Deck 5: Trading Internationally

Question 1

The strategic trade theory was mainly proposed for low capital-investment industries.

Answer 1

False

Question 2

The theory of national competitive advantage of industries does not take domestic demand conditions into account.

Answer 2

False

Question 3

Factor endowments is one of the four interacting aspects of the theory of national competitive
advantage of industries.

Answer 3

True

Question 4

The product life cycle theory explains patterns of trade based on factor endowments.

Question 5

The theory of national competitive advantage of industries assumes that comparative advantage always resides in the lead innovation nation.

Question 6

By trying to be self-sufficient and producing a wide range of goods,mercantilist policies help sustain the wealth of a nation in the long run.

Question 7

The theory of mercantilism viewed international trade as a zero-sum game.

Question 8

Both exporting and importing are taken into account when calculating balance of trade.

Question 9

Economist Adam Smith proposed the theory of comparative advantage.

Question 10

The product life cycle theory is the first dynamic theory to account for changes in the patterns of trade over time.

Question 11

The theory of absolute advantage is categorized as a classical theory of international trade.

Question 12

The basic concept of protectionism and mercantilism is the same.

Question 13

Strategic trade theory advocates mercantilist policy for all industries.

Question 14

Classical theories assume no foreign exchange complications.

Question 15

Government intervention in international trade was proposed by the factor endowment theory.

Question 16

The Heckscher-Ohlin theory proposed that nations will develop comparative advantage based on their locally abundant factors.

Question 17

The product life cycle theory is popularly known as the "diamond" theory.

Question 18

Classical theories are based on the assumption of perfect resource mobility.

Question 19

Trade deficit occurs when a nation exports more than it imports.

Question 20

The concept of opportunity cost is crucial to the theory of comparative advantage.

Question 21

A trade _____ is an economic condition in which a nation imports more than it exports.

A) deficit
B) surplus
C) embargo
D) VER

Question 22

In the context of NTBs,administrative policies require a certain proportion of the value of the goods made in one country to originate from that country.

Question 23

Local content requirements require a certain proportion of the value of the goods made in one country to originate from that country.

Question 24

The infant industry argument demands lesser government intervention in international trade.

Question 25

Subsidies are nontariff barriers.

Question 26

Protectionism is similar to mercantilism as they both advocated _____.

A) dividing the nations of the world into three categories based on its innovation capabilities
B) developing comparative advantages based on a nation's locally abundant factors
C) specializing in economic activities in which a nation can have an absolute advantage
D) government involvement in international trade

Question 27

In the context of tariff barriers,net losses that occur in an economy as a result of tariffs are known as deadweight costs.

Question 28

Deadweight costs occur in an economy as a result of VER.

Question 29

In the context of tariff barriers,deadweight = total inefficiency - net gain.

Question 30

In the context of NTBs,VERs are government payments to domestic firms.

Question 31

The _____ theory viewed international trade as a zero-sum game.

A) comparative advantage
B) mercantilism
C) strategic trade
D) national competitive advantage of industries

Question 32

Antidumping duties are a type of tariff barrier.

Question 33

One of the arguments against free trade is the necessity to safeguard domestic industries.

Question 34

Antidumping duties are levied on a country's exports.

Question 35

By trying to be self-sufficient and producing a wide range of goods,_____ policies reduce the wealth of a nation in the long run.

A) absolute advantage
B) laissez faire
C) free trade
D) mercantilist

Question 36

The _____ principle advocated that governments should actively protect domestic industries from imports and vigorously promote exports.

A) comparative advantage
B) absolute advantage
C) protectionism
D) factor endowment

Question 37

The absolute advantage theory is considered as the forerunner of the free trade movement.

Question 38

Political arguments against free trade focus on protectionism and infant industries.

Question 39

Trade embargoes are a means of trade intervention.

Question 40

Environmental and social responsibility can be used as political arguments to initiate trade intervention against certain countries.

Question 41

Which of the following is a modern trade theory?

A) Comparative advantage
B) National competitive advantage
C) Mercantilism
D) Absolute advantage

Question 42

Which of the following is a classical theory of international trade?

A) Comparative advantage theory
B) Product life cycle theory
C) Strategic trade theory
D) National competitive advantage of industries theory

Question 43

Which theory suggests that nations will develop comparative advantages based on their locally abundant factors?

A) Heckscher-Ohlin theory
B) Absolute advantage theory
C) Comparative advantage theory
D) Strategic trade theory

Question 44

In which of the following ways is the theory of comparative advantage linked to the Heckscher-Ohlin theory?

A) Sustainability of wealth in the short run
B) Dynamic changes in the patterns of trade over time
C) Dependency on a nation's locally available abundant factors
D) Extent to which government influences international trade

Question 45

The _____ theory is based on the assumption that the wealth of the world is fixed.

A) product life cycle
B) mercantilism
C) strategic trade
D) national competitive advantage of industries

Question 46

The _____ theory advocates government intervention in highly capital-intensive,high entry-barrier industries in which domestic firms may have little chance without government assistance.

A) product life cycle
B) laissez faire
C) strategic trade
D) absolute advantage

Question 47

Which of the following trade theories divides the nations of the world into three categories?

A) National competitive advantage of industries
B) Strategic trade
C) Factor endowment
D) Product life cycle

Question 48

Which of the following ideas is closely linked to the theory of absolute advantage?

A) All international trade must be closely regulated by governments.
B) Free market forces should determine how much to trade with minimal government intervention.
C) Governments should actively protect domestic industries from imports and vigorously promote exports.
D) Nations should specialize in economic activities in which they have comparative advantage.

Question 49

In the third stage of the product life cycle theory,the _____.

A) demand and ability to produce the product grow in developed nations
B) product is standardized
C) lead innovation nation starts exporting more and importing less
D) production of a product commanding a price premium will be concentrated in the lead innovation nation

Question 50

Which of the following is true of the strategic trade theory?

A) It provides direct policy advice.
B) It advocates complete deregulation of international trade.
C) It explains patterns of trade based on factor endowments.
D) It is the first theory to account for dynamic changes in trade patterns.

Question 51

Which of the following describes the maturing stage in the product life cycle theory?

A) The demand and ability to produce the product grow in developed nations.
B) The product is commoditized.
C) The production of the product moves to low-cost developing nations.
D) The production of a product commanding a price premium will be concentrated in the lead innovation nation.

Question 52

The theory of comparative advantage _____.

A) reduces the wealth of the nation in the short run
B) provides direct policy advice
C) explains patterns of trade based on factor endowments
D) was the first theory to incorporate dynamic changes in patterns of trade

Question 53

Which of the following is true of the absolute advantage theory of international trade?

A) It emphasizes relative advantage in one economic activity that one nation enjoys in comparison with other nations.
B) It divides the countries of the world into three categories based on innovation.
C) It advocates extensive government intervention in international trade.
D) It was the first theory that advocated free trade.

Question 54

Which of the following was the first international trade theory to account for changes in the patterns of trade over time?

A) Comparative advantage theory
B) Absolute advantage theory
C) Product life cycle theory
D) Factor endowment theory

Question 55

Which of the following assumptions are present in the classical theories of international trade?

A) Different produces have different product life cycles
B) Transportation costs should underpin foreign trade
C) Resource mobility is not easy to achieve
D) No complications in foreign exchange transactions

Question 56

In the context of tariff barriers,deadweight costs = _____.

A) total inefficiency - net gain
B) net loss - net gain
C) total inefficiency - net loss
D) total inefficiency - net gain - net loss

Question 57

Factor endowment is _____.

A) the amount of change that patterns of trade undergo over time
B) the degree to which the government allows free trade to exist in its international trade
C) the extent to which different countries possess various factors of production
D) the cost of pursuing one activity at the expense of another given alternative activity

Question 58

Which of the following describes resource mobility as assumed by the classical theories of international trade?

A) It is the assumption that a resource used in producing a product for one industry can be shifted and put to use in another industry.
B) It is the notion that countries should share their resources freely with other countries.
C) It is the expectation that all resource-based transactions will have no foreign exchange complications.
D) It is the assertion that all resources of a nation should be directly controlled by the government.

Question 59

Deadweight costs are net losses that occur when _____ are imposed.

A) import tariffs
B) import quotas
C) voluntary export restraints
D) local content requirements

Question 60

Which theory is based on the notion that competitive advantage is dependant on the four interacting aspects of factor endowments,domestic demand,firm strategy,and related and supporting industries?

A) Strategic trade theory
B) Product life cycle theory
C) Comparative advantage theory
D) National competitive advantage of industries theory

Question 61

_____ are the most direct denial of absolute or comparative advantage.

A) Quotas
B) Tariffs
C) Local content requirements
D) Subsidies

Question 62

Which of the following is true of voluntary export restraints?

A) It is an extra tax imposed by a country on its exports.
B) It is an example of a tariff barrier.
C) It is a government payment to domestic firms.
D) It is an export quota levied by a country on the quantity of its exports.

Question 63

Briefly explain the classical theory of mercantilism.

Question 64

_____ are politically motivated trade sanctions against foreign countries to signal displeasure.

A) Trade embargoes
B) VERs
C) Subsidies
D) Antidumping duties

Question 65

Discuss the political arguments against free trade.

Question 66

_____ are government payments to domestic firms.

A) Tariffs
B) Subsidies
C) Quotas
D) Trade embargoes

Question 67

_____ are restrictions on the quantity of imports.

A) VERs
B) Import quotas
C) Subsidies
D) Antidumping duties

Question 68

_____ are rules stipulating that a certain proportion of the value of the goods made in one country must originate from that country.

A) Voluntary export restraints
B) Local content requirements
C) Import quotas
D) Trade embargoes

Question 69

Elaborate on Michael Porter's "diamond" theory.

Question 70

Briefly elaborate on any three nontariff barriers (NTBs).

Question 71

Discuss the economic arguments against free trade.

Question 72

_____ are tariffs levied on imports sold below costs to drive domestic firms out of business.

A) Antidumping duties
B) Import quotas
C) Local content requirements
D) Voluntary export requirements

Question 73

Import quotas are a type of _____.

A) tariff barrier
B) nontariff barrier
C) voluntary export restraint
D) antidumping duty

Question 74

What are the few factors that determine the success and failure of firms' exports around the globe?

Question 75

Discuss the characteristics of the modern trade theories.

Question 76

Which of the following can be considered as an economic argument against free trade?

A) National security
B) Foreign policy
C) Consumer protection
D) Infant industry

Question 77

In the context of NTBs,_____ are bureaucratic rules that make it harder to import foreign goods.

A) VERs
B) administrative policies
C) local content requirements
D) deregulation policies

Question 78

Briefly explain the strengths and weaknesses of the absolute advantage and comparative advantage trade theories.