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1.Based on the factor price equalization theorem, which type of production factor is expected to resist free trade policies within a country?

The factor that is plentifulThe factor that is limitedNo factor opposes itIt is unclear without additional data

2.When the comparative advantage model is modified to factor in transportation expenses along with production costs, what outcome should we anticipate?

Trade goods will be priced lower compared to a scenario without transportation expenses.Specialization will cease once the production costs between trading countries become identical.The quantity of trade will decrease relative to a situation with no transportation costs.The benefits derived from trade will increase beyond those seen without transportation costs.

3.What do proponents of industrial policy argue the government should do?

Adopt free trade policies to maximize worldwide efficiencyOffer financial support to companies with promising comparative advantagesExtend credit to workers employed in export sectorsRaise interest rates on loans provided to businesses competing with importsEncourage unrestricted foreign investment in all industries

4.What does the Heckscher-Ohlin model suggest about the distribution of benefits from international trade?

All participants benefit equally from tradeThose who benefit from trade are greater in number than those who loseThe factor in limited supply always benefits from tradeNone of the statements above are correct

5.What was the outcome of Wassily Leontief's empirical investigation into comparative advantage?

American exports require more capital compared to American importsAmerican imports demand more labor than American exportsAmerican exports do not distinctly rely on either labor or capitalNone of these statements are correct

6.According to the Heckscher-Ohlin model, which factors are considered the same across different countries?

Consumer preferences and tastesLevels of technological advancementAvailability of production factorsBoth consumer preferences and technologyNone of the above

7.According to the Heckscher-Ohlin theory, which of the following statements is true?

Nations possessing varied factor resources but alike in technology and tastes have a solid foundation for trading with one another.Countries generally focus on producing their comparative advantage goods, though not exclusively.Mutual demand influences both supply and demand, resulting in a balanced terms of trade.All of the above statements are correct.

8.When consumer preferences are the same across countries, what factor determines comparative advantage?

9.Which of the following measures might be adopted under industrial policies aimed at enhancing the comparative advantage of local industries?

Grants for research and innovationAssurances on loansLoans offered at reduced interest ratesAll of these measures

10.The product cycle theory of international trade is primarily classified as which type of trade theory?

A short-term, static trade theoryA long-term, evolving trade theoryA trade theory based on zero-sum outcomesA theory describing negative-sum trade scenarios

11.In the Heckscher-Ohlin model, which assumption eliminates the classical explanation for trade by stating that _________ is the same across nations?

12.When does international trade lead to a reduction in the cost per unit of production?

International trade grants producers exclusive market controlCountries impose tariffs and import restrictionsManufacturing involves rising expensesProducers benefit from economies of scale

13.What does the theory of dynamic comparative advantage primarily explain?

It clarifies why certain countries adopt industrial policies to nurture emerging firms with competitive potential.It fails to account for strategic rivalry between companies like Boeing and Airbus.It is simply another term for Ricardo's theory of comparative advantage.None of the above choices are accurate.

14.Which trade theory emphasizes that the extent of division of labor is constrained by the market's size?

Theory of factor endowmentsTheory of product life cyclesTheory of economies of scaleTheory of overlapping demand

15.Which 1954 research on U.S. trade patterns revealed that American exports were more labor-intensive than imports, despite the U.S. being recognized as a capital-rich country?

Paul Samuelson'sWolfgang Stolper'sStaffan Linder'sWassily Leontief's

16.In the United States, empirical research over the last two centuries shows that the cost of international shipping compared to the value of U.S. imports has:

17.According to the Heckscher-Ohlin trade theory associated with Swedish economists, what primarily influences a country's export patterns?

The distribution of trade benefits is based on absolute advantageComparative advantage dictates how trade gains are sharedThe extent of specialization depends on the global market sizeNations export products that align with their resource availability

18.Which trade theory explains that a country that first creates and exports a new product might later start importing it and stop producing it domestically?

Factor endowment theoryTheory of overlapping consumer preferencesTheory based on economies of scaleProduct life cycle theoryComparative advantage theory

19.Who are credited with formulating the factor endowment theory in international trade?

20.Which of the following is NOT a factor that explains interindustry trade?

Significant transportation expenses relative to the product's worthVaried agricultural harvest periods across different regionsDistinctive features and variations in products like carsElevated average income levels in countries that exportDifferences in natural resource availability between countries

Sources of Comparative Advantage – MCQs