MIB International Trade & Policy 2

Question 1

What is 'trade diversion' in the context of regional trade agreements?

Accepted Answer

Shifting trade from efficient non-member producers to less efficient member producers due to preferential tariffs

Answer

Trade diversion occurs when a regional trade agreement causes a country to import from a less efficient member country instead of a more efficient non-member due to preferential tariff treatment.

Question 2

The 'new trade theory' introduced by Paul Krugman emphasizes that international trade is driven by:

Accepted Answer

Economies of scale and consumer preference for variety

Answer

New trade theory argues that trade can arise from economies of scale and consumer desire for product variety even when countries have similar factor endowments.

Question 3

Under the WTO's Agreement on Subsidies and Countervailing Measures (ASCM), which type of subsidy is prohibited?

Accepted Answer

Export subsidies contingent on export performance

Answer

The ASCM prohibits export subsidies that are contingent upon export performance, as they directly distort trade by artificially lowering the cost of exported goods.

Question 4

Which mechanism allows businesses to resolve trade disputes directly with foreign governments under international investment agreements?

Accepted Answer

Investor-State Dispute Settlement (ISDS)

Answer

ISDS allows foreign investors to sue host governments in international arbitration when government actions breach investment treaty obligations, bypassing domestic courts.

Question 5

The 'gravity model' of international trade predicts that trade volume between two countries is:

Accepted Answer

Positively related to their economic size and negatively related to the distance between them

Answer

The gravity model predicts that bilateral trade increases with the economic size (GDP) of each country and decreases with the geographic distance between them.

MIB - Master of International Business Practice Test

MIB - Master of International Business Practice Test

MIB International Trade & Policy 2