Economic Principles and Trade Theories Quiz

Perfect competition involves numerous buyers and sellers, none of whom can influence market price.

Adam Smith introduced the concept of absolute advantage, suggesting that countries should produce what they're best at.

Monopolistic competition involves firms having some control over price due to product differentiation.

Eli Heckscher and Bertil Ohlin developed the factor proportions theory to explain patterns of international trade based on factor endowments.

In a command economy, the government centrally plans and controls economic activities.

Adam Smith introduced the concept of the invisible hand, suggesting that individuals pursuing self-interest indirectly benefit society.

The law of comparative advantage asserts that countries should specialize in producing goods where they have a comparative advantage.

The comparative advantage theory posits that countries benefit by specializing in goods they produce most efficiently.

The Linder hypothesis suggests that countries with similar income levels tend to have similar preferences, leading to increased trade.

New Trade Theory highlights how economies of scale and transportation costs influence trade patterns and the advantages of early market entry.

Dumping involves selling goods in foreign markets at prices lower than production costs, often to gain market share or drive out competitors.

In the Ricardian model, differences in labor productivity across countries determine comparative advantage.

All trading partners benefit from international trade under the theory of comparative advantage by accessing goods at lower opportunity costs.

Critics argue that protecting infant industries can lead to inefficiencies, rent-seeking behavior, and long-term dependence.

A TRQ imposes a lower tariff rate on a specified quantity of imports and a higher tariff rate on quantities exceeding that limit.

Underutilization of resources occurs when a country with a comparative advantage in a good chooses not to produce it, leading to inefficiency.

A balance of trade deficit occurs when a country's imports surpass its exports, leading to negative trade balance.