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

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.the country will become an importer of the good.the country will neither export nor import the good.

2. As a result of the tariff the U.S. price of pillows will be

$35 and the quantity of pillows purchased will increase.$25 and the quantity of pillows purchased will decrease.$35 and the quantity of pillows purchased will decrease.$25 and the quantity of pillows purchased will increase.

3. When a country allows free trade,

the domestic price will equal 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.the domestic price will be lower than the world price.

4. A tariff and an import quota will both

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

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

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

6. When a country’s domestic price of a product is lower than the world price and free trade is allowed,

we know that consumers must not demand the product since the domestic price is lower, so the country will have no need to export nor import the product.the country will become an importer of the product.additional information about domestic supply is needed to determine whether the country will export or import the good.the country will become an exporter of the product.

7. When a quota is imposed on a market the

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

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

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

9. When countries import a product, domestic producers

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

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

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

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

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

12. 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.$125 and the quantity purchased will fall.$110 and the quantity purchased will fall.$95 and the quantity purchased will increase.

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

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

14. A tariff is a tax on

exported goods that lowers the domestic price below the world price.exported goods that keeps the domestic price the same as the world price.imported goods that raises the domestic price above the world price.imported goods that lowers the domestic price below the world price.

15. A country has a comparative advantage in a product if the world price is

lower than its domestic price.higher than its domestic price.equal to its domestic price.There is no way to tell by comparing the world price with the domestic price.

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

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

17. With free trade in the soybean market in Chile, consumers

and producers will both lose.will lose and producers will benefit.will benefit and producers will not be affected.and producers will both benefit.

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

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

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

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

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

21. If Chile allows trade in soybeans Chile will

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

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

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

23. 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.

24. A tariff on a product makes domestic sellers

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

25. The General Agreement on Tariffs and Trade (GATT)

was enacted to lower trade barriers among European countries.was enacted to lower trade barriers among the United States, Canada and Mexico.is a series of continuing negotiations that has the goal of promoting free trade.was enacted after World War I in response to high tariffs imposed during the war.

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