Q.1 Which economist is most closely associated with the theory of Absolute Advantage?
Adam Smith
David Ricardo
John Maynard Keynes
Heckscher-Ohlin
Explanation - Adam Smith introduced the concept of Absolute Advantage, which occurs when a country can produce a good more efficiently than another country.
Correct answer is: Adam Smith
Q.2 The principle of Comparative Advantage was proposed by:
Adam Smith
David Ricardo
Alfred Marshall
Karl Marx
Explanation - David Ricardo's theory of Comparative Advantage suggests that even if a country does not have an absolute advantage, it can still benefit from trade by specializing in goods with the lowest opportunity cost.
Correct answer is: David Ricardo
Q.3 Which trade theory emphasizes factor endowments of countries as the basis for trade?
Absolute Advantage
Comparative Advantage
Heckscher-Ohlin Theory
New Trade Theory
Explanation - The Heckscher-Ohlin Theory explains trade patterns based on differences in factor endowments such as land, labor, and capital.
Correct answer is: Heckscher-Ohlin Theory
Q.4 According to Mercantilism, a country should:
Maximize imports
Maintain trade balance surplus
Specialize in services
Avoid all trade
Explanation - Mercantilists believed that a country's wealth is measured by its stock of gold and silver and that trade surpluses increase national wealth.
Correct answer is: Maintain trade balance surplus
Q.5 Which theory explains trade through economies of scale and product differentiation?
Absolute Advantage
Comparative Advantage
New Trade Theory
Heckscher-Ohlin Theory
Explanation - New Trade Theory emphasizes the role of increasing returns to scale and network effects in explaining international trade, especially in similar countries.
Correct answer is: New Trade Theory
Q.6 According to Ricardo's theory, a country should specialize in producing the good in which it has:
Absolute advantage
Comparative advantage
Factor abundance
High cost production
Explanation - Ricardo emphasized that countries gain from trade by specializing in goods with the lowest opportunity cost, even if another country is more efficient in producing all goods.
Correct answer is: Comparative advantage
Q.7 Which economist is associated with the Product Life Cycle Theory of trade?
Adam Smith
David Ricardo
Raymond Vernon
Heckscher-Ohlin
Explanation - Raymond Vernon proposed that products go through stages (introduction, growth, maturity, decline) and that trade patterns change accordingly.
Correct answer is: Raymond Vernon
Q.8 Which theory assumes two countries, two goods, and one factor of production?
Heckscher-Ohlin Theory
Ricardian Model
New Trade Theory
Mercantilism
Explanation - The Ricardian model is a simplified model of comparative advantage that assumes two countries, two goods, and one factor of production (labor).
Correct answer is: Ricardian Model
Q.9 Factor-price equalization is a concept of which theory?
Absolute Advantage
Ricardian Theory
Heckscher-Ohlin Theory
New Trade Theory
Explanation - The Heckscher-Ohlin Theory predicts that free trade will lead to the equalization of factor prices (like wages and returns on capital) across countries.
Correct answer is: Heckscher-Ohlin Theory
Q.10 Which of the following is NOT a limitation of the classical trade theories?
Assume only two countries
Ignore transport costs
Include economies of scale
Assume full employment
Explanation - Classical trade theories like Ricardian and Heckscher-Ohlin do not consider economies of scale; this is included in New Trade Theory.
Correct answer is: Include economies of scale
Q.11 According to the Theory of Comparative Advantage, trade is beneficial because it:
Maximizes total production
Eliminates all costs
Ensures absolute advantage
Increases tariffs
Explanation - By specializing in goods with the lowest opportunity cost, countries can produce more efficiently, increasing global output.
Correct answer is: Maximizes total production
Q.12 The term 'factor endowments' refers to:
Quantity and quality of labor, capital, and land
Trade tariffs
Foreign exchange reserves
Market size
Explanation - Factor endowments are the resources a country possesses, which determine its comparative advantage in production.
Correct answer is: Quantity and quality of labor, capital, and land
Q.13 The theory that trade patterns evolve as products mature is called:
Heckscher-Ohlin Theory
Product Life Cycle Theory
Ricardian Theory
Mercantilism
Explanation - Product Life Cycle Theory explains international trade in terms of the stages of a product's life from introduction to decline.
Correct answer is: Product Life Cycle Theory
Q.14 Which trade theory is most applicable for similar countries trading differentiated products?
Ricardian Theory
Heckscher-Ohlin Theory
New Trade Theory
Mercantilism
Explanation - New Trade Theory explains trade between similar countries by highlighting economies of scale and product differentiation.
Correct answer is: New Trade Theory
Q.15 Which assumption is common in classical trade theories?
Perfect competition
Increasing returns to scale
Transport costs considered
Government intervention in trade
Explanation - Classical trade theories assume perfect competition and full employment to focus on comparative advantage.
Correct answer is: Perfect competition
Q.16 Mercantilists viewed international trade primarily as a means to:
Increase national wealth
Promote consumer welfare
Enhance cultural exchange
Achieve economic equality
Explanation - Mercantilism emphasized accumulation of precious metals and trade surpluses to increase national wealth.
Correct answer is: Increase national wealth
Q.17 Which of the following is a feature of the Heckscher-Ohlin model?
Single factor of production
Two countries, two goods, multiple factors
Focus on product life cycle
Emphasis on economies of scale
Explanation - The Heckscher-Ohlin model considers multiple factors of production and explains trade based on relative abundance.
Correct answer is: Two countries, two goods, multiple factors
Q.18 According to New Trade Theory, firms trade internationally to:
Exploit absolute advantage
Gain from economies of scale
Follow Mercantilist principles
Avoid comparative disadvantage
Explanation - New Trade Theory highlights that international trade allows firms to increase production scale and reduce costs.
Correct answer is: Gain from economies of scale
Q.19 Which theory best explains trade in technologically advanced products?
Mercantilism
Ricardian Theory
Product Life Cycle Theory
Heckscher-Ohlin Theory
Explanation - Product Life Cycle Theory links the production and export of new, technologically advanced goods to different stages of their life cycle.
Correct answer is: Product Life Cycle Theory
Q.20 Which of the following trade theories assumes no transport costs and full employment?
Ricardian Theory
New Trade Theory
Product Life Cycle Theory
Infant Industry Theory
Explanation - Ricardian Theory is a simplified model that assumes no transport costs and full employment to focus on comparative advantage.
Correct answer is: Ricardian Theory
Q.21 According to classical trade theory, which factor determines comparative advantage?
Labor productivity
Capital abundance
Government policies
Market size
Explanation - Classical trade theory, particularly Ricardian model, attributes comparative advantage to differences in labor productivity across countries.
Correct answer is: Labor productivity
Q.22 Which theory suggests that specialization may lead to monopolistic competition in international trade?
Ricardian Theory
New Trade Theory
Heckscher-Ohlin Theory
Mercantilism
Explanation - New Trade Theory explains that large-scale production and product differentiation can lead to monopolistic competition among trading firms.
Correct answer is: New Trade Theory
Q.23 The assumption of two countries and two commodities is a feature of:
Heckscher-Ohlin Theory
Ricardian Theory
New Trade Theory
Product Life Cycle Theory
Explanation - The Ricardian model simplifies trade by assuming two countries, two commodities, and one factor of production to illustrate comparative advantage.
Correct answer is: Ricardian Theory
Q.24 Which of the following explains that a country with abundant capital will export capital-intensive goods?
Mercantilism
Ricardian Theory
Heckscher-Ohlin Theory
Product Life Cycle Theory
Explanation - Heckscher-Ohlin Theory predicts that countries export goods that use their abundant factors intensively.
Correct answer is: Heckscher-Ohlin Theory
Q.25 Which trade theory emphasizes innovation as a driver of international trade?
Mercantilism
New Trade Theory
Product Life Cycle Theory
Heckscher-Ohlin Theory
Explanation - Product Life Cycle Theory emphasizes that new products are initially produced and exported by the innovating country, creating trade patterns.
Correct answer is: Product Life Cycle Theory