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Economics 101 Practice Test: International Trade

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International trade is the exchange of goods, services, and capital across international borders. It includes the import and export of goods and services, as well as foreign direct investments. International trade can be a contentious political issue. However, most economists agree that trade among nations makes the world better off. Trade can contribute to global efficiency. When a country opens up to trade, capital and labor shift toward industries in which they are used more efficiently. International trade is governed by both local laws and international laws. The two main bases of... Show more

International trade is the exchange of goods, services, and capital across international borders. It includes the import and export of goods and services, as well as foreign direct investments.

International trade can be a contentious political issue. However, most economists agree that trade among nations makes the world better off. Trade can contribute to global efficiency. When a country opens up to trade, capital and labor shift toward industries in which they are used more efficiently.
International trade is governed by both local laws and international laws.

The two main bases of foreign trade are comparative advantage and absolute advantage:
Comparative advantage: A country's ability to produce goods at a lower opportunity cost
Absolute advantage: A country's ability to produce more of a good using the same resources

Relaed Test: Economics 101 Practice Test: Trade

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Economics 101 Practice Test: International Trade

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1. A tariff and an import quota will both

increase the quantity of imports and raise domestic price.reduce the quantity of imports and lower domestic price.increase the quantity of imports and lower domestic price.reduce the quantity of imports and raise domestic price.

2. When a country allows trade and becomes an importer of a good,

everyone in the country benefits.the gains of the winners exceed the losses of the losers.the losses of the losers exceed the gains of the winners.everyone in the country loses.

3. When a country becomes an exporter of a good,

the losses of the losers exceed the gains of the winners.the gains of the winners exceed the losses of the losers.everyone in the country benefits.everyone in the country loses.

4. If a country allows trade and the domestic price of a good is higher than the world price,

the country will become an importer of the good.the country will neither export nor import the good.additional information about demand is needed to determine whether the country will export or import the good.the country will become an exporter of the good.

5. When the world price of a product is higher than a country’s domestic price we know that the country

has a comparative advantage in that product.should import that product.could benefit by imposing a tariff on that product.should no longer produce that product.

6. When two countries choose to engage in international trade,

both countries will benefit.since it is an equal exchange, neither country benefits nor loses.one country benefits while the other country loses.Without additional information, we will not be able to know if either country benefits or loses.

7. When the world price of a product is higher than a country’s domestic price we know that the country

should no longer produce that product.could benefit by imposing a tariff on that product.has a comparative advantage in that product.should import that product.

8. When the United States engages in international trade with China,

China reaps economic benefits and the United States loses.it is an equal tradeoff so neither country benefits nor loses.China loses and the United States reaps economic benefits.both China and the United States reap economic benefits.

9. When a country allows free trade,

the domestic price will equal the world price.the domestic price will be lower than the world price.it does not matter what the world price is, the domestic price is the prevailing price.the domestic price will be greater than the world price.

10. When a country becomes an exporter of a good,

the losses of the losers exceed the gains of the winners.everyone in the country benefits.everyone in the country loses.the gains of the winners exceed the losses of the losers.

11. A tariff on a product makes domestic sellers

worse off and domestic buyers better off.better off and domestic buyers worse off.worse off and domestic buyers worse off.better off and domestic buyers better off.

12. Countries usually impose restrictions on free foreign trade to protect

domestic consumers.domestic producers.foreign consumers.foreign producers.

13. For a country, the domestic price of a product will equal the world price

if the country chooses to export and not import the product.when the country allows free trade.when the domestic supply of the product increases.when trade restrictions are imposed on the product.

14. All of the following are used as arguments against free trade EXCEPT

infant industries must be protected from free trade.free trade can threaten national security.free trade can destroy domestic jobs.free trade makes consumers worse off.

15. When a country allows trade and becomes an exporter of a good,

both domestic producers and domestic consumers are worse off.domestic producers are worse off, and domestic consumers are better off.both domestic producers and domestic consumers are better off.domestic producers are better off, and domestic consumers are worse off.

16. If Chile allows trade in soybeans Chile will

export soybeans and the price in Chile will be $3.00 per bushel.import soybeans and the price in Chile will be $3.00 per bushel.export soybeans and the price in Chile will be $2.50 per bushel.import soybeans and the price in Chile will be $2.50 per bushel.

17. When countries import a product, domestic producers

benefit but domestic consumers lose.and domestic consumers both lose.and domestic consumers of that product both benefit.lose but domestic consumers benefit.

18. All of the following are used as arguments against free trade EXCEPT

free trade makes consumers worse off.free trade can destroy domestic jobs.infant industries must be protected from free trade.free trade can threaten national security.

19. Which of the following is NOT an argument for restricting trade?

the national security argumentthe jobs argumentthe infant-industry argumentthe efficiency argument

20. If Chile allows trade in soybeans Chile will

export soybeans and the price in Chile will be $3.00 per bushel.import soybeans and the price in Chile will be $2.50 per bushel.import soybeans and the price in Chile will be $3.00 per bushel.export soybeans and the price in Chile will be $2.50 per bushel.

21. When a quota is imposed on a market the

supply curve (above the world price) shifts to the left by the amount of the quota.demand curve (above the world price) shifts to the left by the amount of the quota.demand curve (above the world price) shifts to the right by the amount of the quota.supply curve (above the world price) shifts to the right by the amount of the quota.

22. The North American Free Trade Agreement

increased trade restrictions among Canada, Mexico and the United States.reduced trade restrictions among European countries.eliminated tariffs on imports to North America from the rest of the world.reduced trade restrictions among Canada, Mexico and the United States.

23. According to this scenario, if Holland imposes a $15 tariff on scanners, the result in Holland would be that the price of scanners will be

$125 and the quantity purchased will increase.$110 and the quantity purchased will fall.$95 and the quantity purchased will increase.$125 and the quantity purchased will fall.

24. From the importing country’s point of view, a tariff is better than a quota because

a tariff has a larger effect on imports than does a quota.both reduce imports but only quotas increase price.a tariff has a smaller effect on imports than does a quota.the tariff generates tax revenue for the government.

25. According to this scenario, if Holland imposes a $15 tariff on scanners, the result in Holland would be that consumers

will gain and producers will lose.and producers will both lose.will lose and producers will gain.and producers will both gain.

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