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Factors Influencing Foreign Trade

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Questions and Answers

Which of the following best describes the economic theory proposed by Adam Smith in The Wealth of Nations?

Protectionism, where countries should use tariffs and subsidies to protect domestic industries

Mercantilism, where countries should promote exports and discourage imports

Comparative advantage, where countries should specialize in producing goods they can make at a lower opportunity cost

Absolute advantage, where countries should specialize in producing goods they can make more efficiently (correct)

According to the passage, what is the key assumption underlying Adam Smith's theory of value?

Value is determined by the demand for the good or service

Value is determined by the price set by the market

Value is determined by the cost of production, including capital and land

Value is determined based on labor, as labor is the only production factor (correct)

What is the main reason countries like Japan, China, Singapore, Taiwan, and Germany are described as practicing a form of neo-mercantilism in the passage?

They have high levels of economic growth and industrialization

They have high tariffs and subsidies to promote exports and discourage imports (correct)

They have large trade surpluses with other countries

They have high levels of government intervention in their economies

According to the passage, what is the key condition for two nations to mutually benefit from trade?

Both nations must gain from the trade, with each specializing in the good they can produce more efficiently Signup and view all the answers

What is the main reason, according to the passage, that countries should specialize in producing goods they have an absolute advantage in?

It allows them to utilize their resources in the most efficient way Signup and view all the answers

Which of the following best describes the key difference between absolute advantage and comparative advantage as trade theories?

Absolute advantage focuses on a country's ability to produce a good more efficiently, while comparative advantage focuses on a country's relative efficiency Signup and view all the answers

Why does the passage state that Adam Smith doubted the mercantilism theory of the time in The Wealth of Nations?

Mercantilism focused on maximizing exports and minimizing imports, while Smith argued for free trade Signup and view all the answers

What is the main reason, according to the passage, that countries should specialize in producing goods they have a comparative advantage in?

It allows them to utilize their resources in the most efficient way Signup and view all the answers

Which of the following best describes the key assumption underlying Adam Smith's theory of absolute advantage?

Labor is the only factor of production that determines value Signup and view all the answers

How does the passage suggest that countries practicing neo-mercantilism differ from the mercantilism theory described by Adam Smith?

Neo-mercantilism is a more modern and sophisticated form of mercantilism, but with the same underlying goals Signup and view all the answers