WGU C211 GLOBAL ECONOMICS
COMPREHENSIVE EXAM QUESTIONS
AND ANSWERS.
1. Which economic theory suggests that a country should specialize in producing goods for
which it has the lowest opportunity cost compared to other nations?
A. Absolute Advantage
B. Heckscher-Ohlin Theory
C. Mercantilism
D. Comparative Advantage
Answer: D
Conceptual Explanation: Comparative Advantage, proposed by David Ricardo, focuses on
opportunity cost, suggesting countries should specialize even if they don’t have an absolute
advantage in any good.
2. What is the primary goal of a country practicing Mercantilism?
A. To maximize imports and minimize exports
B. To achieve a balance of trade of zero
C. To eliminate all government intervention in trade
,D. To maintain a trade surplus by exporting more than importing
Answer: D
Conceptual Explanation: Mercantilism is an 18th-century philosophy that suggests a
country’s wealth is measured by its gold and silver holdings, achieved by maintaining a
trade surplus.
3. Which component of the Porter’s Diamond model refers to the nature of home-market
demand for the industry’s product or service?
A. Factor Conditions
B. Demand Conditions
C. Related and Supporting Industries
D. Firm Strategy, Structure, and Rivalry
Answer: B
Conceptual Explanation: Demand Conditions in Porter’s Diamond describe the nature of
home-market demand; sophisticated and demanding customers pressure firms to innovate.
4. What occurs during ‘Trade Diversion’ in a regional economic integration context?
A. Total trade volume decreases due to new tariffs
B. High-cost domestic producers are replaced by low-cost producers within the free trade
area
, C. Low-cost external suppliers are replaced by higher-cost suppliers within the free trade
area
D. Internal trade barriers are raised against member nations
Answer: C
Conceptual Explanation: Trade diversion occurs when lower-cost external suppliers are
replaced by higher-cost suppliers within the free trade area because of the preferential
treatment members receive.
5. Which type of Foreign Direct Investment (FDI) involves a firm establishing a new operation
in a foreign country from the ground up?
A. Greenfield Investment
B. Merger
C. Acquisition
D. Licensing Agreement
Answer: A
Conceptual Explanation: A greenfield investment is a form of FDI where a parent
company builds its operations in a foreign country from scratch.
6. The ‘Leontief Paradox’ challenged which trade theory?
A. Comparative Advantage
B. Product Life Cycle Theory
COMPREHENSIVE EXAM QUESTIONS
AND ANSWERS.
1. Which economic theory suggests that a country should specialize in producing goods for
which it has the lowest opportunity cost compared to other nations?
A. Absolute Advantage
B. Heckscher-Ohlin Theory
C. Mercantilism
D. Comparative Advantage
Answer: D
Conceptual Explanation: Comparative Advantage, proposed by David Ricardo, focuses on
opportunity cost, suggesting countries should specialize even if they don’t have an absolute
advantage in any good.
2. What is the primary goal of a country practicing Mercantilism?
A. To maximize imports and minimize exports
B. To achieve a balance of trade of zero
C. To eliminate all government intervention in trade
,D. To maintain a trade surplus by exporting more than importing
Answer: D
Conceptual Explanation: Mercantilism is an 18th-century philosophy that suggests a
country’s wealth is measured by its gold and silver holdings, achieved by maintaining a
trade surplus.
3. Which component of the Porter’s Diamond model refers to the nature of home-market
demand for the industry’s product or service?
A. Factor Conditions
B. Demand Conditions
C. Related and Supporting Industries
D. Firm Strategy, Structure, and Rivalry
Answer: B
Conceptual Explanation: Demand Conditions in Porter’s Diamond describe the nature of
home-market demand; sophisticated and demanding customers pressure firms to innovate.
4. What occurs during ‘Trade Diversion’ in a regional economic integration context?
A. Total trade volume decreases due to new tariffs
B. High-cost domestic producers are replaced by low-cost producers within the free trade
area
, C. Low-cost external suppliers are replaced by higher-cost suppliers within the free trade
area
D. Internal trade barriers are raised against member nations
Answer: C
Conceptual Explanation: Trade diversion occurs when lower-cost external suppliers are
replaced by higher-cost suppliers within the free trade area because of the preferential
treatment members receive.
5. Which type of Foreign Direct Investment (FDI) involves a firm establishing a new operation
in a foreign country from the ground up?
A. Greenfield Investment
B. Merger
C. Acquisition
D. Licensing Agreement
Answer: A
Conceptual Explanation: A greenfield investment is a form of FDI where a parent
company builds its operations in a foreign country from scratch.
6. The ‘Leontief Paradox’ challenged which trade theory?
A. Comparative Advantage
B. Product Life Cycle Theory
