Chapter Exam

Chapter 7: International Economics — Online MCQ Test

Q: Which theory states that a country should specialize in producing a commodity in which it has an absolute cost advantage?

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.

Q: Balance of payments is a statement that records all _______ between residents of a country and the rest of the world.

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.

Q: 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:

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.

Q: 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:

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.

ECONOMICS · CLASS 12th · Tamil Nadu State Board

Practice Chapter 7: International Economics with a free chapter-wise online MCQ test for Tamil Nadu State Board CLASS 12th ECONOMICS. 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.... AI-generated questions from basic to board-exam level, with instant results and explanations.

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Chapter 7: International Economics — Important Questions & Answers (FAQ)

Frequently asked questions from Tamil Nadu State Board CLASS 12th ECONOMICS — Chapter 7: International Economics, with answers and explanations. These are sample questions; the exam has its own separate question set.

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.

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.

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.

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.

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.

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Chapter 8: International Economic Organisations