MIB International Trade & Policy 1 — Questions and Answers
Question 1: The World Trade Organization (WTO) principle of 'Most Favored Nation' (MFN) requires that:
- Countries give preferential treatment to their top trading partners
- Any trade advantage given to one country must be extended to all WTO members (Correct answer)
- Developing countries receive preferential tariff rates
- Nations maintain balanced bilateral trade relationships
Correct answer: Any trade advantage given to one country must be extended to all WTO members
The MFN principle requires WTO members to extend any favorable trade treatment they grant one country to all other WTO member nations equally.
Question 2: Which trade theory suggests that countries should export goods in which they have a lower opportunity cost of production?
- Absolute advantage theory
- Comparative advantage theory (Correct answer)
- Heckscher-Ohlin theorem
- Product life cycle theory
Correct answer: Comparative advantage theory
Comparative advantage theory (Ricardo) states that countries benefit from specializing in and exporting goods they produce at a relatively lower opportunity cost, even if another country is absolutely more efficient.
Question 3: A tariff-rate quota (TRQ) in international trade policy means:
- A fixed tariff rate applied to all imports regardless of quantity
- A lower tariff rate applies up to a set import quantity, higher rate beyond (Correct answer)
- A quota that completely bans imports above a threshold
- Equal tariff rates applied to all trading partners
Correct answer: A lower tariff rate applies up to a set import quantity, higher rate beyond
A TRQ applies a lower (in-quota) tariff rate to imports up to a specified quantity and a higher (over-quota) tariff rate to any imports exceeding that quantity.
Question 4: The 'Heckscher-Ohlin (H-O) theorem' predicts that a country will export goods that:
- It produces with the most advanced technology
- Intensively use the country's relatively abundant factor of production (Correct answer)
- Have the highest global demand
- Require the most skilled labor
Correct answer: Intensively use the country's relatively abundant factor of production
The H-O theorem states that countries export goods whose production intensively uses their most abundant factor (labor, capital, or land) and import goods that use their scarce factors.
Question 5: Which non-tariff barrier involves a government setting technical standards that foreign products must meet to enter the market?
- Import licensing
- Voluntary export restraint
- Technical barriers to trade (TBT) (Correct answer)
- Countervailing duties
Correct answer: Technical barriers to trade (TBT)
Technical barriers to trade include product standards, testing requirements, and certification procedures that imported goods must satisfy, sometimes serving as protectionist measures.
Question 6: A 'preferential trade agreement' (PTA) differs from a free trade agreement (FTA) in that it:
- Eliminates all tariffs between member nations
- Reduces (but doesn't eliminate) tariffs on selected goods (Correct answer)
- Creates a common external tariff
- Allows free movement of labor and capital
Correct answer: Reduces (but doesn't eliminate) tariffs on selected goods
A PTA reduces tariffs on certain goods traded between member countries without fully eliminating them, representing a less comprehensive form of trade liberalization than an FTA.
MIB International Trade & Policy 1
The World Trade Organization (WTO) principle of 'Most Favored Nation' (MFN) requires that: