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The Instruments of Trade Policy MCQs with Answers

Use this page to revise tariffs, quotas, subsidies, free trade, protectionism, dumping, anti-dumping duties, import licensing, and welfare effects of trade barriers. The explanations open after submission so students can check both accuracy and concept clarity in one attempt.

Quick revision before you attempt the test

This unit is usually scored well when students lock three things clearly: instrument classification, producer-consumer impact, and tariff versus quota logic.

Tariff versus quota Tariff is a tax on imports and usually gives revenue to the government. Quota is a direct quantity restriction and often creates quota rent.
Protection versus free trade Protection helps domestic producers but usually raises prices for consumers. Free trade improves efficiency and wider consumer choice.
Dumping and anti-dumping Dumping means exporting at an unfairly low price. Anti-dumping duty is imposed to protect domestic firms against such imports.

Common traps students confuse

Tariff vs non-tariff barrier Tariff barriers use taxes such as customs duty. Non-tariff barriers use quotas, licensing, standards, or administrative restrictions.
Who gains and who loses Protection usually benefits domestic producers and may help the government, but consumers generally lose because prices rise.
Subsidy vs protection Subsidy supports firms financially, while protection restricts foreign competition. Both can change trade flow, but in different ways.
Core concepts and trade policy instruments
Question 01
Trade policy refers to:
Trade policy means the government's rules, restrictions, and support measures that influence imports and exports.
Question 02
Tariff is:
A tariff is a tax imposed on imported goods, which raises their domestic price.
Question 03
Import quota means:
An import quota directly limits the quantity of goods that can be imported.
Question 04
Subsidy is:
A subsidy is financial support given by the government to reduce cost or encourage production or exports.
Question 05
Export subsidy encourages:
Export subsidy makes exporting more attractive by lowering cost or improving returns to exporters.
Question 06
Free trade means:
Free trade means international trade takes place with minimal or no barriers such as tariffs or quotas.
Question 07
Protectionism means:
Protectionism means restricting trade to protect domestic producers from foreign competition.
Question 08
Which is a tariff?
Import duty is a tariff because it is a tax collected on imported goods.
Question 09
Non-tariff barrier includes:
A quota is a non-tariff barrier because it restricts quantity rather than imposing a tax.
Question 10
Import duty increases:
Import duty raises the landed cost of foreign goods, so domestic import prices go up.
Question 11
Quota restricts:
A quota works mainly by restricting the quantity of imports allowed into the country.
Question 12
Export promotion includes:
Export promotion includes tools like subsidies and incentives that encourage firms to sell abroad.
Question 13
Which encourages domestic industry?
Tariffs protect domestic industry by making imported goods relatively costlier.
Question 14
Dumping means:
Dumping means selling goods in a foreign market at an abnormally low price, often below normal value.
Question 15
Anti-dumping duty is:
Anti-dumping duty is a protection measure used to defend domestic industry against unfairly cheap imports.
Question 16
Trade restriction reduces:
Trade restrictions generally reduce imports by making them costlier or by limiting entry.
Question 17
Import substitution means:
Import substitution means producing domestically what was earlier imported from abroad.
Application and effects of trade policy
Question 18
Tariff leads to:
A tariff raises the domestic price of imported goods and often lifts market price as well.
Question 19
Quota leads to:
When import quantity is capped through a quota, scarcity tends to push price upward.
Question 20
Export subsidy leads to:
Export subsidy encourages firms to sell more abroad, so exports usually rise.
Question 21
Which is tariff barrier?
A tariff barrier is a tax-based barrier; that is why tax is the correct answer here.
Question 22
Which is non-tariff barrier?
Quota is a non-tariff barrier because it controls quantity without using a tax.
Question 23
Import quota benefits:
Import quotas protect domestic producers by reducing foreign competition in the home market.
Question 24
Tariff revenue goes to:
Revenue from tariffs is collected by the government as customs duty.
Question 25
Free trade leads to:
Free trade improves efficiency by allowing specialisation and lower-cost sourcing.
Question 26
Protectionism leads to:
Protectionism often causes inefficiency because domestic firms face less competition and resources get distorted.
Question 27
Which restricts imports directly?
Quota is the direct quantity control tool; tariff affects imports indirectly through price.
Question 28
Tariff affects:
Tariffs influence price, import quantity, and wider economic outcomes such as welfare and income distribution.
Question 29
Quota affects:
Quota directly controls quantity and indirectly affects price, so both are affected.
Question 30
Which protects domestic industry?
Tariffs protect domestic industry by discouraging cheaper imports.
Question 31
Import licensing is:
Import licensing is a trade restriction because imports require permission or compliance clearance.
Question 32
Voluntary export restraint is:
A voluntary export restraint is an agreement that restricts exports to another country.
Question 33
Trade barrier leads to:
Trade barriers generally create welfare loss due to higher prices and lower efficient trade.
Question 34
Consumer surplus falls due to:
When tariffs raise domestic price, consumers lose surplus because they pay more and consume less.
Advanced concepts and welfare analysis
Question 35
Tariff causes:
Tariffs create deadweight loss because some beneficial trade and consumption are lost.
Question 36
Quota causes:
Quota often creates quota rent, which is the extra gain arising from restricted supply.
Question 37
Tariff vs quota:
A tariff yields revenue to the government, while a quota typically creates rents instead.
Question 38
Dumping harms:
Dumping hurts domestic producers because they must compete with artificially cheap imports.
Question 39
Anti-dumping duty protects:
Anti-dumping duty is imposed to protect domestic firms from unfair trade practices.
Question 40
Protectionism justified for:
The infant industry argument says new domestic industries may need temporary protection to grow.
Question 41
Infant industry argument supports:
This argument supports protection, not free trade, during the early development stage of an industry.
Question 42
Tariff increases:
By discouraging imports, tariffs allow domestic producers to expand output.
Question 43
Quota creates:
Quota creates rent because limited import rights become valuable.
Question 44
Which reduces welfare?
Tariffs reduce overall welfare despite helping some domestic producers and the government.
Question 45
Export subsidy leads to:
Export subsidy can divert goods abroad and create domestic shortage in the home market.
Question 46
Trade restriction leads to:
Trade restrictions lead to inefficient allocation because production shifts away from the most efficient sources.
Question 47
Tariff shifts supply curve:
A tariff raises import cost, which is shown as an upward shift in the supply condition facing the domestic market.
Question 48
Quota restricts:
Quota is a direct quantitative restriction, so it controls quantity rather than price.
Question 49
Government uses trade policy to:
Trade policy is used to protect industry, control imports, and promote exports together.
Question 50
Most distortionary tool:
Quota is often considered more distortionary because it fixes quantity and can create rent-seeking.

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Why this MCQ page matters

Monetary policy MCQs with answers for focused CA Foundation revision.

This page is useful after theory revision because it helps students separate RBI tools, policy direction, and inflation-recession logic without mixing them up in objective questions.

  • Chapter-wise practice for Money Market concepts
  • Instant checking with explanations after submission
  • Useful for revision, class tests, and self-practice
  • Best used after reading the notes for this unit
Better practice flow

Revise tools first, then attempt the MCQs, then revisit only weak areas.

Students usually improve faster when they first lock repo, reverse repo, CRR, SLR, and OMO logic, then attempt the paper, and finally recheck only the mistakes instead of revising the full unit again.

Focus areas for re-revision

  • Quantitative and qualitative instruments
  • Inflation versus recession policy direction
  • RBI tool-effect mapping for exam traps