Page 1 of 98
Global Economics for Managers |
Complete Study Guide Questions &
Answers | OA Exam Prep | 2026 Update
Q1
Which theory of international trade states that a country
should export goods that use its abundant factors of
production intensively and import goods that use its scarce
factors?
A) Absolute advantage
B) Heckscher-Ohlin (factor proportions) theory
C) Comparative advantage
D) Product life cycle theory
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Rationale: Heckscher-Ohlin theory predicts trade patterns based
on factor endowments (land, labor, capital). A capital-abundant
country exports capital-intensive goods.
Answer: B
Q2
According to David Ricardo’s theory of comparative
advantage, trade between two countries is beneficial if:
A) One country has an absolute advantage in all goods
B) Each country has a lower opportunity cost in producing at
least one good
C) Both countries have identical production costs
D) One country imposes tariffs on the other
Rationale: Comparative advantage is based on opportunity cost
differences; even if one country is more efficient in everything,
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both can gain by specializing where they are relatively more
efficient.
Answer: B
Q3
Which of the following is a limitation of the Heckscher-Ohlin
model when applied to real-world trade?
A) It assumes no transportation costs (true, but that’s one of
several)
B) It does not account for technology differences or economies
of scale
C) It predicts that trade benefits all factors equally (the
Stolper-Samuelson theorem shows the opposite) – but the
question asks for a limitation. Best: It assumes perfect competition
and identical technologies.
D) It was developed after WWII
, Page 4 of 98
Rationale: HO model assumes identical technology across
countries; in reality, technology differences are a major driver of
trade (as in newer trade theories).
Answer: B
Q4
The “new trade theory” (Krugman) emphasizes:
A) Factor endowments
B) Economies of scale and network effects as drivers of trade
C) Labor productivity differences
D) Government intervention only
Rationale: New trade theory explains intra-industry trade and
the role of first-mover advantages and increasing returns.
Answer: B
Global Economics for Managers |
Complete Study Guide Questions &
Answers | OA Exam Prep | 2026 Update
Q1
Which theory of international trade states that a country
should export goods that use its abundant factors of
production intensively and import goods that use its scarce
factors?
A) Absolute advantage
B) Heckscher-Ohlin (factor proportions) theory
C) Comparative advantage
D) Product life cycle theory
,Page 2 of 98
Rationale: Heckscher-Ohlin theory predicts trade patterns based
on factor endowments (land, labor, capital). A capital-abundant
country exports capital-intensive goods.
Answer: B
Q2
According to David Ricardo’s theory of comparative
advantage, trade between two countries is beneficial if:
A) One country has an absolute advantage in all goods
B) Each country has a lower opportunity cost in producing at
least one good
C) Both countries have identical production costs
D) One country imposes tariffs on the other
Rationale: Comparative advantage is based on opportunity cost
differences; even if one country is more efficient in everything,
,Page 3 of 98
both can gain by specializing where they are relatively more
efficient.
Answer: B
Q3
Which of the following is a limitation of the Heckscher-Ohlin
model when applied to real-world trade?
A) It assumes no transportation costs (true, but that’s one of
several)
B) It does not account for technology differences or economies
of scale
C) It predicts that trade benefits all factors equally (the
Stolper-Samuelson theorem shows the opposite) – but the
question asks for a limitation. Best: It assumes perfect competition
and identical technologies.
D) It was developed after WWII
, Page 4 of 98
Rationale: HO model assumes identical technology across
countries; in reality, technology differences are a major driver of
trade (as in newer trade theories).
Answer: B
Q4
The “new trade theory” (Krugman) emphasizes:
A) Factor endowments
B) Economies of scale and network effects as drivers of trade
C) Labor productivity differences
D) Government intervention only
Rationale: New trade theory explains intra-industry trade and
the role of first-mover advantages and increasing returns.
Answer: B
