Economics-International Trade

Economics

International Trade

Objectives

• Analyse the role of imports and exports in a small open economy.

• Outline the factors that influence exports and imports.

• Explain the effects of foreign exchange earnings on a small open economy.

• Distinguish between the concept of comparative advantage and absolute advantage

• . Apply the concepts in given scenario.

Multiple Choice

Which of the following is international trade?

• Trade between countries

• Trade between regions

• Trade between provinces

• Both (b) and (c)

Multiple Choice

Country: Output per Labor Hour

A B

Product X 3 9

Product Y 4 2

Country A has an absolute advantage in

• Product X

• Product Y

• Neither X nor Y

• Both X and Y

Multiple Choice

Absolute advantage is determined by:

• actual differences in labor productivity between countries.

• relative differences in labor productivity between countries.

• both (a) and (b)

• neither (a) nor (b)

Multiple Choice

The theory of comparative advantage was developed by _______________ and is one of the ______________. It provides a justification for __________________.

• Adam Smith; recently proven theories in economics; protectionism

• David Ricardo; oldest theories in economics; free trade

• Adam Smith; oldest theories in economics; free trade

• David Ricardo; recently proven theories in economics; protectionism

Multiple Choice

Comparative advantage refers to the idea that countries should

• produce the goods they make with the highest quality.

• produce the goods they can produce the fastest.

• produce the goods for which the opportunity cost is the lowest relative to other countries’ costs.

• produce the same goods and exchange a little of each while keeping some for themselves

Multiple Choice

In country A, it takes 10 labor hours to produce cloth and 20 labor hours to produce grain. In country B, it takes 20 labor hours to produce cloth and 10 labor hours to produce grain. Which country should produce grain?

• A.

• Both A and B should produce grain.

• B.

• No country should produce grain.