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  1. Chapter Twenty-Seven: International Trade

Chapter Twenty-Seven: International Trade

1
Question 1

Which of the following explains why all nations may benefit from international trade according to the principle of comparative advantage?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) Specialisation and trade only works under the protection of tariffs.Your answer has been saved.
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2
Question 2

Which of the following does not explain why all nations may benefit from international trade?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is d) Nations can only benefit from international trade if some other country loses.Your answer has been saved.
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3
Question 3

If the EU can produce 4 metres of cloth per Kg of wheat and the US can produce 1.2 metres of cloth per Kg of wheat, what doe this imply for comparative advantage and trade patterns?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) The EU has a comparative advantage in cloth and should export cloth and import wheat.Your answer has been saved.
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4
Question 4

The 'terms of trade' is an index of:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is d) The relative prices of a country's exports and imports.Your answer has been saved.
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5
Question 5

Which of the following is not a trade related organization or treaty?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) NATOYour answer has been saved.
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6
Question 6

In 2005 which country had the largest share of world exports?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is d) GermanyYour answer has been saved.
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7
Question 7

Between 1950 and 2005, world real GDP increased around ten fold. By how much did world export volumes increase?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) Twenty eight fold.Your answer has been saved.
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8
Question 8

What would be the implications of all countries resorting to autarky?

Hint: re-read 'Interpersonal, interregional and international trade' pp611.Hint

9
Question 9

What is the difference between saying that a country has an 'absolute advantage' in the production of a commodity and it having a 'comparative advantage' in the production of the same commodity?

Hint: re-read 'Gains from specialization with given costs' pp611-14. To help you make the distinction clear, you may wish to tabulate a set of your own tables (based on your own figures) akin to Tables 27.1 and 27.2 (p612). Hint

10
Question 10

How can the scale of production influence the pattern of trade between large and small countries?

Hint: re-read 'Gains from specialization with variable costs' pp614-16.Hint

11
Question 11

Given the benefits of free trade across the globe, why do countries adopt policies that reduce or prevent trade-flows between each other?

Hint: re-read 'The case for protectionism' pp617-21. Hint

12
Question 12

Draw a diagram to show the impact of a country choosing to impose a tariff on the imports of a commodity.

Hint: re-read 'Methods of protection' pp621-24. If you need a prompt, consult Figure 27.3 (p621). In drawing your diagram, identify the following:

(a) the change in the amount of the product that is bought by the country's population before and after the tariff is introduced;

(b) how the tariff affects:

a. domestic consumers;

b. domestic producers;

c. the government.

Hint

13
Question 13

Other than by tariff, what other ways might a government reduce the flow of imported goods?

Hint: re-read 'Policies that directly lower quantities' pp623-24.Hint

14
Question 14

Outline Bhagwati's four main criticisms of free trade.

Hint: re-read 'Box 27.2: Anti-capitalism, anti-globalism and fair trade', p622.Hint

15
Question 15

Why was the emergence of the GATT in 1948 an essential institution for the post-war world? Why is it essential that its successor, the World Trade Organization (1995), is not abolished due to its inability to manage the process of globalization?

Hint: re-read 'Global commercial policy' pp625-26 and 'Case Study 2: The World Trade Organization and its critics' pp630-32. In actual fact, the GATT emerged after the US Congress failed to ratify a more grandiose body, namely the International Trade Organization which had been proposed to complement the newly created International Bank for Reconstruction and Development and the International Monetary Fund (usually referred to as the IMF) following talks held in 1944 between the soon to be victorious nations at Bretton Woods, New Hampshire. Nevertheless, the more diluted body still played an important role in the evolution of a post-war international economy. Hint

16
Question 16

What is the difference between 'trade creation and trade diversion'?

Hint: re-read 'Types of regional agreement' pp626-27.Hint

17
Question 17

What are the economic implications of the Single European Act (1986)?

Hint: re-read 'Common markets: the European Union' pp628-29. In answering this question you need also to consider the process by which trade barriers between member countries are eliminated. Hint