Economics 605

Which of the following is not a basis of international trade?

• Comparative advantage
  
  

• Absolute advantage

• Import quotas

• Factor endowment

International trade is important for countries because it:

• Encourages self-sufficiency
  
  

• Limits consumer choices

• Promotes economic growth
  
  

• Reduces specialization

Which of the following best explains the concept of comparative advantage?

• Producing more of everything
  
  

• Specializing in goods with the lowest opportunity cost
  
  

• Producing goods with higher labor costs
  
  

• Avoiding all imports

One major reason why countries engage in international trade is:

• Political alliance

• Lack of natural resources in all countries

• To reduce globalization

• To reduce exports

According to the Reciprocal Demand Theory, the terms of trade are determined by:

• Only supply conditions

• Only cost of production

• Mutual demand for each other's goods

• Government policies

. The terms of trade (TOT) refer to the ratio of:

• The prices of a country's exports to the prices of its imports

• ) The quantity of goods a country imports to its exports
  
  

• The total value of a country's exports to its imports

• The exchange rates between two countries

If a country experiences a decline in the price of its imports, what effect does this have on its terms of trade?

• Terms of trade improve

• Terms of trade worsen
  
  

• Terms of trade remain unchanged

• Terms of trade become indeterminate

Which of the following factors can lead to a deterioration of a country’s terms of trade?

• A rise in the price of the country's exports
  
  

• A decrease in the price of the country's imports
  
  

• A decrease in the price of the country's imports
  
  

• An increase in demand for the country's exports

According to the Prebisch-Singer Hypothesis, the long-term trend for developing countries is:

• An improvement in their terms of trade
  
  

• A worsening of their terms of trade
  
  

• Stability in terms of trade

• An increase in export prices

According to the Prebisch-Singer Hypothesis, the deterioration of terms of trade for developing countries is caused by:

• The increase in demand for their raw materials
  
  

• The higher elasticity of demand for their exports

• The declining prices of primary goods relative to manufactured goods
  
  

• The shift towards global free trade