Below is a sample set of revision test questions—with detailed answer rationales—that cover core
topics from Solutions for International Economics: Theory and Policy (12th Edition) by Krugman et al.
These questions are designed to help reinforce key concepts from the text. You can use them as
practice or as a framework to build additional questions tailored to your study needs.
Revision Test 1: Trade Theories & Comparative Advantage
Question 1.
Which of the following best describes the principle of comparative advantage?
A. A country should produce goods in which it has an absolute productivity advantage.
B. A country should produce goods for which it has the lowest opportunity cost, even if it is less efficient
overall.
C. A country should produce all goods domestically to avoid dependency.
D. A country should focus on goods with the highest profit margins only.
Correct Answer: B
Rationale:
The principle of comparative advantage holds that even if one country is less efficient at producing all
goods (i.e. has an absolute disadvantage), it can still benefit from trade by specializing in the goods it
produces at the lowest relative opportunity cost. This key idea explains the gains from trade and
specialization.
Question 2.
According to the Ricardian model, the gains from trade stem primarily from:
A. Differences in natural resources.
B. Technological differences between countries.
C. Economies of scale.
D. Tariff impositions.
Correct Answer: B
Rationale:
The Ricardian model emphasizes technological differences (or productivity differences) as the primary
driver for comparative advantage and gains from trade. Even if one country is less efficient at producing
all goods, trade allows both countries to benefit by specializing according to their relative efficiencies.
Question 3.
In the Heckscher-Ohlin framework, a country will export:
A. Goods that intensively use its abundant factors of production.
B. Goods that intensively use its scarce factors of production.
C. Goods with high tariff barriers.
D. Goods that are labor-intensive regardless of factor endowment.
, Correct Answer: A
Rationale:
The Heckscher-Ohlin model posits that countries export goods that intensively use the factors they have
in abundance. For instance, a labor-rich country will tend to export labor-intensive goods, as this
leverages its relative abundance in labor.
Question 4.
Which of the following is NOT typically considered a benefit of free trade?
A. Increased consumer choice.
B. Lower prices due to competition.
C. Protection of domestic jobs in all sectors.
D. Enhanced economic efficiency through specialization.
Correct Answer: C
Rationale:
While free trade brings many benefits (such as increased consumer choice, lower prices, and enhanced
efficiency), protecting domestic jobs in all sectors is not generally one of them. In fact, free trade can
lead to job reallocation as industries adjust to international competition, though overall welfare may
improve.
Question 5.
Trade policies such as tariffs can lead to which of the following outcomes?
A. Perfectly efficient allocation of resources.
B. Deadweight loss due to reduced consumer and producer surplus.
C. No impact on domestic markets if applied uniformly.
D. An increase in global production efficiency.
Correct Answer: B
Rationale:
Tariffs raise the domestic price of imported goods, which can reduce consumer surplus and distort
market signals. This inefficiency leads to a deadweight loss—a loss of economic welfare that neither
accrues to producers nor consumers.
Revision Test 2: Policy, Exchange Rates, and Economic Integration
Question 6.
An appreciation of a country’s currency will generally make its exports:
A. More competitive on the world market.
B. Less competitive on the world market.
C. Unaffected in terms of competitiveness.
D. Cheaper for domestic consumers.
topics from Solutions for International Economics: Theory and Policy (12th Edition) by Krugman et al.
These questions are designed to help reinforce key concepts from the text. You can use them as
practice or as a framework to build additional questions tailored to your study needs.
Revision Test 1: Trade Theories & Comparative Advantage
Question 1.
Which of the following best describes the principle of comparative advantage?
A. A country should produce goods in which it has an absolute productivity advantage.
B. A country should produce goods for which it has the lowest opportunity cost, even if it is less efficient
overall.
C. A country should produce all goods domestically to avoid dependency.
D. A country should focus on goods with the highest profit margins only.
Correct Answer: B
Rationale:
The principle of comparative advantage holds that even if one country is less efficient at producing all
goods (i.e. has an absolute disadvantage), it can still benefit from trade by specializing in the goods it
produces at the lowest relative opportunity cost. This key idea explains the gains from trade and
specialization.
Question 2.
According to the Ricardian model, the gains from trade stem primarily from:
A. Differences in natural resources.
B. Technological differences between countries.
C. Economies of scale.
D. Tariff impositions.
Correct Answer: B
Rationale:
The Ricardian model emphasizes technological differences (or productivity differences) as the primary
driver for comparative advantage and gains from trade. Even if one country is less efficient at producing
all goods, trade allows both countries to benefit by specializing according to their relative efficiencies.
Question 3.
In the Heckscher-Ohlin framework, a country will export:
A. Goods that intensively use its abundant factors of production.
B. Goods that intensively use its scarce factors of production.
C. Goods with high tariff barriers.
D. Goods that are labor-intensive regardless of factor endowment.
, Correct Answer: A
Rationale:
The Heckscher-Ohlin model posits that countries export goods that intensively use the factors they have
in abundance. For instance, a labor-rich country will tend to export labor-intensive goods, as this
leverages its relative abundance in labor.
Question 4.
Which of the following is NOT typically considered a benefit of free trade?
A. Increased consumer choice.
B. Lower prices due to competition.
C. Protection of domestic jobs in all sectors.
D. Enhanced economic efficiency through specialization.
Correct Answer: C
Rationale:
While free trade brings many benefits (such as increased consumer choice, lower prices, and enhanced
efficiency), protecting domestic jobs in all sectors is not generally one of them. In fact, free trade can
lead to job reallocation as industries adjust to international competition, though overall welfare may
improve.
Question 5.
Trade policies such as tariffs can lead to which of the following outcomes?
A. Perfectly efficient allocation of resources.
B. Deadweight loss due to reduced consumer and producer surplus.
C. No impact on domestic markets if applied uniformly.
D. An increase in global production efficiency.
Correct Answer: B
Rationale:
Tariffs raise the domestic price of imported goods, which can reduce consumer surplus and distort
market signals. This inefficiency leads to a deadweight loss—a loss of economic welfare that neither
accrues to producers nor consumers.
Revision Test 2: Policy, Exchange Rates, and Economic Integration
Question 6.
An appreciation of a country’s currency will generally make its exports:
A. More competitive on the world market.
B. Less competitive on the world market.
C. Unaffected in terms of competitiveness.
D. Cheaper for domestic consumers.
