Economics · General Awareness

International Trade Economics

2,022 Questions

International trade economics covers the exchange of goods and services across borders, encompassing theories like comparative advantage and policies such as tariffs. Key concepts include the balance of payments, free trade agreements, and globalization measures. These topics are frequently asked in UPSC, State PSC, and other competitive exams to test economic awareness.

Balance of paymentsTrade policy and tariffsFree trade agreementsComparative advantage theory

International Trade Economics Questions

Multiple choice

The World Trade Organization (WTO) was earlier known as

  1. UNICEF

  2. GATT

  3. UNCTAD

  4. FAO
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The WTO (established 1995) succeeded GATT (General Agreement on Tariffs and Trade), which was created in 1947 to reduce trade barriers through negotiations. GATT was a provisional treaty, while WTO is a permanent organization with dispute settlement authority.

Multiple choice

The government is likely to increase export incentives for which of the following to bridge the gulf between local and international prices?

  1. Corn

  2. Soyameal

  3. Cotton and sugar

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The government considers export incentives for multiple agricultural commodities simultaneously when domestic prices are significantly higher than international prices. Corn, soyameal, cotton, and sugar are all major agricultural exports where price disparities between local and global markets can affect farmer competitiveness.

Multiple choice

Balance of Trade means

  1. total trade

  2. difference between imports and exports

  3. the profit earned by a trader

  4. cost price plus profit
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Balance of Trade is the difference between a country's exports and imports of goods. It's not total trade volume, not a trader's profit, and not a pricing calculation. When exports exceed imports, it's favorable (surplus); when imports exceed exports, it's unfavorable (deficit).

Multiple choice

Free trade refers to

  1. free movement of goods from one country to another

  2. movement of goods free of cost

  3. unrestricted exchange of goods and services

  4. free of duty trade
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Free trade refers to the unrestricted exchange of goods and services between countries without artificial barriers like tariffs, quotas, or import licenses. It is based on the principle of comparative advantage and promotes efficiency through competition. The term 'free' means absence of government restrictions, not that goods are cost-free or duty-free.

Multiple choice

Assertion (A): Gains from trade are determined by terms of trade. Reason (R): Gains from international trade are based on comparative differences in costs.

  1. Both (A) and (R) are true and (R) is the correct explanation of (A).

  2. Both (A) and (R) are true, but (R) is not the correct explanation of (A).

  3. (A) is true, but (R) is false.

  4. (A) is false, but (R) is true.

  5. Both (A) and (R) are false.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Both (A) and (R) are true, but (R) is not the correct explanation of (A).

Multiple choice

Which of the following formulae measures the degree of export competitiveness?

  1. 1 - NPC/NPC

  2. 1 + NPC/NPC

  3. Pd/Pb

  4. Pb/Pd

  5. Pd = Pb
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The concept of degree of export competitiveness was evolved by Gulati. This concept provides a basic for judging the competitiveness of an individual entrepreneur if he decides to go in for an export venture. Degree of export competitiveness = 1 - NPC/NPC

Multiple choice

India imports machines and exports handicraft items. This kind of trade is explained by which of the following theories?

  1. Theory of Absolute Differences in Costs

  2. Theory of Comparative Differences in Costs

  3. Purchasing Power Parity theory

  4. The Heckscher-Ohlin theory

  5. Theory of Opportunity Costs
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In this case, Heckscher-Ohlin theory will apply. According to this theory, capital abundant countries will export the relatively cheap capital-intensive commodities and labour abundant country will export relatively cheap labour-intensive commodities.

Multiple choice

Which of the following assumptions is not related to the partial equilibrium approach of the Theory of Customs Union?

  1. There are two countries, called home country and partner country, which form the customs union.

  2. There is no other type of restriction.

  3. The customs union imposes a common external tariff.

  4. There is perfect competition in factor markets.

  5. There is balanced trade whereby exports equal imports in the home country.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

No, because the partial equilibrium approach to the theory of Customs Union is based on the assumption of perfect competition in commodity as well as factor market.

Multiple choice

Which of the following assumptions is not related to foreign trade multiplier?

  1. There is full employment in the domestic economy.

  2. There is direct link between domestic and foreign countries in exporting and importing goods.

  3. It is based on multiple exchange rate system.

  4. Government expenditure is constant.

  5. The multiplier is based on instantaneous process without time lags.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The assumption of foreign trade multiplier is based on fixed exchange rate system.  The foreign trade multiplier is also known as export multiplier and its assumption is based on instantaneous process without time lags.

Multiple choice

Which of the following assumptions is not related to Vanek's theory of Customs Union?

  1. There are two countries called home country and partner country, which form the customs union.

  2. Neither commodity is inferior in any country at any relative price or income level.

  3. Both countries trade with each other after the formation of the customs union.

  4. No tariff or obstacle to trade exists.

  5. There is free trade.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

This theory does not state that both countries trade with each other after the formation of the customs union. His assumption is based on the fact that both countries trade with each other before the formation of the customs union.

Multiple choice

Match the following:

 
Group - I Group - II
1. Protection and real wage (i) H. W. Singer
2. Distribution of gain between investing and borrowing countries (ii) W. M. Corden
3. Export gain from trade index (iii) Stopler-Samuelson
4. The structure of a tariff system and the effective protective rate (iv) A. H. Imlah

  1. 1 - (iii), 2 - (i), 3 - (iv), 4 - (ii)

  2. 1 - (ii), 2 - (iv), 3 - (iii), 4 - (i)

  3. 1 - (ii), 2 - (i), 3 - (iv), 4 - (iii)

  4. 1 - (iii), 2 - (ii), 3 - (iv), 4 - (i)

  5. 1 - (iv), 2 - (iii), 3 - (ii), 4 - (i)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

These are correctly matched. Protection and real wages are related with Stopler-Samuelson in which he showed the effect of a tariff on income distribution. This is known as Stopler-Samuelson theorem. Distribution of gains between investing and borrowing countries was associated with H. W. Singer. He assumed that opening of LDCs to foreign trade and investment tend to inhibit their development. A. H. Imlah is related with export gain from trade index and he calculated index by dividing the index of the value of exports by an index of the price of imports.

Multiple choice

Directions: Choose the correct option for the given question:

Consider the following statements in respect of the “Duty Free Import Authorization Scheme”.

  1. The scheme offers the facility to import the required inputs before exports.
  2. The scheme allows the transfer of scrip once the export obligation is complete. Which of the statement(s) given above is/are correct?

  1. (1) only

  2. (2) only

  3. Both (1) and (2)

  4. Neither (1) nor (2)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Duty Free Import Authorization Scheme allows exporters to import required inputs before making exports (pre-export import). The scrip can be transferred only after the export obligation is fulfilled. Both statements are correct features of this trade facilitation scheme.