Quiz on International Economics SL

The main benefit of international trade is that it allows countries to:

• Increase domestic employment

• Achieve self-sufficiency

• Specialize and allocate resources efficiently

• Avoid competition

According to the theory of comparative advantage, a country should specialize in producing goods that:

• It can produce with fewer resources than another country

• Have the highest opportunity cost

• It can produce at a lower opportunity cost

• Have the highest market price

Free trade occurs when:

• Countries impose tariffs on imports

• Countries trade without government-imposed restrictions

• A government subsidizes its exports

• A country only imports and does not export

A tariff is a:

• Tax on imported goods

• Limit on the quantity of imports

• Subsidy given to domestic producers

• Trade agreement between two countries

A quota is a:

• Limit on the quantity of imports

• Tax on exported goods

• Financial incentive for domestic firms

• Type of currency exchange rate system

An argument in favor of protectionism is that it:

• Lowers prices for consumers

• Encourages dependency on foreign goods

• Protects domestic industries and jobs

• Increases trade efficiency

An argument against protectionism is that it:

• Can lead to trade wars and higher prices

• Reduces government tax revenue

• Encourages specialization

• Reduces production costs

If a government imposes a subsidy on domestic producers, the effect is:

• Increased imports

• Decreased domestic production

• A lower domestic price and increased supply

• Increased consumer prices

The World Trade Organization (WTO) aims to:

• Impose trade restrictions on developing countries

• Regulate financial markets

• Promote free trade and resolve trade disputes

• Provide loans to poor nations

An appreciation of a country’s currency will likely:

• Increase the price of exports and reduce export demand

• Decrease the price of exports and increase export demand

• Make imports more expensive

• Increase the competitiveness of domestic industries