403 International Busines ib mcq

International Business MCQ

1. Multiple-Choice Questions

Unit 1: Environmental Context of International
Business, Framework for analyzing international
business environment – Domestic, foreign and global
environments and their impact on international business
decisions.
Global Trading Environment: World trade in goods and
services – Major trends and developments; World trade
and protectionism – Tariff and non-tariff barriers;
Counter trade.
Unit 2: International Financial Environment: Foreign
investments -Pattern, Structure and effects; Movements
in foreign exchange and interest rates and then impact on
trade and investment flows.
Unit 3: International Economic Institutions and
Agreements: WTO, IMF, World Bank UNCTAD,
Agreement on Textiles and Clothing (ATC), GSP, GSTP
and other International agreements; International
commodity trading and agreements.
Unit 4: Multinational Corporations and their
involvement in International Business: Issues in foreign
investments, technology transfer, pricing and
regulations; International collaborative arrangements and
strategic alliances.
Unit 5: Regional Economic Groupings in Practice:
Regionalism vs. multilaterallism, Structure and
functioning of EC and NAFTA; Regional economic
cooperation. Emerging Developments and Other Issues:
Growing concern for ecology; Counter trade; IT and
international business.

1.A revenue tariff is:
a. a tariff on domestically produced products.
b. a tariff levied on a product that is produced
domestically that is designed to protect domestic
industries.
c. a tariff levied on a product that is not
domestically produced.
d. a tariff based on the profits of international
firms doing business within a country.
Answer: c
2.The purpose of a protective tariff is:
a. to protect domestic consumers from
harmful products.
b. to protect the international laws of
commerce.
c. to protect the foreign country from anti-
trust actions.
d. to protect domestic producers from
foreign competition.
Answer: d

3.Specific tariffs are collected:
a. only on industrial products.
b. only on pharmaceutical products.
c. only on products that arrive by train.
d. as a fixed amount of money per unit
traded.
Answer: d

4.A tariff levied as a certain amount per unit imported is
known as:
a. a specific tariff.
b. a counter tariff.
c. a forgone tariff.
d. F.A.S.
Answer: a

5.A per unit tax on imported goods is called:
a. a specific tariff.
b. a per unit tariff.
c. an ad valorem tariff.
d. a compound tariff.
Answer: a

6.A tariff of 20% on imported goods is called:
a. a specific tariff.
b. a percentage tariff.
c. an ad valorem tariff.
d. a compound tariff.
Answer: c

7.Ad valorem tariffs are collected as:
a. a percentage of the quantity of imports.
b. fixed amounts of money per unit traded.
c. a percentage of the price of the product.
d. a percentage of the transportation costs.
Answer: c

8._____ is the barrier to trade that best distinguishes
among gradations of a good or service.
a. Specific tariff
b. Voluntary export restraint
c. Ad valorem tariff
d. Import quota
Answer: c

9.Product “A” has an import value of $100. If a tariff of
10 percent of the product’s value plus $10 per unit were
imposed on “A”, the result would be a(n) ____ of _____
.
a. ad valorem; $15
b. combined; $15
c. compound; $15
d. compound; $20
Answer: d

10.A tariff of 20% plus $1 per unit on imported goods is
called:
a. a specific tariff.
b. a complex tariff.
c. an ad valorem tariff.
d. a compound tariff.
Answer: d

11. When a tariff is so high that imports are zero, the
tariff is said to be:
a. effective.
b. exclusionary.
c. involuntary.
d. prohibitive.

2. Answer: d

12.A compound tariff is a combination of:
a. a specific tariff and a F.A.S. tariff.
b. a specific tariff and a F.O.B. tariff.
c. an ad valorem tariff and a F.A.S. tariff.
d. a specific tariff and an ad valorem tariff.
Answer:d

13.A tariff of ($250/import + 15% of the C.I.F.
value/import) is known as a(n) _____ tariff.
a. nonspecific
b. ad valorem
c. compound
d. specific
Answer: c

14.The Free alongside (FAS) method of valuing imports:
a.defines the price of the imported good as the
foreign market price before it
is loaded into the ship, train, or plane for
shipment to the importing country.
b.defines the imported price as the price in the
foreign market including the cost of loading it
onto the ship, train, or plane for shipment to the
importing country.
c.defines the imported price as the price
including all inter-country charges up to the
importing country’s port of entry.
d.none of the above
Answer: a

15.The free on board (FOB) method of valuing imports:
a.defines the price of the imported good as the
foreign market price before it is loaded into the
ship, train, or plane for shipment to the
importing country.
b.defines the imported price as the price in the
foreign market including the cost of loading
it onto the ship, train, or plane for shipment to
the importing country.
c.defines the imported price as the price
including all inter-country charges up to the
importing country’s port of entry.
d.none of the above
Answer: b

16.The FOB value of imports includes:
a.the value of the product alongside the carrier.
b.the expense of loading for shipment.
c. all freight and insurance costs to
transport the goods to the importing country.
d. the sum of a and b.
Answer: d

17.CIF stands for:
a. captain in front.
b. capital is free.
c. cost, insurance, and freight.
d. a form of grease payment.
Answer: c

18.The cost, insurance and freight (CIF) method of
valuing imports:
a. defines the price of the imported good as
the foreign market price before it is loaded into
the ship, train, or plane for shipment to the
importing country.
b. defines the imported price as the price in
the foreign market including the cost of loading
it onto the ship, train, or plane for shipment to
the importing country.
c. defines the imported price as the price
including all inter-country charges
up to the importing country’s port of entry.
d. none of the above
Answer: c

19.Almost all countries in the world use which of the
following definitions to assess the value of an import?
a. TTK
b. JIT
c. CIF
d. JMK
Answer: c

20.The availability of alternative definitions of “price”
such as FAS, CIF, and FOB creates complications
regarding the administration of the _____ tariff.
a. ad valorem
b. generic
c. export
d. specific
Answer: a

21.Which of the following is not a method of valuing
imports for tariff purposes?
a. Free alongside (FAS) price
b. Free on board (FOB) price
c. Cost, insurance and freight (CIF) price
d. WTO price

Answer: d

22. Foreign direct investment represents:
a. foreign investment in financial capital.
b. foreign investment in stocks.
c. foreign investment in bonds.
d. foreign investment in land,
nonresidential investment, and durable
equipment.
Answer: d

23. Quotas are a greater threat to competition than
tariffs because:
a. quotas allow imports but only at a
higher price.
b. tariffs are voluntary but quotas are not.
c. quotas preclude additional imports at
any price.
d. tariffs do not reduce imports and quotas
do.

3. Answer: c
24. An example of a nontariff barrier (NTB) is:
a. a tax on imports.
b. a tax on exports.
c. a physical limit on imports.
d. a tax on trade in services only.
Answer: c

25. Nontariff barriers (NTBs) include all of the
following except:
a. quotas.
b. tariffs.
c. subsidies.
d. health standards.
Answer: b

26. Quotas:
a. are a form of protectionism.
b. restrict imports of a product to a certain
quantitative level.
c. are banned under the WTO.
d. all of the above
Answer: d

27. Once a country joins the WTO:
a. all quotas must by immediately be
eliminated.
b. all quotas are allowed under the WTO.
c. quotas must be slowly eliminated over a
given period of time.
d. all quotas are allowed since the WTO
does not pay attention to this trade issue.
Answer: c

28. Quotas exist because:
a. not all countries are members of the
WTO.
b. some countries that are members of the
WTO are allowed to maintain quotas during a transition
period.
c. many industrial countries implement
quotas in defiance of WTO rules.
d. all of the above
Answer: d

29. Which of the following is not one of the reasons
countries have quotas?
a) Non-WTO member
b) New WTO member
c) Protection of agricultural production
d) Membership in the UN
Answer: d

30. A VER is:
a. a tariff that is imposed by the exporting
country.
b. a tariff that is imposed by an importing
country.
c. a voluntary quota imposed by the
importing country.
d. a voluntary quota imposed by the
exporting country.
Answer: d

31. Which of the following is not an NTB?
a. A quota
b. A VER
c. A technical rule calculated to exclude
imports
d. An MFN tariff
Answer: d

32. Nontariff barriers include all of the following
except:
a. buy domestic requirements.
b. tariffs.
c. technical standards.
d. labor standards.
Answer: b

33. Nontariff barriers include all of the following
except:
a. buy domestic requirements.
b. technical standards.
c. environmental standards.
d. the corporate income tax.
Answer: d

34. Which of the following statements is true?
a. A VER is essentially the same thing as a
quota.
b. A VER and a quota have nothing in
common.
c. Quotas are legal under WTO rules.
d. VERs enhance consumer welfare
whereas quotas do not.
Answer: a

35. A VER is imposed by:
a. the domestic government.
b. the foreign government.
c. the domestic producers.
d. the domestic consumers.
Answer: b

36. FDI and producing in a foreign country may be
preferable to exporting:
a. since most managers of domestic plants
wish to leave to other countries.
b. since machinery and buildings are
usually more extravagantly built in foreign countries.
c. since production is increased due to high
labor skills.
d. in order to serve consumer tastes and
preferences in the foreign market.
Answer: d

37. Some motives for FDI are:
a. the extraction of natural resources.
b. a multinational corporation attempts to
jump over trade restrictions.

4. c. high transportation costs.
d. all of the above
Answer: d

38. Foreign direct investment is:
a. the purchase of foreign real investment
in land, nonresidential investment, or
producer’s durable equipment by a
domestic firm.
b. domestic residents investing funds in
foreign capital markets.
c. foreigners investing capital in U.S.
capital markets.
d. tourists going to foreign countries and
purchasing goods and services.
Answer: a

39. Which of the following are reasons for the
international movement of capital?
a. Firms want to earn the highest expected
rate of return on their investment.
b. Some natural resources are limited only
to a specific part of the world.
c. Foreign investments eliminate tariffs
and high transportation costs.
d. all of the above
Answer: d

40. Which of the following is not a reason for FDI?
a. Horizontal product differentiation
b. Extraction of natural resources
c. High transportation costs
d. A lower rate of return in the host
country
Answer: d

41. Which of the following statements is true?
a. FDI benefits labor in the source country.
b. FDI benefits capital in the source
country.
c. FDI benefits labor in the host country.
d. FDI benefits capital in the host country.
Answer: c

42. FDI reduces the welfare of _____ in the source
country and increases the welfare of _____ in the host
country.
a. labor; capital
b. labor; labor
c. labor; capital
d. capital; capital
Answer: b

43. With respect to capital movements between
countries, owners of capital in the source country:
a. benefit as capital is removed from their
country.
b. are harmed as capital is removed from
their country.
c. benefit as capital flows into their
country.
d. are harmed as capital flows into their
country.
Answer: a

44. With respect to capital movements between
countries, owners of capital in the host country:
a. benefit as capital is removed from their
country.
b. are harmed as capital is removed from
their country.
c. benefit as capital flows into their
country.
d. are harmed as capital flows into their
country.
Answer: d

45. With respect to capital movements between
countries, labor in the source country:
a. benefits as capital is removed from their
country.
b. is harmed as capital is removed from
their country.
c. benefits as capital flows into their
country.
d. is harmed as capital flows into their
country.
Answer: b

46. With respect to capital movements between
countries, labor in the host country:
a. benefits as capital is removed from their
country.
b. is harmed as capital is removed from
their country.
c. benefits as capital flows into their
country.
d. is harmed as capital flows into their
country.
Answer: c

47. The effect of the international movement of
capital does not include:
a. the supply of capital declines in the
source country.
b. an increase in the rate of return to
capital in the source country.
c. the productivity of labor declines in the
source country.
d. an increase in the rate of return to
capital in the host country.
Answer: d

48. Which of the following is one of the effects of
FDI on the host country?
a. The return to labor will tend to fall.
b. The return to capital will tend to rise.
c. The return to labor will tend to rise.
d. The price of land will tend to fall.
Answer: c
49. The regulation of MNCs that is the preferred form of
regulation is known as:

5. a. transfer pricing.
b. internalization.
c. nonpreferential tax subsidization
liability.
d. national treatment.
Answer: d

50. Which of the following is not a common
restriction on the activities of MNCs?
a. Ownership restrictions
b. Export requirements
c. Local-content requirements
d. National treatment
Answer: d

51. The phenomenon of changing internal prices in a
firm in order to minimize the firm’s global tax liability is
known as:
a. internalization.
b. national treatment.
c. transfer pricing.
d. export of tax requirements.
Answer: c

52. Transfer pricing refers to:
a. risk diversification.
b. the pricing of the technology transferred
to the host country.
c. the artificial overpricing of inputs
shipped to a foreign subsidiary in a higher tax
country.
d. the pricing of a multinational stock on
the NYSE.
Answer: c

53. When a quota is imposed:
a. foreign firms may gain by selling the
imported product at a higher price.
b. foreign firms may lose by selling fewer
imports.
c. domestic firms lose by selling fewer
products.
d. both a and b
Answer: d
54. Like tariffs, quotas generally lead to:
a. an increased amount of consumer
surplus.
b. a reduced amount of producer surplus.
c. higher prices and fewer imports.
d. increased government revenue.
Answer: c

55. If a government auctions its quota:
a. domestic producers gain additional
producer surplus.
b. consumers gain additional consumer
surplus.
c. foreign firms pay an additional cost.
d. foreign firms gain additional revenue.
Answer: c

56. To calculate a tariff equivalent for a quota one
must:
a. take the difference between the world
market price and the quota
constrained domestic price and divide
by the world market price.
b. take the difference between the world
market price and the quota constrained domestic
price and divide by the quota-constrained price.
c. take the difference between the tariff
and domestic market cost divided by the
domestic market costs.
d. take the sum of all quotas and divide by
the number of units imported.
Answer: a

57. When demand increases for a good subject to a
quota:
a. imports would stay the same but the
price would rise.
b. the price would stay the same but
imports would increase.
c. the supply curve shifts outward at the
world price.
d. the price wouldn't change since imports
ensure consumption.
Answer: a

58. If imports are constrained by a quota and
demand increases then:
a. prices will rise.
b. prices will fall.
c. the quantity imported will increase.
d. the quantity imported will fall
Answer: a

59. Which of the following statements is true?
a. If demand increases in the presence of a
tariff, then prices will not increase
because the amount of imports will
increase.
b. Businesses always prefer tariff
protection to quota protection.
c. Exporters never engage in FDI because
of quota protection.
d. Quotas have no discernible effect on
imports or domestic production.
Answer: a


60. With a quota, as the domestic demand for a
product rises:
a. losses for domestic firms increase.
b. losses for domestic consumers decrease.
c. losses for the domestic government
decrease.
d. losses to society increase.
Answer: d

61. After a quota has been imposed in a market,
suppose that the demand for the product increases, this

6. would cause the quota price to _____ and the amount
imported to _____ .
a. remain the same, remain the same
b. fall, fall
c. rise, rise
d. rise, remain the same
Answer: d

62. Which of the following statements is false?
a. If demand increases in the presence of a
tariff, then imports will increase.
b. If demand increases in the presence of a
quota, then the price will rise.
c. The government always receives the
same revenue with either a
tariff or a quota.
d. If the government auctioned off quotas
they would get the same revenue
they would get if there were a tariff.
Answer: c

63. In moving from free trade to a quota, _____ is
likely to occur.
a. an increase in the volume of trade
b. transshipping from the importing
country to the exporting country
c. a quality upgrading of the traded good
d. an increase in imports
Answer: c

64. Which of the following describes the use of
government policy to enhance exports in specific
industries?
a. VER
b. AVE
c. Strategic trade policy
d. NTB
Answer: c

65. Preferential trade agreements are troublesome in the
sense that they weaken the important principle of
international trade policy known as:
a. TC. b. TD. c. WTO. d.
MFN.
Answer: d

66. Preferential trade agreements inherently
discriminate against countries that do not belong to the
agreement and inflict losses on their exporters. This
phenomenon is know as:
a. Trade deflection.
b. Trade creation.
c. Trade diversion.
d. The gains from trade.
Answer: C

67. Which of the following is an exception to the
most favored nation principle?
a. Trade in petroleum
b. trade with Japan
c. A free-trade area or a customs union
d. Trade in services
Answer: C

68. Regional trade agreements:
a. are the same for all countries.
b. reduce tariffs and trade barriers equally
in all countries.
c. result in the negotiating countries
obtaining a margin of preference over
countries that are not part of the
agreement.
d. favor developed countries.
Answer: C

69. In order for a preferential trade agreement to be
legal under international trade rules:
a. it must reduce trade barriers on all
agricultural products among member countries.
b. it must reduce trade barriers on a
substantial proportion of trade among
the member countries.
c. it must reduce restrictions on the
mobility of labor and capital among member
countries.
d. it must provide a common external tariff
for member countries.
Answer: b

70. GATT/WTO regulations state that in order for a
regional trade agreement to be legal:
a. trade barriers must be reduced on
substantially all trade within the
group.
b. trade barriers must be reduced on only
some of the trade within the group.
c. all countries must come to an agreement
on the number and size of the quotas that will be
in force.
d. all members will be subject to
membership fees.
Answer: a

71. Which of the following is not a level of
economic integration between countries?
a. A free-trade area
b. A customs union
c. A common union
d. An economic union
Answer: C

72. The least integrated category of economic
integration is:
a. a common market.
b. a free-trade area.
c. an economic union.
d. a customs union.
Answer: b

73. A significant feature of a customs union is:
a. that agricultural products are always
excluded.

7. b. that corporate tax rates are always made
common.
c. that the only WTO legal customs union
is the EU.
d. a common external tariff.
Answer: d

74. Which statement is correct?
a. Both customs unions and free-
trade areas have a common external tariff.
b. A free-trade area has a common external
tariff and a custom union does not.
c. Neither free-trade areas nor customs
unions have a common external tariff.
d. A customs union has a common external
tariff but a free-trade area does
not.
Answer: d

75. To solve the problems associated with trade
deflection within an FTA, countries may adopt:
a. a common market.
b. a common external tariff.
c. rules of origin.
d. rules of negotiation.
Answer: C

76. What is the major difference between a customs
union and a free-trade area?
a. Each country replaces its national tariff
schedule with a common external
tariff under a customs union.
b. A customs union usually means a more
shallow level of economic integration.
c. A free-trade area is national in nature
and a customs union is regional.
d. In a customs union, tariffs are
eliminated and in a free-trade area they are not.
Answer: a

77. Which of the following is not one of the features
of a common market?
a. Free mobility of labor
b. Free mobility of capital
c. A common external tariff
d. A common currency
Answer: d


78. Which of the following is not a characteristic of
a common market?
a. Capital and labor can freely move
within member countries.
b. The are no trade restrictions between
member countries.
c. Member countries have a common
external tariff.
d. Member countries have a common
currency.
Answer: d

79. To create an economic union, countries must
complete all of the following except:
a. for the adoption of a common currency.
b. for the harmonizing of specific country
policies to those of other members.
c. providing for the mobility of labor and
capital among member countries.
d. creating only one political party within
the member countries.
Answer: d

80. Rules of origin are necessary for which of the
following reasons?
a. To determine which company produced
the product
b. To determine which country produced
the product
c. To determine which country consumes
the product
d. To determine where the profits of the
firm are taxed
Answer: b

81. When compliance costs associated with the rules
of origin exceed the value associated with the reduction
of the tariff, then rules of origin become:
a. an effective nontariff barrier to trade.
b. an effective tariff imposed on the
foreign firm.
c. a non-effective nontariff barrier to trade.
d. a non-effective tariff imposed on the
foreign firm.
Answer: a

82. Rules of origin are used to counteract:
a. offshore assembly provisions.
b. trade deflection.
c. technical regulations.
d. government procurement regulations.

Answer: b

83. Which of the following is not one of the reasons
rules of origin are necessary?
a. To gather statistical information on
imports
b. To enforce health and safety regulations
c. To enforce higher tariffs on imports
from nonWTO countries
d. To assist in balancing the balance of
payments

Answer: d

84. Traditionally, the U.S. has relied on the _____
transformation test to determine the “nationality” of an
import.
a. import
b. environmental
c. substantial
d. legal

8. Answer: c

85. In recent trade agreements, the U.S. has been
moving toward defining the origin of imports using a
percentage of ______.
a. value added
b. imports
c. exports
d. weight
Answer: a

86. Trade creation refers to:
a. the expansion of trade among member
countries as a result of the
elimination of tariffs.
b. the creation of new products for trade in
countries.
c. the creation of a trade program that
enhances multinational corporations.
d. the creation of government sanctioned
trade with terrorist countries.
Answer: a

87. When products from a high-cost country within
a customs union replace imports from a low-cost country
that is not a member of the union, this is called:
a. trade creation.
b. trade diversion.
c. trade deflection
d. trade development.
Answer: b

88. When preferential trade agreements are formed,
the result is often a reduction of trade with countries that
are not members of the group. Such a result is known
as:
a. reciprocity.
b. trade creation.
c. purchasing power parity.
d. trade diversion.
Answer: d

89. The U.K. joins the EU and imports wheat from
France rather than from Canada and/or the U.S. This is
an example of:
a. trade creation.
b. trade diversion.
c. trade modification.
d. trade deflection.
Answer: b


90. When developed countries extend tariff
preferences to developing countries and imports from
the latter displace imports from the former, a
phenomenon known as _____ is taking place.
a. trade creation
b. trade inflation
c. trade diversion
d. trade deflection
Answer: c

91. A customs union will increase the welfare of its
members and the rest of the world if:
a. trade creation is greater than trade
diversion.
b. trade creation is less than trade
diversion.
c. trade creation is positive.
d. trade diversion is positive.
Answer: a

92. Consider the following statements about NAFTA
1. NAFTA agreement eliminate barriers to trade and
investment between the U.S., Canada and Mexico which
was implemented on January 1, 1994.
2. NAFTA established the CANAMEX Corridor for
road transport between Canada and Mexico.
3. Cuba becomes new member of NAFTA.
Which of the above statements is / are correct?
a. 1,2
b. 2,3
c. 1,3
d. All of the above
Answer: a) 1,2

93. NAFTA is intended to foster trade in/among
A)North America. B)Tribal Africa.
C)Allied Forces. D)The world.
Answer: a)

94. International trade maximizes world welfare as the
gains from trade cause:
a. A more efficient allocation of world
resources.
b. A decrease in price of nontradeable goods.
c. More democracy in foreign countries.
d. A decrease in overall world production.
Answer: a

95. Which of the following is not a benefit of
international trade?
a. a larger selection of products
b. increased production efficiencies
c. more efficient allocation of resources
d. a re-distribution of income from scarce to
abundant factors of production
Answer: d

96. Regulation of business by government is
designed to aid in all of the following areas except:
a. strengthening the operation of the economy.
b. modifying the operation of the economy.
c. enhancing the operation of the economy.
d. concentrating the operation of the economy.
Answer: d

97. In economics the term policy usually means:
a. the action that is taken by each specific
company during its term.
b. the duration of a specific action for which
goods are traded internationally.

9. c. an action or actions taken by the
government.
d. none of the above
Answer: c

98. The theory of public choice is based on the
premise that:
a. politicians attempt to maximize their utility.
b. politicians attempt to maximize the country's
utility.
c. politicians attempt to keep neutral on
unpopular subjects.
d. politicians attempt to minimize their utility.
Answer: a

99. The branch of economics that applies economic
analysis to voting behavior is known as:
a. public finance.
b. negative political science.
c. public choice.
d. economic analysis of DUP.
Answer: c

100. The branch of economics that deals with
governmental decision making is:
a. civics.
b. public finance.
c. public choice.
d. economic/politics.

Answer: c
101. The study of politics within a country
like the U.S. by economists is called:
a. public economy.
b. political economy.
c. political choice.
d. public choice.
Answer: d

102. The activity of a group that seeks to gain
from changes in government policy is known as:
a. public policy.
b. directly productive activities.
c. rentseeking.
d. broad focus tariff policy.
Answer: c

103. The use of resources to convince a
government to restrict trade in a particular product is
called:
a. rent seeking.
b. rent takers.
c. monopolizing the market.
d. monopoly power.
Answer: a

104. The group that would most likely lobby
to influence the international trade policy of a
country is:
a. the industry group that has a comparative
advantage.
b. foreign investors.
c. individual private citizens, as they benefit
from trade through lower product prices.
d. the industry group that has a comparative
disadvantage.
Answer: d

105. The fact that there are very different
tariffs on different products is known as:
a. the structure of protection.
b. public choice.
c. positive choice.
d. rent seeking.
Answer: a

106. Which of the following would mostly
likely not receive protection?
a. Industries with a comparative disadvantage
b. Industries that are regionally concentrated
c. Industries that employ a large number of
workers
d. Industries that have a large number of firms
Answer: d

107. Which of the following increases the
likelihood of protectionism for a particular industry?
a. The industry produces an intermediate
product.
b. The industry consists of many small firms.
c. The industry is not unionized.
d. The industry is geographically dispersed.
Answer: a

108. Which of the following statements is
false?
a. Large industries tend to get more protection
than small ones.
b. Concentrated industries tend to get more
protection than industries that have a large
number of small firms.
c. Intermediate products tend to get less
protection than final products.
d. Industries that are not very concentrated
geographically tend to receive lower levels
of protection than industries that are
regionally concentrated.
Answer: c

109. Which of the following is more likely to
be protected by trade barriers in the U.S.?
a. jump ropes
b. apple juice
c. wheat
d. steel
Answer: d

110. Which of the following industries are
more likely to be protected?
a. industries with few firms
b. industries that produce an intermediate
product

10. c. industries with a comparative disadvantage
d. all of the above
Answer: d

111. The benefits of a very detailed tariff
schedule include:
a. the uniformity of tariffs for all products.
b. an increased public awareness of price
changes caused by changes in tariffs.
c. the ability of government to provide
protection on a specific product.
d. the ability of government to provide a
transparent level of protection for domestic
producers.
Answer: c

112. Which of the following is the only
country in the world with a uniform tariff?
a. Switzerland
b. Mexico
c. Nigeria
d. Chile
Answer: d

113. The Tariff of Abominations:
a. led to the Revolutionary War.
b. led to World War I.
c. led to a large increase in U.S. tariffs in 1828.
d. led to a large increase in U.S. tariffs in 1930.
Answer: c


114. Since World War II, tariffs in general
have:
a. increased.
b. decreased.
c. remained constant.
d. disappeared.
Answer: b

115. The concept whereby all trading parties
that were contracting parties to GATT or new
members of the WTO are treated the same with
respect to tariffs is known as:
a. ITO.
b. CIF.
c. FOB.
d. MFN.
Answer: d

116. Which of the following is not a form of
administered protection?
a. Antidumping duties
b. Countervailing duties
c. Specific duties
d. Escape clause actions
Answer: c

117. Which of the following is not a form of
administered protection?
a. Antidumping duties
b. Countervailing duties
c. The escape clause
d. Offshore assembly
Answer: d

118. Dumping by a firm can be defined as:
a. a firm selling a product at a price below its
cost of production in a foreign market.
b. a firm selling a product in a foreign market
at a price lower than the price charged in its
home market.
c. the discharge of waste products into the
environment.
d. both a and b
Answer: d

119. Which of the following is not a type of
dumping?
a. Sporadic dumping
b. Predatory dumping
c. Complex dumping
d. Persistent dumping
Answer: c

120. Dumping occurs when a firm:
a. sells too much of a good in a foreign
country.
b. sells in a foreign country at prices that are
below true value.
c. sells in its home market at prices that are
below the average price charged by its
competitors.
d. sells in a foreign market at prices that are
below the price charged in the home market.
Answer: d

121. Which of the following does not cause
lasting damage to the domestic industry?
a. Sporadic dumping
b. Persistent dumping
c. Predatory dumping
d. All of the above
Answer: d

122. Which of the following is the term that
refers to a situation where a country exports a good
at a lower price than it sells for domestically?
a. Voluntary export restraint
b. International commodity agreements
c. Dumping
d. Autarky
Answer: c

123. Antidumping duties:
a. are used to offset the effects of imports
being sold at a price lower than
b. that charged in the country of origin.
c. are illegal under U.S. trade law.
d. are administered by the Antitrust Division of
the Justice Department.
Answer: a

11. 124. Countervailing duty cases involve:
a. foreign monopoly pricing.
b. foreign subsidies.
c. foreign tariffs on U.S. exports.
d. foreign VERs.
Answer: b

125. Payment by government to a firm for
each unit of output that it exports is known as a(n)
_____.
a. export subsidy
b. direct tax rebate
c. GATT/WTO
d. local content requirement
Answer: a

126. A countervailing duty is a tariff that is
levied to:
a. counteract the dumping of goods in the
domestic market by foreign firms.
b. counteract a sudden surge of imports that
threaten to harm a domestic industry.
c. counteract subsidies given to foreign firms
by their own governments.
d. counteract the tariff on domestic goods that
are enacted by foreign governments.
Answer: c

127. Countervailing duty cases involve
allegations of:
a. foreign monopoly pricing.
b. foreign barriers to U.S. exports.
c. foreign export subsidies.
d. foreign import subsidies.
Answer: c

128. The application of countervailing duties
against subsidized exports:
a. does not require evidence of international
price discrimination.
b. is handled only by the International Trade
Commission.
c. is handled only by the Department of
Commerce.
d. only applies to developing countries.
Answer: a

129. The escape clause:
a. can be used to restrict the import of fairly
traded goods.
b. only applies to import competition from
allegedly low-wage countries.
c. involves the total prohibition of goods
imported from some countries.
d. is imposed hundreds of times a year on
thousands of different types of imports.
Answer: a

130. In the U.S. raising tariffs on a fairly
traded imported product that causes harm to a
domestic industry is what type of action?
a. Anti-dumping
b. Fair trade
c. Escape clause
d. Countervailing
Answer: c

131. Which of the following companies filed
a famous escape clause case in the early 1980s?
a. General Motors
b. U.S. Steel
c. Harley-Davidson
d. Microsoft
Answer: c

132. When the Allied powers met at a
conference in 1944, what international organizations
were developed?
a. The International Monetary Fund
b. The International Bank for Reconstruction
and Development (World Bank)
c. The World Trade Organization
d. Both a and b
Answer: d

133. GATT was:
a. part of the International Monetary Fund.
b. part of the World Bank.
c. part of the United Nations.
d. the interim committee designed to
implement the International Trade
Organization.
Answer: d

134. From the late 1940s until the creation of
the WTO, the treaty (organization) that was
primarily responsible for conducting multilateral
trade negotiations was the:
a. World Bank.
b. GATT.
c. ITO.
d. United Nations.
Answer: b

135. Which of the following statements is
false?
a. GATT was a replacement for the failure of
the U.S. to participate in the proposed ITO.
b. The ITO was a substitute for GATT.
c. GATT was a treaty and technically was not
an organization.
d. Under GATT the explicit use of quotas to
protect domestic industries was illegal in
most cases.
Answer: b

136. A principle problem associated with
GATT was that:

12. a. it was not really a formal international
organization.
b. the U.S. was not a member.
c. it had no enforcement mechanism.
d. it was part of the World Bank.
Answer: c

137. Most favored nation (MFN) status
means that a country treats another country:
a. better than its other trading partners.
b. the same as its other trading
partners.
c. worse than its other trading partners.
d. any way it chooses since it is the
"most favored nation."
Answer: b

138. When using the most favored nation
principle in international trade, this means that:
a. we prefer a foreign country's production to
domestic production.
b. the lowest MFN negotiated tariff rate would
apply to all WTO members countries.
c. the lowest negotiated tariff rate would apply
to some countries.
d. the countries have come close to a free trade
agreement.
Answer: b

139. The most favored nation principle of the
WTO means that a tariff concession granted by one
member country to another member country will:
a. be extended to all other countries without
exception.
b. be extended to all other countries that are
WTO members.
c. be extended to all WTO member countries
that make a similar concession.
d. be extended to those WTO member
countries that the country making the
concession designates.
Answer: b

140. Which of the following is an exception
to the most favored nation principle?
a. Trade in petroleum
b. Trade with Japan
c. A free-trade area or a customs union
d. Trade in services
Answer: c

141. Which of the following was not a
multilateral trade negotiation conducted under
GATT?
a. The Tokyo Round
b. The Kennedy Round
c. The Uruguay Round
d. The NAFTA Round
Answer: d

142. Which of the following was not an
MTN?
a. The Seattle Round
b. The Kennedy Round
c. The Tokyo Round
d. The Uruguay Round
Answer: a

143. The international organization that
serves as a forum for trade discussions and the
development of trade rules is called the:
a. WTO.
b. World Bank.
c. United Nations.
d. International Trade Commission.
Answer: a

144. The current round of multilateral trade
negotiations is known as:
a. the Bush Round.
b. the Uruguay Round.
c. the Doha Round.
d. the Tokyo Round.
Answer: c

145. The WTO was established in which
round of trade negotiations?
a. The Kennedy Round
b. The Uruguay Round
c. The NAFTA Round
d. The Tokyo Round
Answer: b

146. The General Agreement of Trade in
Services is:
a. an agreement among countries on the
services that the WTO will offer.
b. a general agreement among countries that
services will be regulated independently
within each country.
c. an agreement among countries that trade in
services should be regulated by agreed upon
rules.
d. a general agreement among countries that
eliminates the Multi-Fibre Agreement.
Answer: c

147. Both the WTO and GATT have worked
to:
a. reduce the indebtedness of developing
countries.
b. reduce large fluctuations in exchange rates.
c. reduce trade barriers among countries on a
bilateral basis.
d. reduce trade barriers among countries on a
multilateral basis.
Answer: d

148. Which organization has procedures for
settling international trade disputes?
a. The World Bank

13. b. The International Monetary Fund
c. The World Court of Appeals
d. The World Trade Organization
Answer: d

149. Which of the following countries is not
currently a member of the WTO?
a. France
b. Canada
c. Germany
d. Iraq
Answer: d

150. Why do domestic firms and foreign
countries find it difficult to interact with U.S. trade
policy?
a. Congress has to approve everything so it is a
slow process.
b. The President has to decide what U.S. trade
policy will be.
c. No one agency or person is responsible for
U.S. trade policy.
d. The USTR conducts U.S. trade policy
through constant and slow negotiations.
Answer: c

151. Trade in services is less ‘visible’ than trade in
merchandise because:
a. the value of services is more difficult to
measure.
b. services lower valuation makes them less
important and thus less visible.
c. the study of services is older and needs to be
studied less.
d. services are such a small percentage of
GDP.
Answer: a

152. Foreign Direct Investment (FDI):
a. is the same as a movement of portfolio
capital.
b. usually does not involve the participation of
MNCs.
c. usually involves a MNC investing in plant
and equipment in a foreign country.
d. is illegal in high-income countries.
Answer: c


153. Which of the following terms refers to the
increasing importance of international trade and
investment either for a country or the world
economy?
a. Comparative advantage
b. FDI
c. Globalization
d. Commercial policy
Answer: c
154. Which of the following is not one of the
international economic institutions that were created at
the end of World War II?
a. International Monetary Fund
b. International Bank for Reconstruction and
Development
c. General Agreement on Tariffs and Trade
d. World Trade Organization
Answer: d
155. During the half century since the end of World War
II,
a. The major currencies of the world, which
initially had flexible exchange rates,
have become fixed.
b. The World Bank has switched from providing
assistance to poor countries to
primarily settling transactions among rich
countries.
c. The GATT has been transformed into the
WTO.
d. The IMF has changed from being a members-
only bank to being a mutual fund
for investment in emerging-economy stock
markets.
Answer: c
156. Which of the following was the name of one of the
GATT negotiating rounds?
a. NAFTA
b. Wilbur
c. Nixon
d. Uruguay
Answer: d
157. Which of the following is not an example of an
international public good?
a. Open markets in a recession
b. Capital flows to less-developed countries
c. Money for settlement of international debts
d. Exploration for new oil deposits
Answer: d
158. Near the end of World War II, the architecture of
the postwar economic environment
was constructed at a conference of the major Western
powers held at?
a. Geneva, Switzerland
b. Bretton Woods, New Hampshire
c. New York City
d. Versailles, France
Answer: b
159. How many countries are member of the G-20?
a. 7
b. 8
c. 19
d. 20
Answer: c