WTO and International Trade Quiz

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Questions and Answers

What is the primary function of the World Trade Organization (WTO)?

  • To serve as a forum for trade negotiations between countries. (correct)
  • To provide loans to developing countries.
  • To regulate global financial markets.
  • To monitor and enforce international environmental agreements.

What was the dominant perspective in international trade theory before the mid-twentieth century?

  • Country-based (correct)
  • Company-based
  • Market-based
  • Firm-based

According to the "Standard Theory of International Trade," what plays a crucial role in determining a country's wealth?

  • Its population size and growth.
  • Its holdings of gold and silver. (correct)
  • Its level of industrial production.
  • Its technological advancements.

Which of the following is NOT a key principle advocated by Adam Smith and David Ricardo in their theories of free trade?

<p>Protectionist policies facilitate global production efficiency. (B)</p> Signup and view all the answers

The "price-specie flow mechanism" proposed by David Hume is a theory that addresses:

<p>The need for monetary adjustments in countries with persistent trade imbalances. (D)</p> Signup and view all the answers

What is the main benefit of "division of labor" in economic production?

<p>Enhanced efficiency and productivity. (A)</p> Signup and view all the answers

What does "marginal cost" refer to in economics?

<p>The cost of producing one additional unit of a product. (A)</p> Signup and view all the answers

Which of the following best describes "opportunity cost"?

<p>The value of the next best alternative forgone. (D)</p> Signup and view all the answers

Which of the following was the first regularly used medium of exchange involving Europeans in Canada?

<p>Beaver pelts (B)</p> Signup and view all the answers

What was the primary reason for the issuance of paper currency in Canada by the colonial governments?

<p>To replace the use of bartering (A)</p> Signup and view all the answers

What was the significant consequence of the rapid increase in paper money circulation during the late 1750s?

<p>A decline in the value of paper money (B)</p> Signup and view all the answers

What was the primary reason for the introduction of copper coins in Canada in 1722?

<p>To address the shortage of silver and gold coins (A)</p> Signup and view all the answers

What was the main purpose of the 'ordonnances' and 'acquits' issued by the Canadian government?

<p>To serve as legal tender for payments (C)</p> Signup and view all the answers

Which of the following events led to the suspension of payments of expenses in Canada by the French government in 1759?

<p>The British conquest of Canada (C)</p> Signup and view all the answers

Which of the following could be considered the first distinctive Canadian coins?

<p>Over-stamped Spanish dollars (B)</p> Signup and view all the answers

What happened to the value of paper money in Canada following the British conquest in 1760?

<p>It became worthless (A)</p> Signup and view all the answers

Who is credited with first introducing paper money in Canada?

<p>Jacques de Meulles (A)</p> Signup and view all the answers

What is meant by the term 'legal tender' as it is used in the text?

<p>Currency that is valid and sufficient for the payment of debts (B)</p> Signup and view all the answers

What is the defining characteristic of industrial capitalism?

<p>The rise of industries and factories as the primary force of production (B)</p> Signup and view all the answers

What is the primary advantage of free trade systems over mercantilism?

<p>Free trade systems promote economic growth by encouraging competition and specialization (C)</p> Signup and view all the answers

What is the key difference between absolute advantage and comparative advantage?

<p>Absolute advantage focuses on production efficiency, while comparative advantage considers opportunity cost (A)</p> Signup and view all the answers

What is the main characteristic of a barter system?

<p>Exchanging goods and services without using money. (B)</p> Signup and view all the answers

Why is the barter system considered time-consuming?

<p>Because it involves complex negotiations and finding suitable trading partners. (D)</p> Signup and view all the answers

What factor contributed to the revival of bartering in modern times?

<p>The global economic crisis and financial instability. (C)</p> Signup and view all the answers

Why did early humans not need to exchange goods and services?

<p>They were self-sufficient and could satisfy their basic needs through hunting and gathering. (A)</p> Signup and view all the answers

Why did the system of trade flourish when humans started settling down?

<p>All of the above. (D)</p> Signup and view all the answers

What significant event marked the beginning of the use of metal coins?

<p>The minting of coins in Lydia, now western Turkey. (C)</p> Signup and view all the answers

What was the main purpose of miniature hoes and billhooks used as currency in ancient China?

<p>To provide a tangible medium of exchange that was easily recognizable. (B)</p> Signup and view all the answers

What was the main reason for the transition from miniature tools to circular coins in China?

<p>Circular coins were easier to produce and handle. (C)</p> Signup and view all the answers

What innovation in the use of money occurred around 700 BC in China?

<p>The introduction of paper money. (C)</p> Signup and view all the answers

Who introduced the first official currency in Lydia?

<p>King Alyattes. (C)</p> Signup and view all the answers

What was the significance of King Croesus's bimetallic system?

<p>It provided a stable monetary system that resisted fluctuations in the value of gold and silver. (A)</p> Signup and view all the answers

What was the Croeseld?

<p>A type of bimetallic coin minted in Lydia. (D)</p> Signup and view all the answers

What is the process of 'minting'?

<p>Creating a new coin by striking metal against a die. (D)</p> Signup and view all the answers

Flashcards

WTO

The World Trade Organization, a forum for international trade negotiations.

GATT

General Agreement on Tariffs and Trade, a precursor to WTO established in 1947.

Classical Trade Theories

Traditional theories focused on country-based perspectives of trade.

Modern Trade Theories

Theories focusing on firm-based perspectives of trade developed around mid-20th century.

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Division of Labor

Separation of a work process into tasks for increased efficiency and productivity.

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Trade Surplus

When a country's exports exceed its imports.

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Marginal Cost

The cost incurred by producing one additional unit of a product.

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Opportunity Cost

The value of the best alternative forgone when a choice is made.

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Croesus

The first to issue true gold coins with standardized purity.

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Bimetallic Monetary System

A monetary system using both gold and silver coins.

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Electrum

A natural alloy of gold and silver, called 'white gold.'

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IOUs

Informal promissory notes acting as currency.

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Beaver Pelt

The universally accepted medium of exchange in early Canada.

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Spanish Dollars

The first distinctive coins circulating in French colonies.

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Card Money

Temporary paper money printed on playing cards.

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Legal Tender

Currency valid for payments of debts.

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Inflation

The increase in prices reducing purchasing power.

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Digital Currency

Currency available only in digital form, including cryptocurrencies.

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International trade determinants

Factors influencing why countries trade and the effects of trade.

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Industrial capitalism

The phase of capitalism where industries/factories dominate production.

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Free trade

A trading system where goods are exchanged with less restriction.

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Mercantilism

An economic policy that restricts imports to enhance national wealth.

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Absolute advantage

A country's ability to produce certain goods more efficiently than others.

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Comparative advantage

When a country produces goods at a lower opportunity cost than another.

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Bartering

Direct exchange of goods or services without monetary transactions.

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Advantages of bartering

Benefits such as simplicity and bypassing currency issues in trade.

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Disadvantages of bartering

Challenges like finding matching needs and no standard value.

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Origin of money

Transition from bartering to using money as a trading medium.

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First known coins

Earliest metal coins appeared in China around 1000 BC.

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Minting

The process of creating coins by stamping metal.

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King Alyattes

King of Lydia who minted non-standardized currency around 600 BC.

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King Croesus

Lydia's king who introduced the bimetallic currency system.

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Trade evolution

The history of how trade moved from barter to currency.

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Study Notes

WTO and International Trade

  • WTO is a forum for trade negotiations between countries
  • Precursor to GATT (General Agreement on Tariffs and Trade), established in 1947 after WWII
  • Part of a broader multilateral system with the World Bank and IMF

Evolution of International Trade Theory

  • Shift from country-based (classical) to firm/company-based (modern) theories in mid-20th century
  • Standard Theory of International Trade, rooted in Adam Smith's Wealth of Nations (1776) and David Ricardo's Principles of Economics (1817)
  • Classical theory focused on a country's gold/silver holdings as a measure of wealth
  • Smith and Ricardo advocated for free trade as a way to boost global production efficiency, opposing mercantilist protectionist policies
  • Hume's price-specie flow mechanism explained automatic adjustment for trade surplus countries
  • Division of labor increases productivity and efficiency, enhancing specialization
  • Trade surplus: Export value exceeding import cost
  • Marginal cost: Cost of producing one extra unit
  • Opportunity cost: Value of the next best alternative sacrificed

Theory of International Trade and Commercial Policy

  • A long-standing branch of economic thought, spanning from ancient Greece to current times
  • Economists and policymakers have examined trade's effects and optimal trade policies

Industrial Capitalism

  • Second phase of capitalism characterized by dominant industrial production

Free Trade vs. Mercantilism

  • Free trade offers more affordable goods and choice to consumers
  • Mercantilist policies limit imports, reducing consumer choice

Absolute and Comparative Advantage

  • Absolute advantage: A country's inherent ability to produce a good more efficiently than another
  • Comparative advantage: Ability to produce a good with a lower opportunity cost

Barter System

  • Direct exchange of goods or services without money
  • Primitive form of trade, evolving from local to regional to international transactions
  • Used extensively in ancient times, including by Europeans and colonists in early America
  • Barter advantages: Simplicity, no money required
  • Barter disadvantages: Difficulty matching needs, lack of standardized value, time-consuming

Money and its Origin

  • Earliest known metal coins appeared in ancient China (1000 BCE)
  • Early Chinese currency: Miniature tools (hoes, billhooks, etc)
  • Transition from metal to paper money in China (700 BCE)
  • Lydia (Western Turkey): First region to use a mint (industrial facility for coin production) (600 BCE)
  • King Croesus of Lydia (560-546 BCE) introduced standardized gold coins and bimetallic system
  • Electrum coins existed before Croesus
  • European colonial governments in North America initially utilized IOUs (promissory notes).
  • Early trading of goods like furs and crafts for goods of the East
  • Development of formal exchange systems, for example, in Tadaoussac (Canada)
  • The advent of paper money facilitated a rise in international trade, replacing barter.
  • Digital/virtual currency is now a growing option.

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