KSLU Solved Question Papers
International Trade Economics
Previous Year Question Paper with Solution
B.B.A. LL.B. (Five Years) · Sem 10
2025 Jun Examination
munotes.in
Mumbai
B.B.A. LL.B. (Five Years) Sem 10 International Trade Economics 2025 Jun Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Contents
The questions below are the paper as Karnataka State Law University set it at the 2025 Jun examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2025 Jun examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 80 · 20 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1
Unit I
(a)Explain the significance of absolute advantage trade theory in International trade.[10]
Answer
For full marks, cover: the background (mercantilism); Adam Smith's theory of absolute advantage (The Wealth of Nations, 1776); its assumptions; a numerical illustration; the gains from trade it shows; its significance for international trade and trade law; its limits, and how Ricardo's comparative advantage answered them; its relevance today.
Background: the mercantilist view
In the seventeenth and eighteenth centuries, most European states followed mercantilism. They believed that a nation grows rich by gathering gold and silver. Exports were good because they brought in gold. Imports were bad because they sent it out. So governments taxed imports, paid bounties on exports and treated trade as a contest in which one country's gain was another's loss.
Adam Smith's theory
Adam Smith, in An Inquiry into the Nature and Causes of the Wealth of Nations (1776), rejected this view. He argued that the wealth of a nation lies in the goods and services its people can enjoy, not in its stock of gold.
His central idea was the division of labour. A worker who specialises becomes more skilful and productive. Smith carried this idea to nations. A country has an absolute advantage in a good when it can produce it with less labour (at a lower real cost) than another country. Each country should specialise in the goods in which it has an absolute advantage, export them, and import the rest. Both countries then gain.
Smith put it in a homely way. A wise head of a family never tries to make at home what it would cost him more to make than to buy. What is prudence in a family, he said, can hardly be folly in a great kingdom.
Assumptions
- Two countries and two goods.
- Labour is the only factor of production, and its cost measures value (the labour theory of value).
- Labour moves freely inside a country but not between countries.
- Costs stay constant as output grows.
- No transport costs and no trade barriers.
- Full employment and perfect competition.
A numerical illustration
Suppose one day's labour produces the following:
| Country | Cloth (metres) | Wheat (kilograms) |
|---|---|---|
| India | 10 | 5 |
| England | 5 | 10 |
India has an absolute advantage in cloth. One day of Indian labour makes twice as much cloth as a day of English labour. In the same way, England has an absolute advantage in wheat.
Without trade, each country spends one day on each good. Together they make 15 metres of cloth and 15 kilograms of wheat.
With specialisation, India spends both days on cloth (20 metres) and England both days on wheat (20 kilograms). World output rises to 20 metres and 20 kilograms. By exchanging, say, 10 metres of cloth for 10 kilograms of wheat, each country ends up with more of both goods than before. That extra output is the gain from trade.
Significance in international trade
1. Trade benefits both sides. Smith showed that trade is not a contest. It is a positive-sum exchange, which removed the intellectual basis of mercantilism.
2. Case for free trade. If trade raises the output of both countries, tariffs and quotas reduce welfare. This idea led Britain to repeal its Corn Laws in 1846 and later shaped the case for GATT 1947 and the WTO.
3. Specialisation and efficiency. Resources move to the uses in which a country is most productive. This raises productivity and living standards.
4. Larger markets. Trade widens the market. Smith held that the division of labour is limited by the extent of the market, so trade allows deeper specialisation.
5. Explains much natural trade. Trade based on climate and natural resources fits the theory well. Tropical countries export spices, tea and coffee. Oil-rich countries export oil. India's early exports of pepper and cotton cloth fit this pattern.
6. Foundation for later theory. Every later theory of trade, from Ricardo to modern models, builds on Smith's idea of gains from specialisation.
Limitations
- No answer where one country is better at everything. If a country has an absolute advantage in both goods, Smith's theory suggests no trade. Yet such trade happens and benefits both countries.
- Labour is not the only cost. Capital, land, technology and enterprise also matter.
- Unrealistic assumptions. Transport costs, tariffs and imperfect competition exist in the real world.
- Distribution ignored. The theory shows that total output rises, but not how the gains are shared between or within countries.
Ricardo's answer
David Ricardo, in Principles of Political Economy and Taxation (1817), solved the first problem with the theory of comparative advantage. A country gains from trade even if it is less efficient in every good. It should specialise where its disadvantage is smallest. Absolute advantage is thus a special case of the wider principle of comparative advantage.
Relevance today
Absolute advantage still explains trade in natural resources and in goods that need special climate or skills. It also explains why some countries dominate particular industries. But modern trade policy rests mainly on comparative advantage and on newer theories of scale, technology and competitiveness.
Conclusion. Adam Smith's theory of absolute advantage showed that each nation gains by specialising in what it produces most cheaply and trading for the rest. It replaced the mercantilist view of trade as a contest with the idea of mutual gain. It also laid the foundation of the free trade principle behind GATT and the WTO. Its weakness, that it cannot explain trade where one country is better at everything, was cured by Ricardo's comparative advantage.
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