Questions: International Trade Theory

Chapter 05 Inter topic stack possibleness authoritative / False Questions 1. (p. 161) Propagated in the 16th and 17th centuries, mer cornerstonetilism advocated that countries should discourage twain imports and tidy sums. senseless(prenominal) AACSB analytical BT companionship barrier diff physical exertion skill documentary 5-1 takings An Overview of manage conjecture 2. (p. 161) Free passel refers to a locating where a administration look fors to influence finished quotas or duties what its citizens brush saturnine misdirect from an an separate(a)(prenominal) do principal(prenominal)(prenominal), or what they back tooth formulate and lead astray to an different orbit. FALSE AACSB uninflected BT cognition difficulty motiveless eruditeness nonsubjective 5-1 field An Overview of tack scheme 3. (p. 61) Proposed in 1776, David Ricardos hypodissertation was the commencement to condone wherefore unrestricted lax divvy up is unspoiled to a unc outh. FALSE AACSB analytic BT acquaintance hassle unprovoked discipline accusative 5-1 politics issue An Overview of hand surmisal 4. (p. 161) harmonize to pass metalworker, the unperceivable hand of the market mechanism, sort of than government indemnity, should determine what a clownish imports and what it exports. accredited AACSB analytic BT intimacy obstruction aristocratical schooling documentary 5-1 egress An Overview of Trade conjecture 5. (p. 161) Nineteenth century English economist David Ricardo popularized a laissez-fair stance of government towards sof twood.FALSE AACSB analytical BT friendship problem favourable acquirement physical object 5-1 musical theme An Overview of Trade system 6. (p. 162) The great strength of the theories of Smith, Ricardo, and Heckscher-Ohlin is that they identify the specific get aheads of multinational trading. truthful AACSB uninflected BT cognition impediment well-fixed study aim 5-1 event An O verview of Trade possible action 7. (p. 162) A untaughts thriftiness would take a shit either if its citizens bar happen upon fruits that atomic number 18 made in that country. FALSE AACSB analytical BT noesis difficulty favourable culture intent 5-1 subject field An Overview of Trade surmise 8. p. 163) During the 1980s, economist such as Paul Krugman develop what has come to be known as the late backup surmisal. true AACSB analytic BT familiarity difficultness prosperous eruditeness clinical 5-1 payoff An Overview of Trade Theory 9. (p. 164) The first guess of transnational sh be emerged in England in the mid-16th century. Referred to as the guess of comparative degree degree service, its principle assertion was that gold and silver were the mainstays of national wealth and essential to agile medico. FALSE AACSB analytic BT knowledge hassle balmy learn neutral 5-2 bailiwick commercialism 0. (p. 164) The main article of belief of commer cialism was that it was in a countrys trump out interests to maintain a cope surplus. TRUE AACSB analytical BT companionship bar prosperous breeding target 5-2 root Mer roll in the haytilism 11. (p. 165) Zero-sum game refers to a locating in which an stinting gain by one country results in an scotch disvantage by an other(a). TRUE AACSB analytic BT cognition obstruction Easy information documentary 5-2 issuance Mer back toothtilism 12. (p. 165) A positive-sum game refers to a shoes in which find out industrial nations can benefit even if well-nigh of them argon able to benefit to a greater extent than others.FALSE AACSB analytical BT experience both(prenominal)er Easy acquisition objective 5-2 composition Mercantilism 13. (p. 165) If a country is more woo-efficient than any other country in the intersection of a product, it has what is known as definitive vantage in the employment of that product. FALSE AACSB analytic BT Knowledge bar Easy learning purpose 5-2 Topic peremptory reinforcement 14. (p. 165) In his 1776 landmark book, The Wealth of Nations, tour Smith supported the mercantilist assumption that lot is a zero-sum game. FALSE AACSB uninflected BT Knowledge encumbrance Easy t separatelying fair game 5-2Topic coercive favour 15. (p. 165) agree to Adam Smith, countries should differentiate in the labor of goods for which they start out an implicit profit and so commerce these for goods breakd by other countries. TRUE AACSB analytical BT Knowledge bar Easy information documental 5-2 Topic infinite esteem 16. (p. 167-168) Ricardos guess of matched good says that it is logical for a country to assign in the labor of goods that it produces nigh(prenominal) efficiently and to export goods that it produces less efficiently. FALSE AACSB Analytic BT Knowledgefuss Easy nurture heading 5-2 Topic Mercantilism 17. (p. 170) The rudimentary message of the possible action of comparative prefer is that potential beingness production is greater with unrestricted free contend than it is with restricted get by. TRUE AACSB Analytic BT Knowledge obstruction Easy nurture verifiable 5-3 Topic relative returns 18. (p. 170) Smiths hypothesis suggests that catchrs in all nations can consume more if thither are no restrictions on art. FALSE AACSB Analytic BT Knowledge worry Easy Learning accusive 5-3 Topic isotropyal receipts 19. (p. 70) Ricardos guess is so powerful that it remains a major intellectual weapon for advocates of free care. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning design 5-3 Topic proportional Advantage 20. (p. 170-171) Nobel Prize-winning economist Paul Samuelson argued that contrary to the ideal interpretation, in accredited circumstances the possibleness of comparative proceeds prophesys that a rich country capacity rattling be worse off by switching to a free trade regime with a poor country. TRUE AACSB musing thought tr eat BT Knowledge Difficulty Easy Learning physical object 5-3Topic comparative degree Advantage 21. (p. 171) Embracing a free trade regime for an innovative thrift often implies that the country will produce less of any(prenominal)(prenominal) labor-intensive goods and more of some knowledge-intensive goods, TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning butt 5-3 Topic comparative degree Advantage 22. (p. 172) The comparative payoff model assumed that trade does not careen a countrys agate line of resources or the efficiency with which it utilizes those resources. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning design 5-3 Topic Comparative Advantage 23. (p. 74) A study over the 1950-1998 period revealed that countries that liberalized their trade regimes experienced, on average, increases in their annual branch rates of 15 percent compared to preliberalization times. FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning prey 5-3 Topic Comparati ve Advantage 24. (p. 175) condescension the short-term adjustment cost associated with adopting a free trade regime, trade would seem to produce a greater economic suppuration and high living standards in the long run, just as Ricardos scheme leads us to expect. TRUE AACSB Analytic BT Knowledge Difficulty EasyLearning accusing 5-3 Topic Comparative Advantage 25. (p. 176) Factor endowments refer to the extent to which a country is en over repayable with such instruments as land, labor, and capital. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning butt 5-2 Topic Heckscher-Ohlin Theory 26. (p. 176) The Heckscher-Ohlin scheme would predict that the united 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 speculation has been one of the least influential in outside(a)istic economics.FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 28. (p. 176) close to economists prefer the Heckscher-Ohlin possibility to Ricardos speculation be typesetters case it breaks fewer simplifying assumptions and it has been subjected to many empirical tests. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Heckscher-Ohlin Theory 29. (p. 177) Wassily Leontiefs system of the product life-cycle was based on the observation that for just about of the twentieth century, a very enormous proportion of the military personnels refreshing products were develop by distant nations and sell in he U. S. market. FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The result Life-Cycle Theory 30. (p. 177) Vernon argued that early in the life cycle of a natural tonic product, while carry is starting to grow rapidly in the unify States, bespeak in other ripe(p) countries is unattached to all income groups. FALSE AACSB A nalytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic The product Life-Cycle Theory 31. (p. 178) Historically, the product life-cycle possibility seems not to be an accurate explanation of international trade conventionalisms. 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 perspective, Vernons stemma that almost crude products are highly-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 saucy trade theory began to emerge in the 1970s when a number of economists passed out that the talent of firms to attain economies of shield efficacy have important implications for international trade. TRUE AACSB Analytic BT Knowledge Difficulty EasyLearning Objective 5-2 Topic impertinently Trade Theory 34. (p. 180) In industries wher e economies of scale are important, both the variety of goods that a country can produce and the scale of production are particular(a) by the size of it of the market. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-3 Topic bare-assed Trade Theory 35. (p. 184) In sum, Porters argument is that the degree to which a nation is likely to achieve international success in a certain industry is a blend in of the combined tint of factor endowments, domestic demand conditions, related and backup industries, and lack of domestic rivalry.FALSE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-4 Topic case agonistic Advantage Porters rhombus 36. (p. 185) accord to Porter, advanced factors are the most momentous for hawkish advantage. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic foot(a) belligerent 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 study private-enterprise(a) Advantage Porters Diamond 38. (p. 189) The individual firm should assign substantial financial resources in laborious to build a first-mover, even if that means several years of losings in the lead a new venture becomes profitable. TRUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-5 Topic focalisation on managerial Implications 39. (p. 189) Beca pulmonary tuberculosis of their frigid role in international trade, contrastes 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 warlike advantage, a firm should rank in upgrading advanced factors of production beca persona it is in the high hat interest of backing for a firm to do so. T RUE AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-5 Topic Focus on managerial Implications Multiple Choice Questions 41. (p. 161) Which of the fol beginninging is best identified by grammatical construction it is the absence of government-imposed barriers to the free flow of goods and services betwixt countries? A. Free trade B. Mercantilism C. Socialism D. Market system AACSB Analytic BT Knowledge Difficulty EasyLearning Objective 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 buy from another country or what they can produce and move 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 a dvantage 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 buy 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 long suit Learning Objective 5-1 Topic An Overview of T rade Theory 46. (p. 162) With their future threatened by imports, _____ textile companies and their employees have tried hard to persuade the government to limit the importation of textiles by demanding 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) humour and natural resource endowments apologize why all of the following happen EXCEPT A. Brazil exports coffee. B. Iceland exports oranges. C. chinaware 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 at the same time encourage exports and discourage imports. A. ethnocentrism B. capitalism C. collectivism D. mercantilismAACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic Mercantilism 49. (p. 164) Which of the following 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 kin. C. It is in a countrys best interests to import less specialized goods than to attempt to grow them at home. D. It is in a countrys best interests to maintain a trade surplus, to export more than it imports. AACSB pondering ideaBT comprehension Difficulty fair Learning Objective 5-2 Topic Mercantilism 50. (p. 164) Considered to be the first theory of international trade, _____ headliner 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 achieve a surplus in the match of trade.B. Policies should be put in place to minimize exports and maximize imports. C. Imports should be special(a) by tariffs and quotas. D. Exports should be subsidized. AACSB Analytic BT Knowledge Difficulty intermediate 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 S mith. A. unattackable 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 remark 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. inviolable advantage AACSB Analytic BT Knowledge Difficulty 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 hence 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 musing cerebration BT acquaintance Difficulty middling 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 efficiently 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. total advantage B. mercantilism C. comparative advantage D. pa radoxical 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 at that place 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 set up of trade on income distribution inside a country. B. unvarying 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 implement their resources. AACSB musing idea BT Comprehension 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 coun try 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 strength assumption? A. Constant returns to specialization imply a concave PPF. B.Constant returns to specialization suggest that the gains from specialization 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 diminishing returns. D. Resources are of different eccentric and hence more units are required to produce each additional unit. AACSB pondering persuasion BT Comprehension 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 wild? A. The process of shifting resources from one good to another negociates human 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 renewing toward free trade has been made A. eliminates human suffering. B. auses resources to easily shift among economic activities. C. is lesser than the cost of shifting resources. D. are both hearty 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 w ith 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 trade? 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 illumination 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 C omprehension 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 openness 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) According to the Heckscher-Ohlin theory, the number of international trade is determined by differences in A. productivity. B. governmental 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 be 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 importation goods 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 equivalence of the Heckscher-Ohlin theory and the Ricardo theory of free trade? A. Both theories argue that the pattern of international trade is determined by up-to-dateness exchange rates. B. unalike Ricardos t heory, 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 due(p) 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 Hecksc her-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) unconnected 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 Learning 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 practised 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 unanimous absolute advantage over all other foreign nations because o f 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-Ohlin 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 electroni cs, and machine 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 product 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 true new product, while demand is starting to grow rapidly in the United States, demand in other advanced countries A. remains control 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. unimportant. 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. warlike 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 theory is a(n) A. relevant theory in the modern world. B. accurate explanation of international trade patterns. C. moral 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 components are produced in certain locations and why the final 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. sense of balanced trade B. Heckscher-Ohlin C. new trade D. product life-cycleAACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic New Trade Theory 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. fall 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. Hecksch er-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 front man 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 adjoin on economies of scale, trade can increase the variety of goods available to consumers and A. reduce the stack of the goods produced. B. eliminate competition.C. lower the costs of the goods. D. reduce the type 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 small, there may not be enough demand to enable producers to net _____ for certain products. A. high volumes B. economies of sc ale C. low unit costs D. competitive pricing AACSB Analytic BT Comprehension Difficulty Medium Learning Objective 5-3 Topic New Trade Theory 93. (p. 181) Which of the following is NOT an index finger 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 come 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 respect? A. Benefit from a high cost stru cture. 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 subsequently dominate world(a) trade in that product. A. omparative B. late entrant C. first-mover D. constant return 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 oddly 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 Tra de 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 new 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 interference 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 give-up the ghost 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 case 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 internal Competitive Advantage Porters Diamond 102. (p. 184) Porters suggested four attributes making 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 special ization. D. demand conditions. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic content 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 Competitive Advantage Porters Diamond 104. (p. 184) According to Porters diamond, a nations position in factors of production such as skilled labor or the cornerstone requisite to compete 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 make headway or impede the creation of competitive advantage. exclusively of the following are attributes EXCEPT 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. chance government. AACSB Analytic BT Knowledge Difficulty Easy Learning Objective 5-2 Topic National Competitive Advantage Porters Diamond 107. (p. 185) In the linguistic context of factor endowments, which of the following are considered to be classed as advanced fac tors? 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 upgradin g 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 investment 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 Competitive 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 development AACSB Analytic BT Knowledge Dif ficulty 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 unremarkably required for the diamond to boost A. international recognition. B. competitive performance. C. corporate affectionate 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 Top ic 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. capital-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 planning 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 Objective 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 compatible with the concept 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 concept 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 philosophy 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) Describe Adam Smiths concept of absolute advantage. According to Smith, countries should specialize in the production of goods for which 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 wine. 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 Englan d). 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 usual 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 t he 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 commercial 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 jet aircraft not because it is better endowed with the factors of production required to manufacture 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 sufficient 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 olibanum 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 impossible to match. AACSB Reflective 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 Rivalry 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 most 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 a re 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 verbalize 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 mention 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 commitmen t 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