WorksheetsFree Trade and Protectionism
Total questions: 47
Worksheet time: 24mins
Which statement best defines free trade in international markets?
Trade with minimal paperwork only
Trade without restrictions like tariffs or quotas
Trade controlled by state-owned enterprises
Trade limited to neighboring countries only
A key reason consumers often pay lower prices under free trade is that countries do what?
Specialise in efficient production
Reduce product safety standards
Impose higher import duties
Restrict the number of exporters
Which pair shows an advantage of free trade for businesses?
Higher input prices and weaker competition
Lower input costs and stronger competitiveness
Smaller markets and falling revenues
Less choice of suppliers and higher costs
Why can free trade increase the range of goods available to consumers?
Tariffs make foreign goods more affordable
Quotas encourage local substitutes only
Imports from specialised producers expand choices
Domestic patents block imports
Which outcome is a disadvantage of free trade for some domestic firms?
Automatic subsidies for small businesses
Difficulty competing with cheaper imports
Protection from foreign competition
Guaranteed market share growth
Increasing unemployment can result from free trade primarily because what may happen?
Government bans on automation
Reduced consumer demand for imports
Mandatory hiring quotas for exporters
Business closures in declining industries
What does dumping mean in international trade?
Giving away goods to gain publicity abroad
Selling goods abroad above market price
Selling goods domestically below cost price
Selling goods abroad below cost price
Which rationale best explains protectionism to prevent dumping?
Dumping can destroy domestic industries
Dumping boosts domestic innovation cycles
Dumping raises consumer prices significantly
Dumping ensures fair competition for all
Why might a government protect infant industries?
They already achieve economies of scale
They need time to grow and become competitive
They are the most efficient globally
They face no foreign competition early on
Which set lists main reasons governments use protectionism?
Encourage monopolies
Protect infant industries
Protect employment
Prevent dumping
Which result is most directly linked to tariffs on imported goods?
Higher government revenue from imports
Unlimited access to foreign products
Lower consumer prices nationwide
Immediate removal of trade barriers
Import quotas primarily aim to achieve which outcome for domestic markets?
Guarantee producer protection through quantity limits
Raise tax income from foreign purchases
Ensure free competition without restrictions
Eliminate shortages by expanding supply
Which statement best describes a subsidy to domestic producers?
A cap on the volume of foreign sales
A financial payment lowering production costs
A penalty applied during trade disputes
A tax charged on imported goods
Which combination lists disadvantages of quotas?
Limits foreign competition
Generates tariff revenue
Raises prices for consumers
Creates shortages in the market
Which stakeholder benefits most from tariffs making imports more expensive?
The central bank managing inflation
Consumers seeking lower prices
Foreign exporters selling into the country
Domestic firms competing with imports
Which outcomes are typical disadvantages of subsidies?
Reduces production costs
May cause inefficiency
Distorts market signals
Costly for government budgets
What does retaliation in trade most likely lead to between countries?
Rapid trade liberalization agreements
De-escalation and tariff removal
Permanent elimination of quotas
Escalation into broader trade wars
Which pair correctly matches policy tool with a key advantage?
Subsidy — protects domestic jobs
Quota — raises government revenue
Tariff — lowers production costs
Retaliation — increases consumer choice
Which scenario illustrates trade diversion resulting from a regional trade agreement?
Importing cheaper goods from the most efficient global producer
Switching to a higher-cost supplier inside the bloc due to tariffs
Exporting to non-member countries after removing internal quotas
Buying domestically produced goods instead of imports entirely
What is the primary role of the World Trade Organization (WTO) for global trade?
Setting national interest rates and inflation targets
Financing private factories and retail chains
Negotiating and enforcing multilateral trade rules
Issuing visas and work permits for migrants
Which statement best describes typical trade for developed countries?
Export primary goods, import services
Export manufactured goods, import raw inputs
Export minerals, import consumer goods
Export agriculture, import machinery
Developing countries often face which key issue in international trade?
Vulnerability to price fluctuations for primary goods
Dependence on manufactured goods exports
Strong bargaining power in trade disputes
High export prices and stable revenues
Manufactured goods are most likely exported by which group of countries?
Landlocked countries
Resource-rich countries
Developing countries
Developed countries
What is an exchange rate?
The price of one currency in another currency
The interest paid on foreign loans
A tax on imported goods
The amount of money in circulation
If £1 = $1.25, what does this mean?
One dollar can buy 1.25 pounds
One pound can buy 1.25 dollars
One pound equals 0.80 dollars
One dollar equals 0.75 pounds
Exchange rates in the foreign exchange market are determined primarily by which forces?
Demand and supply of currencies
Stock prices and dividends
Government budgets and taxes
Inflation and unemployment
Which change most directly increases demand for a domestic currency, leading to appreciation?
Falling foreign investment
Rising domestic imports
Lower domestic interest rates
Higher domestic interest rates
Currency speculators expect a currency to strengthen. What do they do and what is the immediate effect?
Sell that currency, demand decreases
Buy that currency, demand increases
Hold that currency, supply increases
Exchange into commodities, supply decreases
Which statements are correct about exports and imports affecting currency demand and supply?
Imports raise supply of domestic currency
Imports reduce demand for domestic currency
Exports lower supply of domestic currency
Exports raise demand for domestic currency
Appreciation versus revaluation: choose the correct distinctions.
Revaluation occurs under fixed exchange rate
Appreciation is market-driven increase in value
Revaluation is a market reaction to speculation
Appreciation is government-led policy change
If foreign investors chase higher returns in a country, what is the typical chain of events?
Less investment, lower demand, depreciation
More investment, higher demand, appreciation
Stable investment, constant demand, no change
More investment, higher supply, depreciation
A domestic boom in imports is likely to cause which immediate currency effect?
Higher demand for domestic currency
Lower supply of domestic currency
Higher supply of domestic currency
Lower demand for foreign currency
Refer to the demand-side appreciation diagram for the £. What shift explains the move from price 1.4to 1.6 and quantity from Q to Q1?
Rightward shift of demand for £
Leftward shift of demand for £
Leftward shift of supply of £
Rightward shift of supply of £
When a country's currency appreciates, what is the most immediate effect on import prices for domestic consumers?
Imports become cheaper in local currency
Import prices fall abroad only
Imports become pricier in local currency
Import prices stay unchanged overall
A stronger currency typically affects export competitiveness in which way?
Export prices remain fully neutral
Exports become cheaper for foreigners
Exports gain price advantage abroad
Exports become more expensive abroad
Which sequence best describes the chain from appreciation to inflation?
Appreciation → cheaper imports → lower inflation
Appreciation → pricier imports → higher inflation
Appreciation → cheaper exports → higher inflation
Appreciation → pricier exports → lower inflation
With currency appreciation, how does demand typically shift for imports and exports?
Export demand increases
Import demand increases
Export demand decreases
Import demand decreases
What is the likely impact of currency appreciation on the current account balance?
Deficit narrows due to export growth
Surplus rises as exports boom
Deficit may widen as exports fall
Balance unchanged despite trade shifts
Which statements correctly match depreciation and devaluation definitions?
Depreciation: market-led fall in currency value
Devaluation: government-led fall under fixed rates
Devaluation: spontaneous market weakness
Depreciation: policy-set cut under fixed system
In the top-left supply–demand diagram for £ priced in $, the supply curve shifts right from S of £ to S of £(1). What immediate effect does this shift have on the dollar price of £ and the quantity of £ traded?
Price rises, quantity falls
Price unchanged, quantity rises
Price falls, quantity unchanged
Price falls, quantity rises
A weaker domestic currency makes imported goods priced in foreign currency cost more domestically. Which chain best explains this outcome?
Depreciation → stronger currency → exports cheaper → inflation rises
Depreciation → weaker currency → imports cost more → inflationary pressure
Depreciation → stronger currency → imports cheaper → deflationary pressure
Depreciation → weaker currency → exports cost more → inflation falls
In the right-hand AD–PL diagram, currency depreciation makes domestic goods more expensive for foreigners. What shifts to reflect lower net exports?
Aggregate demand shifts right from AD to AD1
Long-run aggregate supply shifts left
Short-run aggregate supply shifts right
Aggregate demand shifts left from AD to AD1
Tourism increases foreign demand for Mexican goods and raises demand for pesos. In the exchange rate diagram (E.R.), what happens to the peso’s exchange rate and quantity when demand shifts right from D to D1?
Exchange rate rises, quantity increases to Q2
Exchange rate unchanged, quantity increases
Exchange rate rises, quantity decreases
Exchange rate falls, quantity decreases to Q1
Assuming demand is elastic, how does currency depreciation affect quantities demanded of imports and exports?
Demand for imports rises
Demand for exports falls
Demand for exports rises
Demand for imports falls
Which statement best describes how depreciation can improve the current account?
Both export revenues and import spending rise
Export revenues fall while import spending rises
Export revenues increase while import spending falls
Both export revenues and import spending fall equally
In the supply-side depreciation diagram, the new equilibrium price of £ falls from 1.4to 1.1. Which interpretation is correct?
Less $ demanded relative to £ keeps price unchanged
More $ supplied relative to £ raises price of £
Less £ demanded relative to $ raises price of £
More £ supplied relative to $ lowers price of £
Which pair of changes most likely results from depreciation when foreign demand is price-elastic?
Domestic import volumes increase
Inflationary pressure decreases
Competitiveness improves abroad
Export volumes increase
