Trade and development
Multiple Choice Quiz
1
International specialization takes place because of __________
A) differences in technology
B) differences in factor endowments
C) scale economies
D) all of the above
2
International differences in opportunity costs lead to countries acquiring __________
A) comparative advantage
B) high exchange rates
C) trade barriers
D) trade quotas
3
If a country does not have an absolute cost advantage in the production of a any good, there is no incentive to trade
A) TRUE
B) FALSE
4
The main cause of different relative costs between countries are ___________
A) relative factor competition
B) relative factor mobility
C) relative factor substitution
D) relative factor endowments
5
The level of the equilibrium exchange rate offsets international differences in ____________
A) comparative advantage
B) absolute advantage
C) opportunity cost
D) relative costs
6
International trade can never hurt any people
A) TRUE
B) FALSE
7
The imposition of a tariff causes consumption to _________ and imports to ________
A) rise, rise
B) fall, rise
C) fall, fall
D) rise, fall
8
A tariff causes domestic firms to __________ and consumers to __________
A) overproduce, underconsume
B) overproduce, overconsume
C) underproduce, underconsume
D) underproduce, overconsume
9
Tariffs always distort trade and are never justified.
A) TRUE
B) FALSE
10
An optimal tariff is one which reduces imports to the level at which _________ equals _______
A) imports, exports
B) the balance of trade, zero
C) the demand for currency, the supply of currency
D) social marginal cost, social marginal benefit
11
If goods are exported for less than society's marginal production cost and the marginal benefit to domestic consumers, it is likely that theybenefit from ___________
A) an import subsidy
B) a quota
C) comparative advantage
D) an export subsidy
12
Export subsidies do not involve waste
A) TRUE
B) FALSE.
13
Economic transition involves high inflation because ____________ and ___________
A) high monetary growth, high wages
B) high budget deficits, devaluation
C) high monetary growth, devaluation
D) prices surge from an artificiallylow level to their equilibrium level, the inflation tax is required as source of government revenue
14
Output fell sharply in the transition economies because
A) banks were unable to function
B) there was little corporate control
C) vital infrastructure was missing
D) all of the above
15
Most transition economies are seeking membership of the EU
A) TRUE
B) FALSE
16
All of the following represent obstacles to LDC development except
A) resource scarcity
B) low levels of investment
C) low population
D) poor infrastructure
E) poor human capital
17
LDCs often have a comparative advantage in the production of ___________
A) primary products
B) intermediate products
C) manufactured products
D) financial services.

Q1. Which of the following is not a factor of production?
(Select one answer)
(a) Labour
(b) Land
(c) Money
(d) Capital
(e) All of these answers are factors of production.
Q2. Economic models are:
(Select one answer)
(a) Usually made of wood and plastic.
(b) Built with assumptions.
(c) Useless if they are simple.
(d) Created to duplicate reality.
Q3. Which of the following statements would you considerto be a normative one?
(Select one answer)
(a) Faster economic growth should result if an economy has a higher level of investment
(b) Changing the level of interest rates is a better way of managing the economy thanusing taxation and governmentexpenditure
(c) Higher levels of unemployment will lead to higher levels of inflation
(d) The average level of growth in the economy was faster in the 1990s than the 1980s.
Q4. In a free-market economy the allocation of resources is determined by:
(Select one answer)
(a) votes taken by consumers
(b) a central planning authority
(c) By consumer preferences
(d) the level of profits of firms.
Q5. Raising taxes and increasing welfare payments:
(Select one answer)
(a) reduces market power.
(b) proves that there is such a thing as a free lunch
(c) improves efficiency at the expense of equity
(d) improves equity at the expense of efficiency.
Q6. Which of the following goods or services would not be provided by a pure free-market economy?
(Select one answer)
(a) Public transport system
(b) Pensions
(c) National Defence
(d) Education.