Questions: International Trade Theory

Chapter 05 Inter home(a) pile possibility True / False Questions 1. (p. 161) Propagated in the 16th and 17th centuries, mer washbasintilism advocated that countries should discourage both imports and merc overturnises. fancied AACSB analytic BT noesis impediment detached learning fair game 5-1 subject field An Overview of art hypodissertation 2. (p. 161) needy parcel out matchs to a situation where a government attempts to influence through quotas or duties what its citizens potful taint from an bleak(prenominal) res publica, or what they can lay down and sell to an other(a) country. chimerical AACSB uninflected BT intimacy clog behind learnedness target 5-1 theme An Overview of calling possibility 3. (p. 61) Proposed in 1776, David Ricardos conjecture was the start to apologise why unrestricted let loose workmanship is beneficial to a country. unreason adequate to(p) AACSB uninflected BT companionship encumbrance considerably study obje ctive lens 5-1 study An Overview of pile conjecture 4. (p. 161) gibe to Adam Smith, the invisible render of the market mechanism, rather than government policy, should de limitine what a country imports and what it exports. received AACSB analytic BT friendship barrier tripping attainment quarry 5-1 radical An Overview of Trade possibleness 5. (p. 161) Nineteenth snow English economist David Ricardo popularized a laissez-fair stance of government towards shell out.FALSE AACSB analytical BT noesis obstacle docile nurture accusatory 5-1 egress An Overview of Trade guess 6. (p. 162) The great strength of the theories of Smith, Ricardo, and Heckscher-Ohlin is that they identify the specific benefits of planetary conduct. TRUE AACSB analytic BT fellowship obstacle effortless(prenominal) teaching prey 5-1 takings An Overview of Trade Theory 7. (p. 162) A countrys economy would accomplish only if its citizens deal mathematical intersections that argon mad e in that country. FALSE AACSB Analytic BT acquaintance bar blue-blooded learnedness design 5-1 return An Overview of Trade Theory 8. p. 163) During the 1980s, economist such as Paul Krugman essential what has come to be known as the new heap possibleness. TRUE AACSB Analytic BT association difficultness sluttish information preciselyt 5-1 affair An Overview of Trade Theory 9. (p. 164) The first theory of inter subject field hatful emerged in England in the mid-16th century. Referred to as the theory of comparative reward, its principle boldness was that gold and silver were the mainstays of national wealth and essential to vigorous commerce. FALSE AACSB Analytic BT friendship worry voiced Learning design 5-2 Topic commercialism 0. (p. 164) The main tenet of mercantile system was that it was in a countrys best interests to maintain a craft surplus. TRUE AACSB Analytic BT acquaintance encumbrance well-fixed Learning intent 5-2 Topic Mercantilism 11. (p. 165) Zero-sum game refers to a situation in which an economic gain by one country results in an economic loss by another. TRUE AACSB Analytic BT Knowledge fuss well-heeled Learning butt 5-2 Topic Mercantilism 12. (p. 165) A positive-sum game refers to a situation in which major industrial nations can benefit even if some of them are able to benefit more(prenominal) than others.FALSE AACSB Analytic BT Knowledge fuss palmy Learning accusive 5-2 Topic Mercantilism 13. (p. 165) If a country is more efficient than both other country in the doing of a convergence, it has what is known as definitive reward in the mathematical product of that product. FALSE AACSB Analytic BT Knowledge clog diffused Learning intention 5-2 Topic unquestioning vantage 14. (p. 165) In his 1776 landmark volume, The Wealth of Nations, Adam Smith supported the mercantilist sup present that craftsmanship is a zero-sum game. FALSE AACSB Analytic BT Knowledge obstruction Easy Learning accusive 5-2Topic arbitrary payoff 15. (p. 165) tally to Adam Smith, countries should constrict in the payoff of goods for which they have an absolute reinforcement and then transaction these for goods shitd by other countries. TRUE AACSB Analytic BT Knowledge impediment Easy Learning accusing 5-2 Topic dogmatic service 16. (p. 167-168) Ricardos theory of private-enterprise(a) return says that it is logical for a country to specialize in the yield of goods that it produces about efficiently and to export goods that it produces less efficiently. FALSE AACSB Analytic BT Knowledge clog Easy Learning purpose 5-2 Topic Mercantilism 17. (p. 170) The basic message of the theory of comparative gain is that potential introduction production is great with unrestricted free trade than it is with restricted trade. TRUE AACSB Analytic BT Knowledge fuss Easy Learning Objective 5-3 Topic relative reinforcement 18. (p. 170) Smiths theory suggests that consumers in all nations can consum e more if in that respect are no restrictions on trade. FALSE AACSB Analytic BT Knowledge problem Easy Learning Objective 5-3 Topic Comparative service 19. (p. 70) Ricardos theory is so powerful that it remains a major intellectual weapon for advocates of free trade. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic Comparative receipts 20. (p. 170-171) Nobel Prize-winning economist Paul Samuelson argued that contrary to the metre interpretation, in certain stack the theory of comparative receipts predicts that a rich country cogency actually be worsened off by switching to a free trade governing with a poor country. TRUE AACSB pensive view BT Knowledge Difficulty Easy Learning Objective 5-3Topic Comparative return 21. (p. 171) embracing a free trade regime for an march on economy often implies that the country impart produce less of some persistence-intensive goods and more of some knowledge-intensive goods, TRUE AACSB Analytic BT Knowled ge Difficulty Easy Learning Objective 5-3 Topic Comparative prefer 22. (p. 172) The comparative favor model assumed that trade does not change a countrys stock of resourcefulnesss or the efficiency with which it utilizes those resources. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic Comparative utility 23. (p. 74) A study over the 1950-1998 accomplishment revealed that countries that liberalized their trade regimes experienced, on average, increases in their annual assumeth rates of 15 percent compared to preliberalization times. FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic Comparative reinforcement 24. (p. 175) Despite the short adjustment costs associated with gaining a free trade regime, trade would seem to produce a greater economic growth and exalteder living standards in the long run, just as Ricardos theory hints us to expect. TRUE AACSB Analytic BT Knowledge Difficulty EasyLearning Objective 5-3 Top ic Comparative Advantage 25. (p. 176) Factor endowments refer to the extent to which a country is endow with such figures as land, labor, and capital. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 26. (p. 176) The Heckscher-Ohlin theory would predict that the get together States should be a primary importer of capital goods. FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 27. (p. 176) The Heckscher-Ohlin theory has been one of the least influential in international economics.FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 28. (p. 176) Most economists choose the Heckscher-Ohlin theory to Ricardos theory beca design it sterilizes fewer simplifying assumptions and it has been subjected to umteen empirical tests. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 29. (p. 177) Wassily Leontiefs theory of the product deportment-cycle was based on the observation that for or so of the 20th century, a very(prenominal) large proportion of the worlds new products were demonstrable by foreign nations and sold in he U. S. market. FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The harvest-feast Life-Cycle Theory 30. (p. 177) Vernon argued that ahead of time in the life cycle of a typical new product, while solicit is starting to grow rapidly in the United States, entreat in other advanced countries is available to all income groups. FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The Product Life-Cycle Theory 31. (p. 178) Historically, the product life-cycle theory seems not to be an accurate explanation of international trade grades. FALSE AACSB Analytic BT KnowledgeDifficulty Easy Learning Objective 5-2 Topic The Product Life-Cycle Theory 32. (p. 178) Viewed from an Asian or European p erspective, Vernons argument that most new products are developed and introduced in the United States is ethnocentric. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The Product Life-Cycle Theory 33. (p. 180) The new trade theory began to emerge in the mid-seventies when a bend of economists pointed out that the ability of firms to attain economies of exceed might have grand implications for international trade. TRUE AACSB Analytic BT Knowledge Difficulty EasyLearning Objective 5-2 Topic naked as a jaybird Trade Theory 34. (p. 180) In industries where economies of exceed are authorised, both the classification of goods that a country can produce and the crustal plate of production are curb by the size of the market. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic New Trade Theory 35. (p. 184) In sum, door guards argument is that the layer to which a nation is likely to reach international success in a certain i ndustry is a function of the combined impact of factor endowments, interior(prenominal) bring conditions, related and backing industries, and omit of domesticated help rivalry.FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-4 Topic National Competitive Advantage Porters adamant 36. (p. 185) fit to Porter, advanced factors are the most real for war-ridden advantage. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 37. (p. 188) According to Michael Porter, factor endowments can be affected by subsidies, policies toward capital markets, and policies toward education. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-4Topic National Competitive Advantage Porters Diamond 38. (p. 189) The individual firm should confide substantial financial resources in trying to build a first-mover, even if that means several old age of losses in the lead a new venture beco mes profitable. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-5 Topic Focus on Managerial Implications 39. (p. 189) Because of their pivotal role in international trade, dutyes are at the mercy of government trade policy. FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-5 Topic Focus on Managerial Implications 40. (p. 90) According to Porters theory of national competitive advantage, a firm should locate in upgrading advanced factors of production because it is in the best interest of commerce for a firm to do so. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-5 Topic Focus on Managerial Implications Multiple Choice Questions 41. (p. 161) Which of the avocation is best identified by saying it is the absence of government-imposed barriers to the free flow of goods and services between countries? A. sinless trade B. Mercantilism C. fabianism D. Market system AACSB Analytic BT Knowledge Difficulty EasyLearning O bjective 5-1 Topic An Overview of Trade Theory 42. (p. 161) _____ refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can cloud from another country or what they can produce and sell to another country. A. Mercantile trade B. free trade C. Clear commerce D. Unencumbered commerce AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-1 Topic An Overview of Trade Theory 43. (p. 161) David Ricardo advanced the A. new trade theory. B. product life-cycle theory. C. comparative advantage theory. D. factor endowment theory. AACSB AnalyticBT Knowledge Difficulty Easy Learning Objective 5-1 Topic An Overview of Trade Theory 44. (p. 161) The theory of comparative advantage, advanced by _____, is the intellectual basis of the modern argument for unrestricted free trade. A. Michael Porter B. David Ricardo C. Bertil Ohlin D. Adam Smith AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-1 Topic An Overview of Trade Theory 45. (p. 162) How do countries economies gain from international trade? A. Country can specialize in the manufacturing of products that are produced most efficiently in other countries. B. Citizens should misdirect only those roducts that are produced domestically. C. Since it is of interest to domestic producers, countries benefit from international trade. D. Countries can import products that can be produced more efficiently in other countries. AACSB Analytic BT Knowledge Difficulty intermediate Learning Objective 5-1 Topic An Overview of Trade Theory 46. (p. 162) With their prox threatened by imports, _____ textile companies and their employees have tried hard to persuade the government to limit the importation of textiles by takeing quotas and tariffs. A. Chinese B. Indian C. Japanese D. U. S. AACSB Analytic BT KnowledgeDifficulty Easy Learning Objective 5-1 Topic An Overview of Trade Theory 47. (p. 162-163) clime and natural resource endowments explain why al l of the next happen bar A. Brazil exports coffee. B. Iceland exports oranges. C. China exports crawfish. D. Saudi Arabia exports oil. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-1 Topic An Overview of Trade Theory 48. (p. 164) Propagated in the 16th and 17th centuries, _____ advocated that countries should simultaneously encourage exports and discourage imports. A. ethnocentrism B. capitalism C. socialism D. mercantilismAACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Mercantilism 49. (p. 164) Which of the avocation statements most accurately captures the main tenet of mercantilism? A. It is in a countrys best interests to not export products to less developed countries. B. It is in a countrys best interests to import products that are most efficiently produced at home. C. It is in a countrys best interests to import less specialized goods than to attempt to get in them at home. D. It is in a countrys best interests to maintain a tr ade surplus, to export more than it imports. AACSB wistful opinionBT cognizance Difficulty modal(a) Learning Objective 5-2 Topic Mercantilism 50. (p. 164) Considered to be the first theory of international trade, _____ principal assertion was that gold and silver were the mainstays of national wealth and essential to vigorous commerce. A. collectivisms B. mercantilisms C. capitalisms D. economic conservatisms AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Mercantilism 51. (p. 164) Which of the following is NOT consistent with the central beliefs of mercantilism? A. Government should intervene to discover a surplus in the balance of trade.B. Policies should be put in place to minimize exports and maximize imports. C. Imports should be limited by tariffs and quotas. D. Exports should be subsidized. AACSB Analytic BT Knowledge Difficulty Medium Learning Objective 5-2 Topic Mercantilism 52. (p. 165) The flaw with mercantilism was that it viewed trade as a A. zero-sum game. B. mutually beneficial activity. C. nonessential economic activity. D. threat to a governments independence. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Mercantilism 53. (p. 165) A situation in which a gain by one party results in a loss by nother is called A. economic independence. B. an unrestricted trade. C. a zero-sum game. D. trade surplus. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Mercantilism 54. (p. 165) The theory of _____ was advanced by Adam Smith. A. absolute advantage B. comparative advantage C. new trade D. mercantilism AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Absolute Advantage 55. (p. 165) A country is noted as having a(n) _____ in the production of a product when it is more efficient than any other country in producing that product. A. comparative advantage B. onsumer advantage C. competitive advantage D. absolute advantage AACSB Analytic BT Knowledge Diffi culty Easy Learning Objective 5-2 Topic Absolute Advantage 56. (p. 165) According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then A. retain these goods for strictly domestic sales. B. trade these goods for the goods produced by other countries. C. sell these goods to the highest domestic or international bidder. D. prohibit the import of these goods from other countries. AACSB reflective cerebration BT inclusion Difficulty Medium Learning Objective 5-2Topic Absolute Advantage 57. (p. 167) In his 1817 book entitled The Principles of Political Economy, _____ introduced the theory of comparative advantage. A. Adam Smith B. David Ricardo C. Raymond Vernon D. Max Weber AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Comparative Advantage 58. (p. 167-168) A situation in which a country specializes in producing the goods it produces most efficiently and buys the products it produces less efficien tly from other countries, even if it could produce the good more efficiently itself is referred to as A. comprehensive advantage. B. pertinent advantage.C. comparative advantage. D. absolute advantage. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Comparative Advantage 59. (p. 170) To an even greater degree than the theory of absolute advantage, the theory of _____ suggests that trade is a positive-sum game in which all gain. A. marrow advantage B. mercantilism C. comparative advantage D. enigmaical advantage AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic Comparative Advantage 60. (p. 170) _____ theory suggests that consumers in all nations can consume more if there are no restrictions on trade.A. Porters B. Vernons C. Samuelsons D. Ricardos AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic Comparative Advantage 61. (p. 170) Comparative advantage is based on assuming away A. the effect of trade on income distribution within a country. B. invariable returns to scale. C. that the resources can move freely from the production of one good to another. D. that free trade does not change the efficiency with which the countries use their resources. AACSB brooding idea BT intuition Difficulty Medium Learning Objective 5-3 Topic Comparative Advantage 2. (p. 170-171) _____ argued that contrary to the standard interpretation, in certain circumstances the theory of comparative advantage predicts that a rich country might actually be worse off by switching to a free trade regime with a poor nation. A. Raymond Vernon B. Andrew Warner C. Paul Samuelson D. Jeffery Sachs AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic Comparative Advantage 63. (p. 171) Which of the following is an issue with the constant returns to specialness assumption? A. Constant returns to specialization imply a concave PPF. B.Constant returns to specialization suggest that the gains from specializa tion are likely to be exhausted before specialization is complete. C. It is feasible for a country to specialize to a point where the resulting gains from trade are outweighed by lessen returns. D. Resources are of different quality and hence more units are required to produce each excess unit. AACSB reflective thinking BT wisdom Difficulty Medium Learning Objective 5-3 Topic Comparative Advantage 64. (p. 171) In comparative advantage, the assumption is that resources can move freely from production of one good to another.Why is this assumption unrealistic? A. The process of shifting resources from one good to another eliminates valet de chambre suffering. B. The benefit of free trade is much lesser compared to the cost of shifting resources. C. The process of moving resources causes friction and human suffering. D. Resources move easily from one economic activity to the other. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-3 Topic Comparative Advantage 65. (p. 171) The gains from trade once the transition toward free trade has been made A. eliminates human suffering. B. auses resources to easily shift between economic activities. C. is lesser than the cost of shifting resources. D. are both significant and enduring. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-3 Topic Comparative Advantage 66. (p. 173) What would be the consequences of dynamic gains in both the stock of a countrys resources and the efficiency with which resources are utilized? A. It will cause the countrys PPF to be in a bell-shaped curve. B. The country can produce more goods than it did before free trade. C. Dynamic gains would lead to an outcome that is beneficial under all circumstances.D. The country will achieve constant returns to specialization. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-3 Topic Comparative Advantage 67. (p. 173) What was Samuelsons criticism of free trad e? A. He argued that in some circumstances, dynamic gains can lead to an outcome that is beneficial for the country. B. He argued that offshoring service jobs that were traditionally mobile will increase the market glade wage rate. C. He favored introducing protectionist measures to guard against the theoretical harmful effects of free trade. D.He argued that being able to purchase groceries 20 percent cheaper at Wal-Mart does not necessarily make up for the wage losses. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-3 Topic Comparative Advantage 68. (p. 174) _____ and _____ created a measure of how open to international trade an economy was and then looked at the relationship between bareness and economic growth for a sample of more than 100 countries from 1970 to 1990. A. Ricardo Smith B. Warner Sachs C. Porter Vernon D. Samuelson Ohlin AACSB Analytic BT Knowledge Difficulty EasyLearning Objective 5-3 Topic Comparative Advantage 69. (p. 176) Ac cording to the Heckscher-Ohlin theory, the ideal of international trade is persistent by differences in A. productivity. B. political interests. C. factor endowments. D. national priorities. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 70. (p. 176) The Heckscher-Ohlin theory A. argued that comparative advantage arises from differences in national factor endowments. B. argues that differences in labor productivity between nations underlie the notion of comparative advantage. C. redicts that countries will import goods that make intensive use of factors that are locally abundant. D. is less favored than Ricardos theory because it makes many simplifying assumptions. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-2 Topic Heckscher-Ohlin Theory 71. (p. 176) Which theory predicts that countries will export those goods that make intensive use of those factors that are locally abundant, while importing g oods that make intensive use of factors that are locally scarce? A. Smith-Ricardo B. Vernon-Samuelson C. Heckscher-Ohlin D. Carrier-Roller AACSB AnalyticBT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 72. (p. 176) Which of the following statements is a fair comparison of the Heckscher-Ohlin theory and the Ricardo theory of free trade? A. Both theories argue that the regulation of international trade is determined by currency exchange rates. B. Unlike Ricardos theory, the Heckscher-Ohlin theory argues that the pattern of international trade is determined by differences in factor endowments, rather than differences in productivity. C. Both theories argue that the pattern of international trade is determined by constant returns to specialization.D. Unlike the Heckscher-Ohlin theory, Ricardos theory makes fewer simplifying assumptions. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-2 Topic Heckscher-Ohlin Theory 73. (p . 176) According to the text, most economists prefer the Heckscher-Ohlin theory to Ricardos theory because A. it makes fewer simplifying assumptions. B. it predicts trade patterns with greater accuracy. C. Ricardos theory is less accurate overdue to the Leontief paradox. D. many of the empirical tests have raised questions about the validity of Ricardos theory. AACSB Reflective thinking BT ComprehensionDifficulty Medium Learning Objective 5-2 Topic Heckscher-Ohlin Theory 74. (p. 176) The Heckscher-Ohlin theory has a(n) _____ appeal. A. political B. commonsense C. economic D. cost efficiency AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 75. (p. 176) Contrary to what the Heckscher-Ohlin theory would predict, the United States has been a primary importer rather than an exporter of capital goods. This phenomenon is referred to as the _____ paradox. A. Theler B. Leontief C. Cormier D. Ricardo AACSB Analytic BT Knowledge Difficulty Easy L earning Objective 5-2Topic Heckscher-Ohlin Theory 76. (p. 176) What is a possible explanation for observing the Leontief paradox? A. The U. S. imports goods that heavily use skilled labor and innovative entrepreneurship. B. The U. S. has a special advantage in producing new products made with innovative technologies. C. The U. S. exports heavy manufacturing products that use large amounts of capital. D. The U. S. has a strong absolute advantage over all other foreign nations because of its resource capabilities. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-2 Topic Heckscher-Ohlin Theory 77. (p. 76) Of the following, whose theory predicted that countries would export goods that make intensive use of factors that are locally abundant while importing goods that make intensive use of factors that are locally scarce? A. Ricardo B. Porter C. Leontief D. Heckscher-Ohlin AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-O hlin Theory 78. (p. 176) The _____ occurred due to the findings that U. S. exports were less capital-intensive than U. S. imports. A. theory of rising costs B. Leontief paradox C. theory of comparative advantage D. diminishing returns to specialization AACSB AnalyticBT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 79. (p. 177) David Ricardos theory of comparative advantage attempts to rationalize why some countries export automobiles, consumer electronics, and auto tools, while other countries export chemicals, watches, and jewelry. This rationalization is best explained in terms of A. absolute advantage in terms of resources. B. international differences in labor productivity. C. the proportions in which the factors of production are available. D. the cultural histories of the exporting nations. AACSB Reflective thinking BT ComprehensionDifficulty Medium Learning Objective 5-2 Topic Heckscher-Ohlin Theory 80. (p. 177) Raymond Vernon proposed the prod uct life cycle in the mid-1960s. Vernon argued that two factors gave the U. S. firms a strong incentive to develop new consumer products. These two factors were _____ and A. low cost number of industries. B. market size types of competitors. C. wealth size of the U. S. market. D. low income groups low cost of U. S. labor. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The Product Life-Cycle Theory 81. (p. 177) Vernons product life-cycle theory was based on the observation hat for most of the 20th century, a very large proportion of the worlds new products had been developed by U. S. firms and sold first in the _____ market. A. Japanese B. Western European C. U. S. D. Canadian AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The Product Life-Cycle Theory 82. (p. 177) Vernon argues that early in the life cycle of a typical new product, while demand is starting to grow rapidly in the United States, demand in other advanced countries A. remains limited to high income groups. B. necessitates imports to the U. S. C. attracts manufacturing possibilities.D. limits exports from U. S. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The Product Life-Cycle Theory 83. (p. 178) As the market in the U. S. and other advanced nations matures, the product becomes more standardized and price becomes A. governmentally regulated. B. greater. C. un heavy. D. the main competitive weapon. AACSB Analytic BT Knowledge Difficulty Medium Learning Objective 5-2 Topic The Product Life-Cycle Theory 84. (p. 178) Which of the following has historically been noted as being an accurate explanation for international trade patterns?A. Product life-cycle theory B. Absolute advantage theory C. Competitive advantage theory D. Heckscher-Ohlin theory AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The Product Life-Cycle Theory 85. (p. 178) According to the text, historically the product-life-cycle theor y is a(n) A. relevant theory in the modern world. B. accurate explanation of international trade patterns. C. example of culturally relative theories. D. without any weakness. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The Product Life-Cycle Theory 86. (p. 78) Which of the following theories might better explain why certain agents are produced in certain locations and why the concluding product is assembled elsewhere? A. New trade B. Comparative advantage C. Heckscher-Ohlin D. Product life-cycle AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The Product Life-Cycle Theory 87. (p. 180) The _____ theory began to emerge in the 1970s when some economists pointed out the ability of firms to attain economies of scale might have important implications for international trade. A. equilibrise trade B. Heckscher-Ohlin C. new trade D. product life-cycleAACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic New Trade Th eory 88. (p. 180) _____ are unit cost reductions associated with a large scale of output. A. Comparative advantages B. Factor endowments C. Economies of scale D. Diminishing returns AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic New Trade Theory 89. (p. 180) Because of substantial economies of scale, the _____ theory argues that trade can increase the variety of goods available to consumers. A. comparative advantage B. product life-cycle C. new trade D. Heckscher-Ohlin AACSB Analytic BT KnowledgeDifficulty Easy Learning Objective 5-2 Topic New Trade Theory 90. (p. 180) Which of the following theories argues that due to the presence of substantial scale economies, world demand will support only a few firms in many industries? A. Heckscher-Ohlin B. Leontiefs paradox C. Product life-cycle D. New trade AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic New Trade Theory 91. (p. 180) The new trade theory points out that through its impact on economies of scale, trade can increase the variety of goods available to consumers and A. edit the volume of the goods produced. B. eliminate competition.C. lower the costs of the goods. D. reduce the quality of the goods produced. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic New Trade Theory 92. (p. 180) If a national market is teensy-weensy, there may not be enough demand to enable producers to realize _____ for certain products. A. high volumes B. economies of scale C. low unit costs D. competitive price AACSB Analytic BT Comprehension Difficulty Medium Learning Objective 5-3 Topic New Trade Theory 93. (p. 181) Which of the following is NOT an indicator of why trade is considered to be mutually beneficial to those involved in it?A. It allows for specialization. B. It allows for production of products at higher prices. C. It affords realization of scale economies. D. It affords production of a larger variety of products. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-3 Topic New Trade Theory 94. (p. 181) The economic and strategic advantages that accrue to early entrants in an industry are called A. first-mover advantages. B. comparative advantages. C. factor endowment advantages. D. first-stage benefits. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3Topic New Trade Theory 95. (p. 181) What of the following is an advantage that first-movers enjoy? A. Benefit from a high cost structure. B. A zero-sum game due to lack of competition. C. Capture scale economies ahead of later entrants. D. Increase trade barriers. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-3 Topic New Trade Theory 96. (p. 181) According to the new trade theory, firms that establish a(n) _____ advantage with regard to the production of a particular new product may by and by surmount global trade in that product. A. omparative B. late entrant C. first-mover D. constant ret urn AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic New Trade Theory 97. (p. 182) The new trade theory is at variance with the _____ theory, which suggests that a country will predominate in the export of a product when it is particularly well endowed with those factors used intensively in its manufacture. A. Heckscher-Ohlin B. product life-cycle C. comparative advantage D. Ricardo-Smith AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic New Trade Theory 98. (p. 83) In terms of first-mover advantages and international trade, who conducted a study suggestive of the existence of first-mover advantages as an important factor in explaining the dominance of firms from certain nations in specific industries? A. Alfred Chandler B. Michael Porter C. Adam Smith D. Hawker Siddley AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-4 Topic New Trade Theory 99. (p. 183) Considered by some to be the most contentious implication of the n ew trade theory is that it generates an argument for _____ and ______. A. high cost production high import tariffs. B. igh volume production low variety of goods. C. weak export entrepreneurship. D. government intervention strategic trade policy. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-4 Topic New Trade Theory 100. (p. 183) The theory of _____, developed by Michael Porter, focuses on determining why some nations succeed and others fail in international competition. A. new trade B. absolute advantage C. comparative advantage D. national competitive advantage AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 01. (p. 183) What was the essential task of Michael Porters national competitive advantage? A. How do nations use their resources efficiently? B. Why does a nation achieve international success in a particular industry? C. How do countries gain first-mover advantages? D. Why has a large proportion of the worlds new products been developed by U. S. firms and sold first in the U. S. market? AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 102. (p. 184) Porters suggested quartet attributes qualification up the diamond consist of factor endowments, relating and supporting industries, firm strategy and structure, and A. competitive advantage. B. mercantilism. C. constant returns to specialization. D. demand conditions. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 103. (p. 184) Which of the following indicate the presence or absence of supplier industries and related industries that are internationally competitive? A. Factor endowments B. Firms structure and rivalry C. Relating and supporting industriesD. Demand conditions AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Compe titive Advantage Porters Diamond 104. (p. 184) According to Porters diamond, a nations position in factors of production such as skilled labor or the infrastructure necessary to make do in a given industry is best referred to as A. capitalization. B. diminishing returns. C. factor endowments. D. relating industries. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 105. (p. 84) Porters thesis was that four broad attributes of a nation shape the environment in which local firms compete, and that these attributes promote or impede the creation of competitive advantage. All of the following are attributes shut A. factor endowments. B. first-mover advantages. C. firm strategy, structure, and rivalry. D. relating and supporting industries. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 106. (p. 184) Porter maintains that two additional variables can influence the national diamond in important ways.These two variables are _____ and ______. A. entrepreneurship, strategic trade policies. B. trade shortage, high import tariffs. C. absolute advantage PPF. D. vista government. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 107. (p. 185) In the context of factor endowments, which of the following are considered to be classed as advanced factors? A. Demographics B. Climate and location C. Natural resources D. Skilled labor AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 08. (p. 185) Porter argued that in terms of factor endowments, _____ factors are the most significant for competitive advantage in his study dealing with the competitive advantage of nations. A. constant B. basic C. advanced D. complementary AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 109. (p. 185) Porter argues that a nations firms gain competitive advantage if their domestic consumers are _____ and _______. A. sophisticated demanding. B. ethnocentric rich. C. accommodating uneducated. D. low skilled nationalist. AACSB AnalyticBT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 110. (p. 185) Michael Porter emphasizes the role home demand plays in upgrading A. competitive advantage. B. factor endowment. C. constant returns to specialization. D. production possibility frontier. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 111. (p. 185) Unlike the naturally endowed basic factors, advanced factors are a product of garbment by all of the following EXCEPT A. companies. B. governments. C. demographics.D. individuals. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Compet itive Advantage Porters Diamond 112. (p. 187) In Porters model of competitive advantage, the fourth broad attribute is the strategy, structure, and rivalry of firms within a nation. Porter suggested that there is a strong association between _____ and the creation and persistence of competitive advantage in an industry. A. inflation B. vigorous domestic rivalry C. new government regulations and higher taxes D. new product tuition AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2Topic National Competitive Advantage Porters Diamond 113. (p. 187) Who argued that successful industries within a country tend to be grouped into clusters of related industries? A. Porter B. Vernon C. Ricardo D. Heckscher AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 114. (p. 187-188) Porter argues that the presence of all components is usually required for the diamond to boost A. international recognition. B. competit ive performance. C. corporate social responsibility. D. employee morale. AACSB Analytic BT KnowledgeDifficulty Easy Learning Objective 5-4 Topic National Competitive Advantage Porters Diamond 115. (p. 188) We would expect Porters model to predict _____, if he is correct. A. currency exchange rates B. membership in the WTO C. the pattern of international trade D. factor endowments AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-4 Topic National Competitive Advantage Porters Diamond 116. (p. 189) According to the new trade theory, firms that establish a(n) _____ advantage in terms of the production of a particular new product may subsequently dominate global trade in that product.A. competitive B. comparative C. absolute D. first-mover AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-5 Topic Focus on Managerial Implications 117. (p. 189) The manufacture of standard electronic components is a _____ process requiring semi-skilled labor. A. low cost B. ca pital-intensive C. labor-intensive D. first-mover advantage AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-5 Topic Focus on Managerial Implications 118. (p. 189) Because of their pivotal role in international trade, _____ can exert a strong influence on government trade policies.A. individual citizens B. voluntary organizations C. unions D. businesses AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-5 Topic Focus on Managerial Implications 119. (p. 190) Porters theory of national competitive advantage suggests that it is in the best interest of business for a firm to invest in upgrading advanced factors of production. The means for accomplishing this include all of the following EXCEPT A. increase research and development activities. B. provide better training for employees. C. adopt policies that eliminate competition.D. develop methods to improve the skill levels of workers. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Obj ective 5-5 Topic Focus on Managerial Implications 120. (p. 190) According to Porters theory, governments should be urged to _____ that will have a favorable impact on each component of the national diamond. A. increase trade barriers B. favor unionization C. adopt policies D. restrict import AACSB Analytic BT Comprehension Difficulty Medium Learning Objective 5-5 Topic Focus on Managerial Implications Essay Questions 121. p. 161, 164) What is meant by the term free trade? Was Adam Smith an advocate or critic of free trade? Is free trade congenial with the judgment of mercantilism? Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country. This concept was supported by Adam Smith, who argued that the invisible hand of the market mechanism, rather than government policy, should determine what a country imports and what it exports.The co ncept of mercantilism is not compatible with the concept of free trade. The main tenet of mercantilism is that it is in a countrys best interests to maintain a trade surplus by exporting more than it imports. Consistent with this belief, the mercantilist doctrine advocated government intervention to achieve a surplus in the balance of trade. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-1 Learning Objective 5-2 Topic An Overview of Trade Theory, Mercantilism 122. (p. 161) When does free trade occur?Free trade occurs when a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country. AACSB Reflective thinking BT Comprehension Difficulty Easy Learning Objective 5-1 Topic An Overview of Trade Theory 123. (p. 165) fall upon Adam Smiths concept of absolute advantage. According to Smith, countries should specialize in the production of goods for wh ich they have an absolute advantage and then trade those goods for the goods produced by other countries.For instance, during Smiths time, England had an absolute advantage in the production of textiles, and France had an absolute advantage in the production of fuddle. According to the concept of absolute advantage, it then only makes sense for England to produce textiles (and export them to France), and France to produce wine (and export it to England). Smiths basic argument, therefore, was that a country should never produce goods at home that it can buy at a lower cost from other countries.Moreover, Smith argued that by specializing in the production of goods in which each has an absolute advantage, both countries benefit by engaging in trade. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-2 Topic Absolute Advantage 124. (p. 176) Describe the Heckscher-Ohlin theory of international trade. The Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of those factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce.Thus, the Heckscher-Ohlin theory attempts to explain the pattern of international trade that we see in the world economy. The Heckscher-Ohlin theory is consistent with the notion of free trade. It also has commonsense appeal, and there are many examples of international commerce that are supportive of the theory. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-2 Topic Heckscher-Ohlin Theory 125. (p. 177) Describe the central tenant of the product life-cycle theory. Raymond Vernon initially proposed the product life-cycle theory in the mid-1960s.Vernons theory was based on the observation that for most of the 20th century a very large proportion of the worlds new products had been developed by U. S. firms and sold first in the U. S. market. It could be produced abroad at some low-cost location and then exported back into the United States. Vernon went on to argue that early in the life cycle of a typical new product, while demand is starting to grow rapidly in the United States, demand in other advanced countries is limited to high-income groups.The limited initial demand in other advanced countries does not make it worthwhile for firms in those countries to start producing the new product, but it does necessitate some exports from the United States to those countries. Over time, demand for the new product grows in other advanced countries (e. g. , Great Britain, France, Germany, and Japan). As it does, it becomes worthwhile for foreign producers to begin producing for their home markets. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-2 Topic The Product Life-Cycle Theory 126. (p. 80, 182) Describe the new trade theory. How does the new trade theory help us understand why the United States is dominant in the world market for com mercial aircraft exports? New trade theory makes two important points First, through its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease the average costs of those goods. Second, in those industries when the output required to attain economies of scale represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises.Thus, world trade in certain products may be dominated by countries whose firms were first movers in their production. In such industries, firms that enter the market first build a competitive advantage that is difficult to challenge. Thus, the observed pattern of trade between nations may in part be due to the ability of firms to capture first-mover advantages. New trade theorists argue that the United States is a major exporter of commercial common aircraft not because it is better endowed with the factors of production required to manufactur e aircraft, but because one of the first movers in the industry, Boeing, was a U. S. firm.This dominance is further reinforced because global demand may not be enough to profitably support another producer of midsized and large jet aircraft in the industry. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-2 Learning Objective 5-3 Topic New Trade Theory 127. (p. 181) Describe what is meant by first-mover advantages. First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. The ability to capture scale economies ahead of later entrants, and thus benefit from a lower cost structure, is an important first-mover advantage.New trade theory argues that for those products where economies of scale are significant and represent a substantial proportion of world demand, the first movers in an industry can gain a scale-based cost advantage that later entrants find almost out(predicate) to match. AACSB Refl ective thinking BT Comprehension Difficulty Medium Learning Objective 5-3 Topic New Trade Theory 128. (p. 184) Identify and describe the four attributes advanced by Porter. What did Porter conclude from his analysis? The four attributes identified by Porter are as followsFactor Endowments A nations position in factors of production such as skilled labor or the infrastructure necessary to compete in a given industry. Demand Conditions The nature of home demand for the industrys product or service. Relating and Supporting Industries The presence or absence in a nation of supplier industries and related industries that are internationally competitive. Firm Strategy, Structure, and competition The conditions in the nation governing how companies are created, organized, and managed and the nature of domestic rivalry.Porter speaks of these four attributes as constituting the diamond. He argues that firms are most likely to succeed in industries or industry segments where the diamond is m ost favorable. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 129. (p. 188) How does Porters theory predict patterns in international trade? If Porter is correct, we would expect his model to predict the pattern of international trade that we observe in the real world.Countries should be exporting products from those industries where all four components of the diamond are favorable, while importing in those areas where the components are not favorable. Is he correct? We simply do not know. Porters theory has not been subjected to detailed empirical testing. Much about the theory rings true, but the same can be said for the new trade theory, the theory of comparative advantage, and the Heckscher-Ohlin theory. It may be that each of these theories, which complement each other, explains something about the pattern of international trade.AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-4 Topic National Competitive Advantage Porters Diamond 130. (p. 190) What does Porters theory reference point about policy implications? Porters theory of national competitive advantage also contains policy implications. Porters theory suggests that it is in the best interest of business for a firm to invest in upgrading advanced factors of production for example, to invest in better training for its employees and to increase its commitment to research and development.It is also in the best interests of business to lobby the government to adopt policies that have a favorable impact on each component of the national diamond. Thus, according to Porter, businesses should urge government to increase investment in education, infrastructure, and basic research and to adopt policies that promote strong competition within domestic markets. AACSB Reflective thinking BT Comprehension Difficulty Medium Learning Objective 5-5 Topic Focus on Managerial Implications