DPP CA Foundation January 2025- Batch Theories of International Trade PDF

1 DPP CA Foundation January 2025- Batch Topic : Theories of International Trade 1. The Mercantilists view of international trade prim...

1 DPP CA Foundation January 2025- Batch Topic : Theories of International Trade 1. The Mercantilists view of international trade primarily focused on : (a) Promoting free trade and unrestricted movement of goods (b) Accumulating precious metals and maintaining a favorable balance of trade (c) Achieving absolute advantage in the production of all goods (d) Reducing tariffs and trade barriers between nations 2. According to the Mercantilists, the best way for a country to increase its wealth was to : (a) Encourage imports to meet domestic demand (b) Maintain a balanced trade with other nations (c) Export more goods than it imported (d) Focus on domestic production and self-sufficiency 3. Mercantilists believed that colonies were essential for a country’s economic success because : (a) Colonies provided cheap labor for domestic industries (b) Colonies were a source of raw materials and markets for finished goods (c) Colonies ensured a steady supply of precious metals for the mother country (d) Colonies contributed to the development of free trade principles 4. One of the main criticisms of the Mercantilist view of international trade was that it : (a) Promoted economic cooperation and mutual benefits among nations (b) Encouraged countries to focus on producing goods with comparative advantage (c) Led to excessive competition and conflicts over trade and resources (d) Ignored the importance of accumulating precious metals in trade 5. Mercantilism was the dominant economic philosophy during which historical period? (a) The 18th century (b) The 19th century (c) The 17th century (d) The 20th century 6. The Theory of Absolute Advantage suggests that countries should specialized in producing goods in which they have an absolute advantage and then engage in international trade to : (a) Reduce competition in the domestic market (b) Protect domestic industries from foreign competition  2 (c) Maximize overall efficiency and welfare (d) Decrease the employment rate in the country 7. Which of the following is an essential assumption of the Theory of Absolute Advantage? (a) Constant opportunity cost of production (b) The availability of perfect competition in the markets (c) Identical resources and technologies across all countries (d) The absence of trade barriers and restrictions 8. The Theory of Absolute Advantage highlights that international trade can lead to mutual benefits for countries because (a) Each country has a comparative advantage in producing all goods (b) Each country can import goods that it cannot produce efficiently (c) Each country can export goods that it produces at a higher opportunity cost (d) Each country can accumulate vast amounts of wealth through trade 9. The Theory of Absolute Advantage laid the foundation for understanding the grains from international trade and served as a basis for : (a) The development of the Theory of Comparative Advantage (b) The imposition of trade barriers and tariffs (c) The establishment of international trade organizations (d) The promotion of self-sufficiency and autarky 10. The Theory of Absolute Advantage, proposed by Adam Smith, states that a country has an absolute advantage in producing a good if it can : (a) Product the good at a lower opportunity cost than another country (b) Produce the good using fewer resources than another country (c) Produce the good using advanced technology and machinery (d) Produce the good in larger quantities than another country 11. According to the Theory of Absolute Advantage, when two countries specialize in producing the goods in which they have an absolute advantage and then trade with each other : (a) Both countries will benefit from trade due to efficiency gains (b) One country will gain, and the other country will lose from trade (c) Both countries will lose as they become dependent on each other (d) The term of trade will always favor one country over the other  3 12. The Theory of Absolute Advantage suggests that international trade allows countries to : (a) Increase government revenue through export tariffs (b) Accumulate precious metals like gold and silver through exports (c) Achieve balanced trade with all trading partners (d) Specialize in producing goods efficiently and enjoy a wider range of consumption 13. The Theory of Absolute Advantage focuses on : (a) The impact of economics of scale in international trade (b) The importance of factor endowments in determining trade patterns (c) The opportunity cost of producing different goods (d) The comparative cost differences between countries 14. The Theory of Comparative Advantage suggests that even if one country is more efficient in producing all goods compared to another country, both countries can still benefit from trade if they : (a) Engage in barter trade instead of monetary transactions (b) Implement strict trade barriers and tariffs (c) Exchange goods based on their relative efficiency (d) Sign free trade agreements with each other 15. The Theory of Comparative Advantage is associated with the work of which economist? (a) Adam Smith (b) John Maynard Keynes (c) David Ricardo (d) Paul Samuelson 16. The Theory of Comparative Advantage, developed by David Ricardo, suggest that a country should specialize in producing a good in which it has : (a) The highest absolute advantage (b) The lowest opportunity cost (c) The most advanced technology (d) The highest level of exports 17. According to the Theory of Comparative Advantage, even if a country does not have an absolute advantage in producing any good, it can still benefit from trade if it : (a) Produces goods for which it has the lowest opportunity cost (b) Engages in international trade with multiple partners simultaneously (c) Adopts protectionist trade policies to restrict imports (d) Promotes the domestic industry through subsidies and tariffs