WGU C211 GLOBAL ECONOMICS
PRACTICE EXAM QUESTIONS AND
ANSWERS.
1. Which trade 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. Comparative Advantage
C. Mercantilism
D. Product Life Cycle Theory
Answer: B
Conceptual Explanation: Comparative Advantage, proposed by David Ricardo, focuses on
opportunity cost rather than absolute productivity.
2. The Leontief Paradox challenged which trade theory by finding that the U.S. exported
labor-intensive goods?
A. New Trade Theory
B. Heckscher-Ohlin Theory
C. Absolute Advantage
,D. Porter’s Diamond
Answer: B
Conceptual Explanation: Leontief found that the U.S. (capital-abundant) exported labor-
intensive goods, contradicting the Heckscher-Ohlin prediction.
3. According to the Product Life Cycle theory, where is a product typically produced when it is
first introduced?
A. In developing nations to save costs
B. In the country where it was invented
C. In countries with the lowest labor costs
D. In multiple countries simultaneously
Answer: B
Conceptual Explanation: Vernon’s theory suggests products are initially produced in the
innovating country (usually advanced) before production shifts abroad.
4. Which component of Porter’s Diamond refers to the presence of globally competitive
suppliers in a nation?
A. Factor Endowments
B. Demand Conditions
C. Related and Supporting Industries
D. Firm Strategy, Structure, and Rivalry
, Answer: C
Conceptual Explanation: Related and supporting industries provide the necessary
infrastructure and inputs for a primary industry to be competitive.
5. What is the primary objective of a ‘subsidy’ as a trade policy instrument?
A. To increase the price of imports
B. To limit the quantity of imported goods
C. To generate tax revenue for the government
D. To help domestic producers compete against foreign imports
Answer: D
Conceptual Explanation: Subsidies are government payments to domestic producers to
lower their costs and improve competitiveness.
6. Which form of regional economic integration eliminates trade barriers between members
and adopts a common external trade policy?
A. Free Trade Area
B. Economic Union
C. Common Market
D. Customs Union
Answer: D
PRACTICE EXAM QUESTIONS AND
ANSWERS.
1. Which trade 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. Comparative Advantage
C. Mercantilism
D. Product Life Cycle Theory
Answer: B
Conceptual Explanation: Comparative Advantage, proposed by David Ricardo, focuses on
opportunity cost rather than absolute productivity.
2. The Leontief Paradox challenged which trade theory by finding that the U.S. exported
labor-intensive goods?
A. New Trade Theory
B. Heckscher-Ohlin Theory
C. Absolute Advantage
,D. Porter’s Diamond
Answer: B
Conceptual Explanation: Leontief found that the U.S. (capital-abundant) exported labor-
intensive goods, contradicting the Heckscher-Ohlin prediction.
3. According to the Product Life Cycle theory, where is a product typically produced when it is
first introduced?
A. In developing nations to save costs
B. In the country where it was invented
C. In countries with the lowest labor costs
D. In multiple countries simultaneously
Answer: B
Conceptual Explanation: Vernon’s theory suggests products are initially produced in the
innovating country (usually advanced) before production shifts abroad.
4. Which component of Porter’s Diamond refers to the presence of globally competitive
suppliers in a nation?
A. Factor Endowments
B. Demand Conditions
C. Related and Supporting Industries
D. Firm Strategy, Structure, and Rivalry
, Answer: C
Conceptual Explanation: Related and supporting industries provide the necessary
infrastructure and inputs for a primary industry to be competitive.
5. What is the primary objective of a ‘subsidy’ as a trade policy instrument?
A. To increase the price of imports
B. To limit the quantity of imported goods
C. To generate tax revenue for the government
D. To help domestic producers compete against foreign imports
Answer: D
Conceptual Explanation: Subsidies are government payments to domestic producers to
lower their costs and improve competitiveness.
6. Which form of regional economic integration eliminates trade barriers between members
and adopts a common external trade policy?
A. Free Trade Area
B. Economic Union
C. Common Market
D. Customs Union
Answer: D
