Question 1
A newspaper headline stated ‘Free trade helps the world’s poorest’. Why might this be correct?
- Employment will be focused in hi-tech industries.
- Environmental disasters will be avoided.
- Free trade reduces competitiveness for domestic firms.
- The cost of living is likely to go down with free trade.
Answer:D
Explanation
The term FREE TRADE(also called laissez-faire) simply means a policy taken by a government under which it does not discriminate against imports or interfere with exports.
A government can discriminate import by manipulating TARIFF charges
A government can interfere with exports by using tools like SUBSIDY
A free-trade policy does not necessarily imply, however, that a country abandons all control and taxation of imports and exports.
Free trade increases prosperity for World poorest countries because it allows consumers to buy more, better-quality products at lower costs.
Read more:
https://www.worldbank.org/en/topic/trade/publication/the-role-of-trade-in-ending-poverty
What would reduce the volume of international trade in the world economy?
- a German bank making a loan to a Nigerian company
- a Japanese car manufacturer establishing a factory in the Czech Republic
- the Canadian government introducing quotas on Malaysian electronics products
- the Swedish government granting aid to Somalia
Answer:C
Explanation
A quota is a government-imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period.
Quota can be:
.Import Quota
.Export Quota
The Canadian government import quota on Malaysian electronics would reduce the volume of trade in iinternational economy.
Generally speaking, such quotas are put in place to protect domestic industries and vulnerable producers. Quotas prevent a country’s domestic market from becoming flooded with foreign goods, which are often cheaper due to lower production costs overseas.
A government imposes a limit of 2 million on the number of smartphones imported into the country. Which term is given to this limitation?
Answer:C
Explanation
Countries use quotas in international trade to help regulate the volume of trade between them and other countries. Countries sometimes impose quotas on specific products to reduce imports and increase domestic production.
What is most likely to happen if South Korea builds a factory in Switzerland that becomes profitable?
- South Korea’s investment income will increase.
- Switzerland’s trade balance in goods will worsen.
- Switzerland’s trade balance in services will improve.
- South Korea’s imports of goods will decrease.
Answer:A
Question 5
The table shows the tariffs imposed on imported tropical fruit in the European Union (EU) according to the degree of processing.
| Goods | EU tariffs
(% rate) |
| Fresh tropical fruit | 8.0 |
| canned tropical fruit | 11.3 |
| bottled tropical fruit drinks | 23.6 |
What might be the reason for this pattern of tariffs?
- to encourage imports of processed products into the EU
- to encourage tropical countries’ exports
- to help manufacturing industries in the EU
- to help tropical countries develop manufacturing industries
Answer:C
Explanation
Canned and bottled tropical fruits are products from the manufactuing sector of EU economy The tariffs imposed is relatively high to the one imposed on fresh tropical fruits. The idea is to discourage importation.
What is a benefit of tariffs?
- increased choice
- increased government revenue
- more competition
- more trade
Answer:B
Question 7
A government subsidises the production of pineapples. This is likely to?
- increase the price of pineapples.
- raise the costs of supplying pineapples.
- raise revenue for the government.
- cause the supply of pineapples to increase at every price.
Answer:D
Explanation
A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy.
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