Trade Policy: Tariffs, Quotas, and Free Trade Agreements

Question 1

Which of the following is a potential advantage of free trade agreements?

Accepted Answer

Increased consumer options

Answer

Lower government income

Answer

Higher domestic inflation

Answer

Less competition in the job market

Question 2

Which of the following is NOT a potential benefit of free trade agreements (FTAs)?

Accepted Answer

Increased bureaucracy and red tape

Answer

Increased consumer choice

Answer

Lower prices for consumers

Answer

Increased competition

Question 3

A tariff is a tax imposed on:

Accepted Answer

Imports

Answer

Exports

Answer

Domestic goods

Answer

Services

Question 4

A quota is a government-imposed:

Accepted Answer

Limit on the quantity of imports

Answer

Tax on imports

Answer

Ban on certain imports

Answer

Subsidy for domestic producers

Question 5

Which type of trade barrier limits the amount of goods that can be imported or exported?

Accepted Answer

Quota

Answer

Tariff

Answer

Subsidy

Answer

Free trade agreement

Question 6

What is the major objective of a tariff?

Accepted Answer

To protect domestic industries

Answer

To increase government revenue

Answer

To stimulate international trade

Answer

To decrease consumer prices

Question 7

Which of the following is NOT an economic effect of subsidies on international trade?

Accepted Answer

Improved quality of subsidized goods

Answer

Increased production of subsidized goods

Answer

Lower prices for consumers of subsidized goods

Answer

Reduced competition in the subsidized industry

Question 8

What is the central purpose of a free trade agreement?

Accepted Answer

To eliminate tariffs and other trade barriers between participating countries

Answer

To establish common regulations among participating countries

Answer

To promote political alliances among participating countries

Answer

To restrict the flow of goods between participating countries

Question 9

Which of these is an example of regional integration?

Accepted Answer

The European Union

Answer

The World Trade Organization

Answer

The International Monetary Fund

Answer

The United Nations

Question 10

What is the most significant benefit of free trade for consumers?

Accepted Answer

Lower prices due to increased competition

Answer

Greater selection of goods

Answer

Improved quality of goods

Answer

Higher wages

Question 11

What is a potential downside of regional economic integration?

Accepted Answer

Reduced trade with countries outside the region

Answer

Increased economic growth and competitiveness

Answer

Elimination of trade barriers within the integrated region

Answer

Increased foreign direct investment

Question 12

Identify the statement that is not a form of government intervention in international trade?

Accepted Answer

Free trade agreements

Answer

Tariffs

Answer

Quotas

Answer

Subsidies

Question 13

What is the key distinction between a tariff and a quota?

Accepted Answer

A tariff is a tax on imported goods, while a quota sets a limit on the quantity of imports.

Answer

A quota is a tax on imported goods, while a tariff sets a limit on the quantity of imports.

Answer

Tariffs and quotas are the same type of trade policy, with no significant differences.

Answer

Both tariffs and quotas restrict the quantity of imports, but tariffs are more effective.

Question 14

What is the primary objective of a protective tariff?

Accepted Answer

Safeguard domestic industries

Answer

Generate government revenue

Answer

Promote free trade

Answer

Correct trade imbalances

Question 15

What is the difference between an import quota and an export subsidy?

Accepted Answer

An import quota restricts imports, while an export subsidy supports exports.

Answer

An import quota supports imports, while an export subsidy restricts exports.

Answer

Both import quotas and export subsidies restrict trade.

Answer

Both import quotas and export subsidies promote trade.

Question 16

The World Trade Organization (WTO) is primarily:

Accepted Answer

An international organization that facilitates and regulates global trade

Answer

A regional trade agreement exclusive to European countries

Answer

A private entity that promotes fair trade practices

Answer

A US government agency responsible for trade policy

Question 17

The concept of comparative advantage suggests that countries should:

Accepted Answer

Specialize in producing goods where they have the lowest opportunity cost, even if they can produce other goods more efficiently

Answer

Produce all goods domestically, regardless of their comparative advantage

Answer

Trade only with countries that have similar economic systems

Answer

Import all goods they cannot produce domestically

Question 18

Which of the following is a potential economic advantage of a free trade agreement?

Accepted Answer

Increased trade volume

Answer

Higher prices for domestic producers

Answer

Reduced government revenue

Question 19

Which of the following is NOT considered a common type of trade policy?

Accepted Answer

Immigration laws

Answer

Tariffs

Answer

Quotas

Answer

Subsidies

Question 20

The primary objective of imposing a tariff is typically:

Accepted Answer

To protect domestic industries from foreign competition

Answer

To generate revenue for the government

Answer

To reduce imports into the country

Answer

To promote job creation in the domestic economy

Question 21

An import tariff is paid on:

Accepted Answer

Goods entering the country

Answer

Goods leaving the country

Answer

Both goods entering and leaving the country

Answer

Neither goods entering nor leaving the country

Question 22

The main objective of the World Trade Organization (WTO) is to:

Accepted Answer

Promote free trade and resolve trade disputes

Answer

Provide financial aid to developing countries

Answer

Regulate international labor standards

Answer

Negotiate peace treaties between nations

Question 23

How can trade policy impact the distribution of income within a nation?

Accepted Answer

The impact depends on the specific trade policy employed.

Answer

It can reduce income inequality by lowering consumer prices.

Answer

It can exacerbate income inequality by favoring producers over consumers.

Answer

It generally does not affect income distribution.

Question 24

Which of the following is the primary function of international institutions in regulating international trade?

Accepted Answer

Establishing binding rules and regulations

Answer

Providing financial aid to developing nations

Answer

Negotiating trade agreements between countries

Answer

Playing a minimal role in regulating international trade

Question 25

Which trade policy typically leads to lower prices and a wider selection of goods for consumers?

Accepted Answer

Free trade agreement

Answer

Tariff

Answer

Quota

Question 26

Which trade policy is intended to boost domestic production by making imported goods more expensive?

Accepted Answer

Tariffs

Answer

Quotas

Answer

Subsidies

Answer

Free Trade Agreements

Question 27

Which statement best describes the difference between the effects of tariffs and quotas on international trade?

Accepted Answer

Tariffs raise import prices, while quotas limit import quantities.

Answer

Tariffs and quotas both increase import prices.

Answer

Tariffs and quotas both reduce import quantities.

Answer

Tariffs and quotas have no significant impact on international trade.

Question 28

What is a primary objective of trade policy?

Accepted Answer

To regulate and influence international trade activities.

Answer

To enhance national defense.

Answer

To preserve cultural heritage.

Answer

To guarantee domestic employment.

Question 29

Tariffs, a common form of trade policy, are taxes levied on:

Accepted Answer

Imported goods.

Answer

Exported goods.

Answer

Neither imported nor exported goods.

Answer

Both imported and exported goods.

Question 30

Quotas, another common trade policy tool, can be defined as:

Accepted Answer

Limitations on the quantities of goods that can be imported or exported.

Answer

Taxes imposed on imported goods.

Answer

Subsidies granted to domestic producers.

Question 31

Subsidies, a frequently employed trade policy instrument, are:

Accepted Answer

Governmental payments provided to domestic producers.

Answer

Restrictions on the quantities of goods that can be exported.

Answer

Taxes levied on imported goods.

Answer

Agreements between nations to abolish trade barriers.

Question 32

Free trade agreements (FTAs) are characterized by:

Accepted Answer

Reduced or eliminated tariffs and other barriers between participating countries.

Answer

Increased tariffs and quotas on products from non-member countries.

Answer

Subsidies for domestic producers.

Question 33

Regional integration, a broader concept than FTAs, entails:

Accepted Answer

Cooperative efforts and coordination among neighboring countries in various economic and political domains.

Answer

Unilateral trade policies implemented by individual countries.

Answer

Bilateral agreements between two countries.

Question 34

Which of the following is a potential benefit of trade liberalization?

Accepted Answer

Expanded consumer options and reduced prices.

Answer

Reduced government revenue.

Answer

Increased unemployment.

Answer

Weakening environmental standards.

Question 35

A potential cost of trade liberalization is:

Accepted Answer

Job losses in certain industries.

Answer

Lower inflation.

Answer

Increased economic expansion.

Question 36

Which trade policy involves charging a fee on imports?

Accepted Answer

Tariff

Answer

Subsidy

Answer

Quota

Answer

Embargo

Question 37

What is the main effect of a quota in international trade?

Accepted Answer

It restricts the quantity of goods that can be imported or exported within a specific period.

Answer

It generates revenue for the government.

Answer

It protects domestic industries from foreign competition.

Question 38

What is the primary objective of a free trade agreement?

Accepted Answer

To eliminate or reduce trade barriers between participating countries.

Answer

To promote domestic industries at the expense of foreign competitors.

Answer

To generate additional revenue for governments.

Question 39

What is the primary function of the World Trade Organization (WTO)?

Accepted Answer

To promote global trade and resolve trade disputes.

Answer

To negotiate preferential trade agreements.

Answer

To impose trade sanctions on non-compliant countries.

Answer

To provide financial aid to developing countries.

Question 40

What does the concept of comparative advantage in international trade suggest?

Accepted Answer

Countries should specialize in producing and exporting goods where they have the most efficient production capabilities.

Answer

Trade is beneficial only if both countries produce the same goods.

Answer

Countries should strive for self-sufficiency in all sectors.

Question 41

Which government-imposed tax makes imported goods more expensive?

Accepted Answer

Tariff

Answer

Quota

Answer

Subsidy

Answer

Free trade agreement

Question 42

What type of trade policy involves limiting the quantity of a specific good that can be imported?

Accepted Answer

Quota

Answer

Subsidy

Answer

Tariff

Question 43

Which government policy aims to support domestic producers by providing financial assistance?

Accepted Answer

Subsidy

Answer

Free trade agreement

Answer

Quota

Answer

Tariff

Question 44

What is the term for an agreement between countries to eliminate or reduce trade barriers such as tariffs?

Accepted Answer

Free trade agreement

Answer

Subsidy

Answer

Regional integration

Answer

Quota

Question 45

What is a regional trade arrangement where countries agree to lower trade barriers among themselves?

Accepted Answer

Regional integration

Answer

Free trade agreement

Answer

Subsidy

Answer

Quota

Question 46

Which of the following is a potential advantage of entering into a free trade agreement?

Accepted Answer

Wider variety of goods available to consumers

Answer

Increased government revenue

Answer

Reduced domestic production

Question 47

A country that exports more goods and services than it imports is said to have a:

Accepted Answer

Trade surplus

Answer

Current account deficit

Answer

Trade deficit

Answer

Balance of payments deficit

Question 48

Which measure encompasses the total value of a country's exports, imports, and financial transactions?

Accepted Answer

Balance of payments

Answer

Trade balance

Answer

Gross domestic product

Answer

Current account

Question 49

According to the theory of comparative advantage, countries should focus on producing and exporting goods where they have the:

Accepted Answer

Lowest opportunity cost

Answer

Highest consumer demand

Answer

Largest domestic market

Question 50

Which of the following is NOT a primary tool of trade policy?

Accepted Answer

Exchange rate manipulation

Answer

Tariffs

Answer

Subsidies

Answer

Quotas

Question 51

Imposing a tariff on imported steel is likely to have what effect on the domestic steel market?

Accepted Answer

Increase the price of domestically produced steel.

Answer

Have no impact on the price of steel.

Answer

Increase the demand for imported steel.

Answer

Decrease the price of domestically produced steel.

Question 52

What is a key difference between a tariff and a quota in trade policy?

Accepted Answer

A tariff generates revenue for the government, while a quota does not.

Answer

A tariff benefits foreign producers, while a quota benefits domestic producers.

Answer

A tariff restricts price, while a quota affects quantity.

Question 53

Which of the following is a potential benefit of a free trade agreement?

Accepted Answer

Increased consumer choice and lower prices.

Answer

Decreased competition for domestic producers.

Answer

Increased job opportunities in protected industries.

Answer

Higher government revenue from tariffs.

Question 54

Which of the following is an example of regional economic integration?

Accepted Answer

The European Union (EU)

Answer

The World Trade Organization (WTO)

Answer

The Organization of Petroleum Exporting Countries (OPEC)

Answer

The International Monetary Fund (IMF)

Question 55

Which of the following is a common argument used to support protectionist trade policies?

Accepted Answer

Protecting domestic jobs from foreign competition.

Answer

Lowering prices for consumers.

Answer

Promoting global economic growth.

Answer

Increasing efficiency through specialization.

Question 56

What is a potential drawback of government subsidies to domestic producers?

Accepted Answer

They can lead to overproduction and inefficiency.

Answer

They violate international trade agreements.

Answer

They decrease the price of the subsidized goods.

Answer

They harm domestic producers and benefit foreign ones.

Question 57

The 'infant industry' argument for protectionism suggests that:

Accepted Answer

New industries may need temporary protection to become competitive.

Answer

All industries should be protected equally.

Answer

Free trade is always harmful to developing countries.

Question 58

In the context of international trade, 'dumping' refers to:

Accepted Answer

Selling goods in a foreign market at a price below their production cost.

Answer

Refusing to import goods from certain countries.

Answer

Exporting goods of inferior quality.

Question 59

What is the primary role of the World Trade Organization (WTO) in international trade policy?

Accepted Answer

To promote free trade and resolve trade disputes between countries.

Answer

To set tariffs and quotas for all international trade.

Answer

To provide financial assistance to developing countries.