Question 1

Mercantilism was considered to be the last and most successful theory of international trade.

Accepted Answer

Mercantilism was an early theory of international trade that advocated for a positive balance of trade, but it was not the last nor considered the most successful. Later theories, such as comparative advantage, have been more influential in shaping modern international trade policies.

Question 2

Raymond Vernon proposed the product life-cycle theory in the early 1960s in response to the failure of the Heckscher-Ohlin theory to explain the observed pattern of international trade in the US.

Accepted Answer

Raymond Vernon indeed proposed the product life-cycle theory in the early 1960s, aiming to address the limitations of the Heckscher-Ohlin theory in explaining the patterns of international trade, particularly those observed in the United States. This theory suggests that a product goes through different stages (introduction, growth, maturity, and decline) and that the location of production shifts internationally through these stages.

Question 3

The most contentious implication of new trade theory is that it suggests governments should have no role in trade regulation.

Accepted Answer

New trade theory actually suggests that there can be strategic advantages for governments to intervene in trade, particularly in supporting emerging industries or sectors where economies of scale can be achieved, contrary to the idea of no role in trade regulation.

Question 4

Michael Porter's (1990) 'diamond' shows four attributes of a nation: (a) factor endowments; (b) demand conditions; (c) relating and supporting industries; and (d) firm strategy, structure and rivalry. Focus therefore centres on national competitive advantage.

Accepted Answer

Michael Porter's Diamond Model indeed identifies these four determinants (factor endowments, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry) as key to understanding the competitive advantage of nations.

Question 5

Which of the following has historically been noted as being an accurate explanation for international trade patterns?&#10;A) Product life-cycle theory&#10;B) Absolute advantage theory&#10;C) Internationalisation 'stage' theory&#10;D) The Leontief paradox

Accepted Answer

The product life-cycle theory explains international trade patterns by suggesting that products go through a cycle of introduction, growth, maturity, and decline, influencing where they are produced and exported.

Question 6

A contentious issue in the new trade theory is that it generates an argument for __________________ and ____________________.&#10;A) low-cost production; government intervention&#10;B) increased trade; government intervention&#10;C) government intervention; economies of scale&#10;D) government intervention; strategic trade policy

Accepted Answer

The new trade theory suggests that government intervention and strategic trade policy can help a country's firms gain a competitive advantage in international markets, which is why option D is correct.

Question 7

The theories of international trade claim that promoting free trade is generally in the best interests of a country, although it may not be in the best interests of ____________.&#10;A) firms&#10;B) governments&#10;C) multipoint competition&#10;D) society

Accepted Answer

Free trade can lead to increased competition and efficiency, benefiting the country as a whole, but individual firms may face challenges such as increased competition from foreign companies, which may not be in their best interests.

Question 8

British economist John Dunning, who became known for developing the 'eclectic paradigm', suggested the following elements of advantage:&#10;A) operations, localisation and internationalisation.&#10;B) outsourcing, legal and institutional.&#10;C) ownership, location and internalisation.&#10;D) oligopolistic, language and intellectual.

Accepted Answer

John Dunning's eclectic paradigm suggests that for a company to engage in foreign direct investment, it must have advantages in three key areas: ownership (O), location (L), and internalisation (I). These elements explain why companies choose to invest abroad and how they benefit from such investments.

Question 9

A firm that starts international operations soon after formation has become known in the literature as:&#10;A) a global start-up.&#10;B) an international new venture.&#10;C) a born global.&#10;D) a universal corporation.

Accepted Answer

A firm that begins international operations shortly after its formation is referred to as a "born global." This term captures the essence of companies that, from or near their inception, seek to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries.

Question 10

Because of their pivotal role in international trade, _________ can exert strong influence on government trade policies.&#10;A) unions&#10;B) entrepreneurs&#10;C) lobbyists&#10;D) businesses

Accepted Answer

Businesses are key players in international trade and can influence government trade policies to favor their interests.

Question 11

According to Porter's theory, governments should be urged to ________________ that will have a favourable impact on each component of the national diamond.&#10;A) reject lobby attempts&#10;B) accept foreign manufacturing techniques&#10;C) adopt policies&#10;D) divest outdated materials

Accepted Answer

The answer of According to Porter's theory, governments should be...

Question 12

Researchers from around the world have identified (mostly) ________________ firms that have internationalised rapidly.&#10;A) labour-intensive&#10;B) manufacturing&#10;C) high-technology&#10;D) mining

Accepted Answer

The answer of Researchers from around the world have identified...

Question 13

______________________ are unit cost reductions associated with a large scale of output.&#10;A) Location-specific advantages&#10;B) Competitive advantages&#10;C) Economies of scale&#10;D) Positive-sum games

Accepted Answer

The answer of ______________________ are unit cost reductions associated with...

Question 14

Because of substantial economies of scale, the __________ theory argues that in many industries there are increasing returns to specialisation.&#10;A) 'stage'&#10;B) product life-cycle&#10;C) new trade&#10;D) Heckscher-Ohlin

Accepted Answer

The answer of Because of substantial economies of scale, the...

Question 15

New trade theory points out that through its impact on economies of scale, trade can increase the variety of goods available to consumers and _______ the average costs of those goods.&#10;A) alleviate&#10;B) maintain&#10;C) decrease&#10;D) spread

Accepted Answer

The answer of New trade theory points out that through...

Question 16

Who initially proposed the product life-cycle theory in the mid-1960s?&#10;A) Porter&#10;B) Heckscher-Ohlin&#10;C) Vernon&#10;D) Smith

Accepted Answer

The answer of Who initially proposed the product life-cycle theory...

Question 17

Which of the following has historically been considered an accurate explanation for international trade patterns?&#10;A) Product life-cycle theory&#10;B) Absolute advantage theory&#10;C) Competitive advantage theory&#10;D) Theory of comparative advantage

Accepted Answer

The answer of Which of the following has historically been...

Question 18

Psychic distance relates to:&#10;A) those factors that impede the flow of information between the firm and an international market.&#10;B) the challenge of overcoming attitudinal differences relating to quality.&#10;C) the distance between the trial stage of a new product and its widespread introduction.&#10;D) the attitudinal difference between the overseas production/manufacturing units and the home-country manufacturing plants.

Accepted Answer

The answer of Psychic distance relates to:&#10;A) those factors that...

Question 19

In relation to the Uppsala models, which of the following statements is incorrect?&#10;A) There are four major stages of internationalisation.&#10;B) The stage models are limited in their ability to predict the internationalisation of small- to medium-sized firms.&#10;C) The stage models suggest an incremental sequential approach to internationalisation.&#10;D) Some researchers have criticised the stage models for being too 'deterministic'.

Accepted Answer

The answer of In relation to the Uppsala models, which...

Question 20

International new ventures and born globals internationalise rapidly due to reduced trade barriers and shorter product life cycles. These firms:&#10;A) do not follow an incremental sequential process to internationalisation.&#10;B) follow a definitive path in their development based on scale.&#10;C) are technology, media and telecommunications firms.&#10;D) have economies of scale enabling them to enter new markets.

Accepted Answer

The answer of International new ventures and born globals internationalise...

Question 21

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.&#10;A) collectivism's&#10;B) mercantilism's&#10;C) capitalism's&#10;D) economic conservatism's

Accepted Answer

The answer of Considered to be the first theory of...

Question 22

The flaw of mercantilism was that it viewed trade as __________________.&#10;A) a zero-sum game&#10;B) an economic necessity&#10;C) an import-only activity&#10;D) a positive-sum game

Accepted Answer

The answer of The flaw of mercantilism was that it...

Deck 2: Theories of Trade: Investment and Internationalisation