Understanding Foreign Trade

Why do countries engage in foreign trade?

• To increase domestic production

• To exchange commodities and services they cannot produce

• To eliminate all production costs

• To reduce geographic disparities

What are goods and services bought from foreign countries called?

• Imports

• Exports

• Local goods

• Domestic products

What is the term for goods sold from one country to another?

• Imports

• Exports

• Domestic sales

• Local trade

What does the concept of comparative cost advantage imply?

• Specializing in goods that can be produced at lower costs

• Restricting all foreign trade

• Producing goods at higher costs

• Focusing on domestic consumption only

What is free trade?

• Trade that only involves services

• Trade limited to neighboring countries

• Trade with high tariffs

• Trade with no restrictions on imports or exports

Why do countries impose trade barriers?

• To promote free trade

• To encourage foreign competition

• To protect domestic industries from cheap imports

• To increase the cost of domestic production

What are tariff barriers?

• Quotas on domestic production

• Physical restrictions on imports

• Taxes or duties imposed on imports

• Bans on all foreign goods

Which of the following is an example of a non-tariff barrier?

• Custom charges

• Import quotas

• Excise duty

• Import duty

What factors influence a country's decision to adopt a free trade or restrictive trade policy?

• Surplus or deficit position of trade and ideology

• Geographic location

• Population size

• Cultural diversity

What is one of the benefits of foreign trade?

• Limited access to global markets

• Cheaper alternatives for production

• Reduced specialization

• Increased production costs