Question

1. Two countries A and B both produce food and clothing. Country A can produce both food and clothing using fewer resources than B. According to international trade theory

A. Country A and B profitably specialize and trade with each other

B. Country A and B should specialize in the good for which they each have a comparative advantage and then trade with one another

C. Country B should specialize in both goods and trade with country A

D. Country A should specialize in both goods and trade with country C

2. If a Government creates custom delays by imposing regulation which require all agricultural products entering the country to undergo an unduly long inspection process. Then this is called

A. An export subsid

B. A tariff

C. Administrative protectionist Policy

D Quota

3. A tariff does what

A. Increases the price of imported goods and thus increases the demand for domestic goods

B. Lowers the cost of producing domestic goods

C. Lowers the cost of imported goods and thus increases the demand for them

D. Increase the price of domestic goods thus lowering the demand for them

Answer 1

1. B. Country A and B should specialize in the good for which they each have a comparative advantage and then trade with one another.

According to comparative advantage theory even if one country has absolute advantage in production of both goods over other country, the two country should produce according to comparative advantage and engage in trade.

2. C. Administrative protectionist Policy

This policy tries to reduce trade and is an example of protectionist policy.

3. A. Increases the price of imported goods and thus increases the demand for domestic goods.

Tariff is extra charge on import price. This increases the price of imported goods and domestic producers become more competitive due to no tariff.