4.1.3 Pattern of trade Quiz: Pearson Edexcel Economics A, Unit 4

The 20 questions

1. Which factor influences the pattern of trade between countries because it reflects differences in relative production costs?

   • The number of stamps used on export documents, since it changes the cost of paperwork between countries
   • Comparative advantage, since countries export goods they can produce at a lower opportunity cost
   • The height of government buildings, since it reflects the size of the public sector in each country
   • The colour of the national flag, since it signals the cultural preferences of trading partners

2. Rapid growth in emerging economies such as China and India has changed world trade. Which change is most consistent with this?

   • A rise in the share of world trade accounted for by only one country, which dominates all sectors
   • A permanent end to trade between developed and emerging economies because of rising barriers
   • Their rising share of world manufactured exports and their growing demand for commodities and raw materials
   • A fall in world demand for manufactured goods because emerging economies have stopped producing them

3. Which best describes the effect of a growing number of bilateral trade agreements on the pattern of trade?

   • All trade flows become identical between every pair of countries, so no pattern of trade remains
   • Trade between the partner countries stops, since preferential agreements prevent trade between their members
   • Trade flows tend to shift towards partner countries, which can create new trade or divert trade from others
   • Trade falls for every country because bilateral agreements always restrict imports from non-member countries

4. A country's currency appreciates. Which change in trade flows is most likely, other things equal?

   • Its exports rise sharply because domestic firms gain a cost advantage in every foreign market at once
   • Its exports become cheaper for foreign buyers, so export volumes rise while imports become more expensive
   • Its exports become more expensive for foreign buyers, so export volumes tend to fall while imports become cheaper
   • Its exports and imports both fall by the same proportion, leaving the trade balance completely unchanged

5. A country's currency depreciates by 10 per cent. Which is the most likely short-run effect on its export volumes?

   • They tend to rise, as exports become cheaper for foreign buyers, provided demand for exports is price elastic
   • They are unchanged, because exchange rates have no effect on the price of exported goods in any market
   • They fall by exactly 10 per cent, because export volumes always move in line with the exchange rate
   • They fall, because a depreciation always makes exports more expensive for foreign buyers in every market

6. Which best defines trade diversion?

   • Trade shifts from a lower-cost non-member supplier to a higher-cost member supplier because of a preferential agreement
   • Trade between two countries ends completely because a regional agreement requires total self-sufficiency
   • Trade expands between members because a regional agreement lowers tariffs on goods from all countries
   • Trade shifts from a higher-cost member supplier to a lower-cost non-member supplier as tariffs are removed

7. Which best describes trade creation following a regional trade agreement?

   • Members replace higher-cost domestic production with lower-cost imports from a partner country
   • Trade falls because members agree to exclude all imports from partners to protect their domestic industries
   • Members stop importing any goods from partners and rely instead on higher-cost domestic production
   • Non-members gain trade because the agreement reduces tariffs on goods from every country in the world

8. A bilateral agreement removes a 10 per cent tariff on imports from Country P, which is a low-cost supplier. Which pattern is most likely?

   • Imports from all countries rise by exactly 10 per cent, because the tariff applies equally to every supplier
   • Imports from Country P rise as its prices fall relative to other suppliers, shifting the pattern of trade towards P
   • Imports from Country P fall, because removing tariffs always makes foreign goods less competitive in the market
   • Imports from every country stop, since bilateral agreements prohibit imports from any country that is not a member

9. Growth of trading blocs does not necessarily raise global welfare. Which mechanism best explains this?

   • Trading blocs always reduce trade among members, which lowers the total output available to every consumer
   • Blocs raise the average cost of production in every member, because they eliminate all economies of scale
   • Blocs cause all countries to adopt identical tariffs, which removes any price difference between suppliers
   • Trade diversion can shift demand to higher-cost members, lowering efficiency even when members' trade rises

10. Why has the composition of a developed country's imports shifted towards manufactured goods from emerging economies?

    • A decision by developed countries to stop producing any manufactured goods, which leaves imports as the only source
    • A rise in the tariffs imposed by developed countries on all manufactured goods from every other country
    • Lower relative production costs in emerging economies, combined with their growing comparative advantage in those goods
    • A fall in the number of ships available for transporting manufactured goods across the world's oceans

11. Rising labour costs in China have changed global trade. Which is the most accurate description of the likely effect over time?

    • Global trade in manufactured goods is unaffected, because relative labour costs have no influence on trade patterns
    • Labour-intensive production may shift from China to lower-cost economies, changing the pattern of global trade flows
    • China's exports fall to zero, since higher wages make every Chinese good uncompetitive in world markets
    • Labour-intensive production always rises in China because wages make Chinese firms more competitive than before

12. A country's share of world car exports falls while its share of world services exports rises. Which best explains this?

    • A fall in the country's exchange rate, which by itself always raises its share of every type of exports
    • An increase in world demand for cars only, which leaves the share of services exports unaffected in any case
    • A decision to ban all exports of cars and to give tax incentives to all service providers in the country
    • A change in comparative advantage and relative production costs, moving the country's specialisation towards services

13. Which factor is most likely to change relative export prices and so alter trade flows between two countries?

    • The number of school students who learn a second language in each of the two countries
    • The colour of the packaging used for goods, which determines whether buyers recognise the product
    • Changes in relative exchange rates between their currencies
    • The average height of workers in the two countries, which affects their productivity directly

14. Why is growth of trade between countries in the same region often faster than trade with distant partners?

    • Distant countries are unable to make any goods that can be exported, so trade with them is always zero
    • Regional trade is measured in a different currency, which means it is always recorded separately from world trade
    • Lower transport costs and preferential tariff reductions under regional agreements make nearby partners cheaper
    • Countries in the same region are required by law to trade only with their immediate neighbours in all sectors

15. Which is the best explanation of why a shift in relative demand can change the pattern of trade even without a change in costs?

    • Changes in relative demand for goods alter their relative prices, so countries expand exports in the goods now in greater demand
    • Demand changes have no effect on trade, because only production costs and tariffs determine what countries export
    • Demand shifts always cause governments to impose tariffs, which then block all trade in the affected goods
    • Relative demand only affects domestic prices, so it can never influence the goods countries buy from abroad

16. What do 'trade flows' refer to?

    • The volume and value of goods and services moving between countries over a period
    • The rate at which a currency's value changes against other currencies in the foreign exchange market
    • The total number of ships registered in a country's merchant fleet and their cargo capacity each year
    • The total amount of money held in the central bank's reserves at the start of each financial year

17. Which is the best evidence that the pattern of world trade has changed in recent decades?

    • The number of countries that export manufactured goods has fallen to only a handful of nations today
    • The share of world manufactured exports from emerging economies has risen substantially over the period
    • The volume of world trade has fallen every year since the year 1980 without any interruption at all
    • The share of world exports from high-income countries has remained exactly the same in every decade

18. Which change would most likely cause a country that used to export a good to begin importing it instead?

    • A reduction in tariffs on exports imposed by partner countries, which makes foreign goods cheaper for the country
    • A sustained depreciation of its currency that makes its exports cheaper and its imports more expensive at home
    • A fall in domestic interest rates that raises the return on domestic savings and so encourages more exporting
    • A sustained appreciation of its currency that makes its exports dearer abroad and imports cheaper at home

19. A country's currency depreciates. What is the most likely effect on the domestic-currency price of its imports?

    • They fall, because a weaker currency always makes every foreign good cheaper in domestic currency terms
    • They fall by exactly the same percentage as the depreciation, since imports and the currency move together
    • They are unchanged, because import prices are set only by the foreign exporter and never by exchange rates
    • They rise, which can shift domestic demand towards cheaper home-produced substitutes

20. Which best describes trade creation following the formation of a customs union?

    • Trade is unchanged, because a customs union has no effect on the choice of supplier for any member at all
    • A member stops producing a good entirely and buys it from a non-member, which lowers the efficiency of trade
    • Trade between members falls because the common external tariff makes all goods traded within the union dearer
    • A member replaces its own costly domestic production of a good with cheaper imports from a partner member

Related quizzes

• Globalisation Quiz · 4.1.1 · 20 questions
• Specialisation and trade Quiz · 4.1.2 · 20 questions
• Terms of trade Quiz · 4.1.4 · 20 questions
• Trading blocs and the World Trade Organisation Quiz · 4.1.5 · 20 questions
• Restrictions on free trade Quiz · 4.1.6 · 20 questions
• Balance of payments Quiz · 4.1.7 · 20 questions
• Exchange rates Quiz · 4.1.8 · 20 questions
• International competitiveness Quiz · 4.1.9 · 20 questions
• Absolute and relative poverty Quiz · 4.2.1 · 20 questions
• Inequality Quiz · 4.2.2 · 20 questions