International Business Environment Practice Exam - IB - Groningen


Multiple Choice Questions

Question 1

Which of the following is true for a linear production possibility curve?

  1. A linear production possibility curve is drawn as a positively sloped straight line.
  2. Along a linear production possibilities curve, the opportunity cost of producing more of a good is constant.
  3. When a country engages in free trade, the linear production-possibility curve shifts to the right.
  4. A country with a linear production-possibility curve partially specializes in the production of goods when it engages in free trade with other nations.

Question 2

The figure below shows the export supply (XS) and import demand (MD) curve for rice. P indicates price and Q indicates quantity. Which of the following statements is true at a price of P1?

  1. Area B indicates the net gain from trade in the exporting country.
  2. Area A indicates the net gain from trade in the exporting country.
  3. Area A indicates the consumer surplus in the importing country.
  4. Area B indicates the producer surplus in the exporting country.

Scenario 1
A small country imports computer chips. With free trade at a world price of 400 dollars, domestic production is 1 million chips and domestic consumption is 4.2 million chips. The country’s government now decides to impose a quota to limit computer chip imports to 2 million per year. With the import quota in place, the domestic price rises to $480 per chip and domestic production rises to 1.5 million chips per year.

Question 3

Refer to Scenario 1. If the government auctions the import licenses competitively, the national well-being will _____ by _____.

  1. increase; $100 million
  2. decrease; $48 million
  3. increase; $160 million
  4. decrease; $208 million

Question 4

One of the reasons that protectionists and government officials may favor using a quota instead of a tariff is:

  1. quotas generate more revenue for the government than tariffs.
  2. quotas limit imports indirectly via higher prices.
  3. quotas create less market distortions than tariffs.
  4. quotas give more power to politicians than tariffs.

The figure given

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