Test: International Trade - JAMB MCQ

The basis for international trade is comparative advantage. According to this theory, countries should specialize in producing goods or services in which they have a lower opportunity cost compared to other countries. This allows for more efficient resource allocation and mutually beneficial trade between nations.

Absolute advantage refers to the ability of a country to produce more of a good or service using the same amount of resources. Comparative advantage, on the other hand, refers to the ability of a country to produce a good or service at a lower opportunity cost compared to other countries. Therefore, option a) is the correct explanation.

Corrective measures for balance of payments problems include import restrictions, which aim to reduce imports and promote domestic production, and export promotion, which focuses on increasing exports. Additionally, monetary policy adjustments, such as exchange rate management, can also be used to correct imbalances in the balance of payments. Therefore, option d) is the correct answer.

Problems associated with balance of payments include trade deficits (where imports exceed exports), trade surpluses (where exports exceed imports), and fluctuations in exchange rates. These imbalances can have various economic implications and require corrective measures to restore stability. Therefore, option d) is the correct answer.

The composition and direction of a country's foreign trade are influenced by multiple factors, including government policies, exchange rates, and comparative advantages in specific industries or sectors. Government policies can affect trade through regulations, tariffs, and subsidies, while exchange rates impact the competitiveness of exports and imports. Comparative advantages determine the specialization and focus of a country's trade activities. 

The types of exchange rates include fixed exchange rate, where the value of a currency is fixed against another currency or a basket of currencies, and floating exchange rate, where the value of a currency is determined by market forces of supply and demand. 

In a managed exchange rate system, exchange rates are determined through central bank interventions. The central bank actively buys or sells its currency to influence its value in relation to other currencies. This intervention aims to maintain stability and avoid excessive fluctuations in the exchange rate.

The objective of examining the composition and direction of a country's foreign trade is to analyze the goods and services a country imports and exports. This analysis helps understand the structure of trade and identify patterns, trends, and areas for improvement. 

Import restrictions, such as tariffs or quotas, aim to reduce imports and protect domestic industries. By limiting imports, import restrictions can decrease the balance of trade by reducing the trade deficit.

Changes in exchange rates have a significant impact on international trade. When a country's currency appreciates, its exports become more expensive and imports become cheaper, potentially leading to a decrease in exports and an increase in imports. Conversely, when a country's currency depreciates, its exports become cheaper and imports become more expensive, potentially boosting exports and reducing imports.