. Price of the commodity
C. Level of welfare
D. Gains from trade
Answer» C. Level of welfare
93.

The positive effect of a tariff is, when there is an increase in the welfare of a country due to

A. An improvement in the terms of trade
B. An increase in its volume of trade
C. A reduction in its volume of trade
D. A decrease in its volume of trade
Answer» A. An improvement in the terms of trade
94.

There is an improvement in the welfare of country only when the

A. Positive effect of a tariff is lesser than its negative effect
B. Positive effect is larger than its negative effect
C. Positive effect of a tariff is equal to its negative effect
D. None of the above
Answer» B. Positive effect is larger than its negative effect
95.

A trade policy without tariffs and other quantitative restrictions blocking the movement of goods between countries is

A. Import policy
B. Export policy
C. Free trade policy
D. Exim policy
Answer» C. Free trade policy
96.

Protection refers to a policy where

A. Export industries are to be protected from competition
B. Domestic industries are to be protected from foreign competition
C. Optimum utilization of resources takes place
D. There is optimization of consumption
Answer» B. Domestic industries are to be protected from foreign competition
97.

A tax or duty levied on goods when it enters or leave the national boundary of a country is called

A. Tariff
B. Quotas
C. External economics
D. Balance of payment
Answer» A. Tariff
98.

When government levies import duties which varies with prices of commodities imported , it is called

A. Ad valorem duty
B. Specific duty
C. Compound duty
D. Sliding scale duty
Answer» D. Sliding scale duty
99.

Which of the following is not the effect of tariff?

A. Balance of payments effect
B. Terms of trade effect
C. competive effect
D. none of the above
Answer» D. none of the above
100.

Prof. Kindleberger calls the combined protective and consumption effect as

A. Cost of the tariff
B. Trade effect
C. Income effect
D. Revenue effect
Answer» B. Trade effect
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