CA Foundation Paper 4

Key Economic Concepts MCQ

Chapter 9 • 50 Questions from ICAI Study Material

Questions

50

Est. Time

38 min

Exam Weight

10-12%

Source

ICAI Book

Sample Questions: Key Economic Concepts

Preview 8 of 50 MCQs from Chapter 9

1. Which of the following does not represent a difference between internal trade and international trade?

A) transactions in multiple currencies
B) homogeneity of customers and currencies ✓
C) differences in legal systems
D) none of the above

2. The theory of absolute advantage states that

A) national wealth and power are best served by increasing exports and decreasing imports
B) nations can increase their economic well-being by specializing in the production of goods they produce more efficiently than anyone else. ✓
C) that the value or price of a commodity depends exclusively on the amount of labour going into its production and therefore factor prices will be the same
D) differences in absolute advantage explains differences in factor endowments in different countries

3. Which of the following theories advocates that countries should produce those goods for which it has the greatest relative advantage?

A) Modern theory of international trade
B) The factor endowment theory
C) The Heckscher-Ohlin Theory
D) None of the above ✓

4. Which of the following holds that a country can increase its wealth by encouraging exports and discouraging imports

A) Capitalism
B) Socialism
C) Mercantilism ✓
D) Laissez faire

5. According to the theory of comparative advantage

A) trade is a zero-sum game so that the net change in wealth or benefits among the participants is zero.
B) trade is not a zero-sum game so that the net change in wealth or benefits among the participants is positive ✓
C) nothing definite can be said about the gains from trade
D) gains from trade depends upon factor endowment and utilization

6. Mats 2 1

A) Bangladesh has a comparative advantage in mats
B) India has a comparative advantage in tables
C) Bangladesh has an absolute advantage in mats
D) All the above are true ✓

7. Comparative advantage refers to

A) a country’s ability to produce some good or service at the lowest possible cost compared to other countries
B) a country’s ability to produce some good or service at a lower opportunity cost than other countries. ✓
C) Choosing a productive method which uses minimum of the abundant factor
D) (a) and (b) above

8. Ricardo explained the law of comparative advantage on the basis of

A) opportunity costs
B) the law of diminishing returns
C) economies of scale
D) the labour theory of value ✓