ECO 5745
Global Trade & Policy
LATEST MIDTERM EXAM
GUIDE
Q&S
©2024/2025
,1. Which of the following factors primarily drives
comparative advantage in international trade?
A) Absolute production costs
B) Relative opportunity costs
C) Capital abundance
D) Labor quality
Answer: B) Relative opportunity costs
Rationale: Comparative advantage is determined by
the relative opportunity costs of producing goods, meaning
countries specialize in producing goods where they have a
lower opportunity cost than other nations.
2. Under the World Trade Organization (WTO) framework,
which principle ensures non-discriminatory treatment
amongst trading partners?
A) National treatment
B) Most favored nation
C) Trade balancer
D) Subsidy regularity
Answer: B) Most favored nation
Rationale: The most favored nation principle requires
countries to treat all WTO member countries equally,
without discrimination between trading partners.
3. What concept describes a scenario where a country
imposes import tariffs to protect its nascent industries?
©2024/2025
, A) Strategic trade theory
B) Infant industry argument
C) Environmental tariff approach
D) Capital mobility theory
Answer: B) Infant industry argument
Rationale: The infant industry argument suggests that
young industries may need temporary protection via tariffs
until they become competitive on an international scale.
4. What is ‘dumping’ in the context of international trade?
A) Selling goods in a foreign market at a lower cost than
in the domestic market
B) Increasing tariffs on imported goods
C) Creating a trade surplus deliberately
D) Reducing foreign investment
Answer: A) Selling goods in a foreign market at a lower
cost than in the domestic market
Rationale: Dumping refers to the practice of exporting
goods at a price lower than the price in the home market,
often considered unfair trade.
5. Which economic theory suggests that trade
liberalization leads to income convergence across
countries?
A) Factor price equalization theorem
B) International product cycle theory
C) Heckscher-Ohlin theory
D) Solow growth model
©2024/2025
Global Trade & Policy
LATEST MIDTERM EXAM
GUIDE
Q&S
©2024/2025
,1. Which of the following factors primarily drives
comparative advantage in international trade?
A) Absolute production costs
B) Relative opportunity costs
C) Capital abundance
D) Labor quality
Answer: B) Relative opportunity costs
Rationale: Comparative advantage is determined by
the relative opportunity costs of producing goods, meaning
countries specialize in producing goods where they have a
lower opportunity cost than other nations.
2. Under the World Trade Organization (WTO) framework,
which principle ensures non-discriminatory treatment
amongst trading partners?
A) National treatment
B) Most favored nation
C) Trade balancer
D) Subsidy regularity
Answer: B) Most favored nation
Rationale: The most favored nation principle requires
countries to treat all WTO member countries equally,
without discrimination between trading partners.
3. What concept describes a scenario where a country
imposes import tariffs to protect its nascent industries?
©2024/2025
, A) Strategic trade theory
B) Infant industry argument
C) Environmental tariff approach
D) Capital mobility theory
Answer: B) Infant industry argument
Rationale: The infant industry argument suggests that
young industries may need temporary protection via tariffs
until they become competitive on an international scale.
4. What is ‘dumping’ in the context of international trade?
A) Selling goods in a foreign market at a lower cost than
in the domestic market
B) Increasing tariffs on imported goods
C) Creating a trade surplus deliberately
D) Reducing foreign investment
Answer: A) Selling goods in a foreign market at a lower
cost than in the domestic market
Rationale: Dumping refers to the practice of exporting
goods at a price lower than the price in the home market,
often considered unfair trade.
5. Which economic theory suggests that trade
liberalization leads to income convergence across
countries?
A) Factor price equalization theorem
B) International product cycle theory
C) Heckscher-Ohlin theory
D) Solow growth model
©2024/2025
