Chapter 7: International Economics — Online MCQ Test
ECONOMICS · CLASS 12th · Tamil Nadu State Board
Practice Chapter 7: International Economics with a free chapter-wise online MCQ test.
This chapter covers: Explains why countries trade using theories like absolute and comparative advantage and covers the balance of payments foreign exchange markets and instruments of trade policy such....
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Chapter 7: International Economics — Important Questions & Answers
Which theory states that a country should specialize in producing a commodity in which it has an absolute cost advantage?
- A. Comparative advantage theory
- B. Absolute advantage theory
- C. Heckscher-Ohlin theory
- D. Product cycle theory
Answer: B. Absolute advantage theory
Absolute advantage theory says a country should produce goods it can make more efficiently than others. It was associated with Adam Smith.
Absolute advantage theory says a country should produce goods it can make more efficiently than others. It was associated with Adam Smith.
Balance of payments is a statement that records all _______ between residents of a country and the rest of the world.
- A. internal transactions
- B. financial and economic transactions
- C. government taxes
- D. only export transactions
Answer: B. financial and economic transactions
Balance of payments records all economic and financial transactions between residents of a country and the rest of the world during a given period.
Balance of payments records all economic and financial transactions between residents of a country and the rest of the world during a given period.
If Country A can produce both rice and cloth more efficiently than Country B, but Country B has a lower opportunity cost in cloth production, then Country B should specialize in:
- A. rice only
- B. cloth only
- C. both goods equally
- D. neither good
Answer: B. cloth only
According to comparative advantage, a country should specialize in the good with the lower opportunity cost. Here, Country B has comparative advantage in cloth.
According to comparative advantage, a country should specialize in the good with the lower opportunity cost. Here, Country B has comparative advantage in cloth.
Suppose India can produce 10 units of tea or 5 units of coffee with the same resources, while Sri Lanka can produce 6 units of tea or 6 units of coffee. Based on comparative advantage, India should specialize in:
- A. tea
- B. coffee
- C. both tea and coffee
- D. neither tea nor coffee
Answer: A. tea
India gives up 2 units of tea for 1 unit of coffee, while Sri Lanka gives up 1 unit of tea for 1 unit of coffee. India has comparative advantage in tea.
India gives up 2 units of tea for 1 unit of coffee, while Sri Lanka gives up 1 unit of tea for 1 unit of coffee. India has comparative advantage in tea.
Which of the following best explains why two countries can gain from trade even if one country has an absolute advantage in producing all goods?
- A. Because both countries always produce the same output
- B. Because specialization based on comparative advantage increases total output
- C. Because tariffs reduce imports
- D. Because exchange rates remain fixed
Answer: B. Because specialization based on comparative advantage increases total output
Trade can still benefit both countries if each specializes according to comparative advantage. This increases total world output and allows mutual gains.
Trade can still benefit both countries if each specializes according to comparative advantage. This increases total world output and allows mutual gains.