Question 1

Which of the following best describes the concept of Comparative Advantage in international trade?

Accepted Answer

It is when a country specializes in the production of goods in which it has the lowest opportunity cost compared to other nations.

Question 2

A government imposes a tariff on imported goods. What is the most likely immediate effect on the domestic market for those goods?

Accepted Answer

Consumers will pay a higher price for fewer goods, and domestic producers become more competitive.

Question 3

Which of the following is a disadvantage of free trade according to the study materials?

Accepted Answer

It may result in a short-term increase in unemployment as domestic businesses find it difficult to compete with imports.

Question 4

What is the primary purpose of a quota as a method of trade protection?

Accepted Answer

To control the volume of a good that is allowed to be imported over a period of time.

Question 5

Suppose Australia imposes a tariff on imported steel. Using supply and demand analysis, what happens to the equilibrium price and quantity of steel in Australia?

Accepted Answer

Equilibrium price increases and quantity decreases.

Question 6

Which of the following is NOT a reason for governments to protect domestic industries?

Accepted Answer

To increase the efficiency of resource allocation.

Question 7

If a government provides subsidies to domestic producers, what is the likely effect on the supply curve for those goods?

Accepted Answer

The supply curve shifts right, resulting in lower prices and higher quantity supplied.

Question 8

Which of the following is a potential negative consequence of protectionist policies such as tariffs and quotas?

Accepted Answer

They may lead to retaliation from other countries, resulting in trade wars.

Question 9

What is the main argument for free trade based on Comparative Advantage?

Accepted Answer

Nations should specialize in the areas of production in which they have the lowest opportunity cost.

Question 10

Which of the following is a method of protection that does NOT directly affect the price or quantity of imports?

Accepted Answer

Local Content Rules

Question 11

If a country specializes in the production of a good in which it has a comparative advantage, what is the likely outcome?

Accepted Answer

The country will be able to trade with other nations to maximize both nations' standard of living.

Question 12

Which of the following best explains the 'brain drain' phenomenon in the context of globalisation?

Accepted Answer

Highly skilled workers leave their home countries to take advantage of better economic conditions elsewhere.

Question 13

Which of the following is a disadvantage of subsidies as a method of protection?

Accepted Answer

They may lead to inefficient reallocation of resources.

Question 14

What is the effect of a quota restriction on the market for an imported good?

Accepted Answer

It restricts the quantity of imports, potentially raising the price and benefiting domestic producers.

Question 15

Which of the following is a function of the World Trade Organization (WTO)?

Accepted Answer

To facilitate the removal of trade barriers and resolve trade disputes between member countries.

Question 16

If the government imposes local content rules, what is the likely effect on domestic producers?

Accepted Answer

Domestic producers may benefit as they are required to use a minimum percentage of locally made parts, making their products more competitive.

Question 17

Which of the following is a likely result of protectionist policies in the long term?

Accepted Answer

Once local competition is eliminated, domestic producers may raise their prices.

Question 18

Which of the following is a key role of the International Monetary Fund (IMF) in the global economy?

Accepted Answer

To provide rescue packages to countries facing economic crises and encourage policy reforms.

Question 19

Suppose a country faces dumping from foreign firms. What is a likely government response based on the study materials?

Accepted Answer

Impose tariffs or quotas to protect domestic producers from unfairly low-priced imports.

Global Trade, Protection, and Economic Policy: Microeconomics Study Notes

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