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Economics · Class 12 Commerce

Ch 7International Economics — Class 12 Economics, concept-first.

International trade is the exchange of goods and services across national borders — one country selling (exporting) goods to another, and buying (importing) goods from it.

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Key concepts

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Comparative Cost Advantage

Even if one country is absolutely more efficient at producing every good than another (Adam Smith's absolute-advantage case), Ricardo showed mutual gains from trade are still possible if each country specialises in the g…

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Chapter contents

The NCERT structure, section by section. Open a section to see its questions, then read the concept-first solution.

1

Meaning and Need for International Trade

International trade is the exchange of goods and services across national borders — one country selling (exporting) goods to another, and buying (importing) goods from it.

2

Theories of International Trade — Absolute and Comparative Cost Advantage

Absolute Cost Advantage (Adam Smith): a country has an absolute advantage in a good if it can produce that good using fewer resources (or less labour time) than another country.

3

Terms of Trade and Gains from Trade

The Terms of Trade is the actual rate at which one country's good exchanges for another's good in international trade — how many units of Wheat one unit of Cloth actually trades for once the two count…

4

Foreign Trade Policy of India

India's Foreign Trade Policy is the government's broad framework of measures aimed at expanding and diversifying the country's foreign trade. Its general objectives include:

5

Foreign Exchange Market and Exchange Rate Systems

The Foreign Exchange Market is the market in which one country's currency is bought and sold in exchange for another's — it is where the exchange rate (the price of one currency in terms of another, e…

6

Balance of Trade and Balance of Payments

Balance of Trade (BOT) records only the value of a country's visible/merchandise exports and imports — physical goods only.

7

Tariff and Non-Tariff Barriers — Free Trade vs Protection

Free trade is a policy of allowing goods to move between countries with no government-imposed restrictions — no tariffs, quotas, or other barriers.

Exercises

+Show 9 questions9 questions
  1. Q3Distinguish between Absolute Cost Advantage (Adam Smith) and Comparative Cost Advantage (David Ricardo).Free
  2. Q4State any three genuine objectives of India's Foreign Trade Policy.Free
  3. Q5Distinguish between a Fixed Exchange Rate system and a Flexible (Floating) Exchange Rate system.Free
  4. Q6The rupee-dollar exchange rate moves from ₹80 per US dollar to ₹85 per US dollar. Has the rupee appreciated or depreciated? Calculate the pe…Preview
  5. Q7What is meant by 'rupee convertibility'? Is the Indian rupee fully convertible?Preview
  6. Q8Classify the following Balance of Payments items as Current Account or Capital Account: (i) Export of textiles (ii) Foreign Direct Investmen…Preview
  7. Q9Distinguish between Balance of Trade and Balance of Payments.Preview
  8. Q10What is meant by 'Balance of Payments disequilibrium'? State any two measures a country might use to correct a persistent deficit.Preview
  9. Q11Distinguish between Tariff Barriers and Non-Tariff Barriers, with one example of each.Preview

Sample & Board Papers

Sample papers and previous-year board questions for this subject.

+Show 18 questions18 questions
  1. Q1Exchange rates are determined in : (a) Capital Market (b) Money Market (c) Foreign Exchange Market (d) Stock MarketPreview
  2. Q2Balance of Payment includes : (a) Merchandise trade only (b) Visible items only (c) Invisible items only (d) Both visible and invisible item…Preview
  3. Q3Write any three differences between "Internal Trade" and "International Trade".Preview
  4. Q4(a) Explain and illustrate how the rate of Exchange is determined. OR (b) Write note on : (i) SAARC (ii) BRICSPreview
  5. Q5Favourable trade means value of exports are ________ than that of Imports. (a) more or less equal (b) more (c) equal (d) lessPreview
  6. Q6Trade between two countries is known as ________. (a) Internal trade (b) Home trade (c) External trade (d) None of the abovePreview
  7. Q7What do you mean by FOREX ?Preview
  8. Q8(a) Explain the relationship between Foreign Direct Investment and economic development. OR (b) Write a note on : (i) SAARC (ii) BRICSPreview
  9. Q9Which of the following is not an example of Foreign Direct Investment ? (a) the purchase of bonds or stock issued by a textile company overs…Preview
  10. Q10What do you mean by Balance of Payment ?Preview
  11. Q11Describe the subject matter of International Economics.Preview
  12. Q12Foreign Direct Investments not permitted in India is : (a) Pharmaceutical (b) Banking (c) Insurance (d) Atomic energyPreview
  13. Q13Exchange rates are determined in : (a) Stock market (b) Money market (c) Capital market (d) Foreign Exchange marketPreview
  14. Q14State the objectives of Foreign Direct Investment.Preview
  15. Q15Which of the following is a Modern theory of International Trade ? (a) Comparative cost (b) Absolute cost (c) Factor Endowment theory (d) No…Preview
  16. Q16Components of Balance of Payments of a country include the : (a) Official Settlement account (b) Capital account (c) Current account (d) All…Preview
  17. Q17Define Terms of Trade.Preview
  18. Q18What is meant by International Trade ?Preview

More questions

+Show 2 questions2 questions
  1. Example 1India requires 4 labour hours to produce 1 unit of Cloth and 2 labour hours to produce 1 unit of Wheat. Country B requires 6 labour hours fo…Free
  2. Example 2Using the same data as Q1 (India's opportunity cost of Cloth = 2 Wheat; Country B's opportunity cost of Cloth = 1.2 Wheat), state the range…Preview