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Sources of Comparative Advantage
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Sources of Comparative Advantage – MCQs
40 questions. Click to practice.
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Correct options are highlighted when revealed.
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 plentiful
The factor that is limited
No factor opposes it
It 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 efficiency
Offer financial support to companies with promising comparative advantages
Extend credit to workers employed in export sectors
Raise interest rates on loans provided to businesses competing with imports
Encourage 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 trade
Those who benefit from trade are greater in number than those who lose
The factor in limited supply always benefits from trade
None 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 imports
American imports demand more labor than American exports
American exports do not distinctly rely on either labor or capital
None of these statements are correct
6.
According to the Heckscher-Ohlin model, which factors are considered the same across different countries?
Consumer preferences and tastes
Levels of technological advancement
Availability of production factors
Both consumer preferences and technology
None 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?
Only the supply conditions
Only the demand conditions
Both supply and demand conditions
Insufficient information to decide
None of the above
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 innovation
Assurances on loans
Loans offered at reduced interest rates
All 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 theory
A long-term, evolving trade theory
A trade theory based on zero-sum outcomes
A 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?
availability of production factors
relative usage of production inputs
technological capabilities
trade-offs in production choices
resource distribution
12.
When does international trade lead to a reduction in the cost per unit of production?
International trade grants producers exclusive market control
Countries impose tariffs and import restrictions
Manufacturing involves rising expenses
Producers 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 endowments
Theory of product life cycles
Theory of economies of scale
Theory 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's
Wolfgang Stolper's
Staffan Linder's
Wassily 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:
risen
declined
remained constant
varied unpredictably
no clear trend
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 advantage
Comparative advantage dictates how trade gains are shared
The extent of specialization depends on the global market size
Nations 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 theory
Theory of overlapping consumer preferences
Theory based on economies of scale
Product life cycle theory
Comparative advantage theory
19.
Who are credited with formulating the factor endowment theory in international trade?
Adam Smith
David Ricardo
John Stuart Mill
Eli Heckscher and Bertil Ohlin
None of the above
20.
Which of the following is NOT a factor that explains interindustry trade?
Significant transportation expenses relative to the product's worth
Varied agricultural harvest periods across different regions
Distinctive features and variations in products like cars
Elevated average income levels in countries that export
Differences in natural resource availability between countries
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