Deck 5: International Trade

Question 1

The ability of a nation to produce a good more efficiently than any other nation is called its comparative advantage.

Answer 1

False

Question 2

The value of trade passing through the borders of all countries exceeds the amount of goods and services they produce.

Answer 2

False

Question 3

Factor proportions theory states that a country will produce and export those goods that require resources abundantly available within the country.

Answer 3

True

Question 4

According to Adam Smith,international trade should be restricted by tariffs and quotas in order to give a country an absolute advantage.

Question 5

Most of the world's merchandise trade is composed of trade in agricultural products.

Question 6

Mercantilism views competition for the world's wealth as a positive-sum game.

Question 7

Factor proportions theory states that factors in great supply relative to demand will be more costly than factors in short supply relative to demand.

Question 8

The theories of comparative advantage and absolute advantage assume that countries are driven only by the maximization of production and consumption.

Question 9

Mercantilism states that nations should only concern themselves with accumulating financial wealth.

Question 10

Economist David Ricardo developed the theory of comparative advantage.

Question 11

The factor proportions theory of international trade was developed by Wassily Leontief.

Question 12

Trade between most nations is presently characterized by a certain degree of isolationism.

Question 13

Mercantilist countries used to amass wealth by acquiring less-developed territories around the world.

Question 14

The theory of absolute advantage destroys the mercantilist idea that international trade is a zero-sum game.

Question 15

The theory of absolute advantage measures a nation's wealth by the standard of living of its people.

Question 16

International trade is the purchase,sale,or exchange of goods and services across national borders.

Question 17

Trade in services tends to be relatively more important for the world's richest countries.

Question 18

When a country's currency is weak relative to other nations,domestic products are more expensive than imports.

Question 19

The theories of comparative and absolute advantage assume that specialization in the production of one particular good results in efficiency gains.

Question 20

Trade deficit occurs when the value of a country's imports is greater than the value of its exports.

Question 21

________ says that nations should accumulate financial wealth,usually in the form of gold,by encouraging exports and discouraging imports.

A)Absolute advantage theory
B)Factor proportions theory
C)Mercantilism
D)Communism

Question 22

According to mercantilism,the accumulation of national wealth depended on the ________.

A)increase in a nation's trade surplus
B)increase in a nation's trade deficit
C)expansion of a nation's total value of trade
D)expansion of a nation's total volume of trade

Question 23

An absolute advantage is the economic and strategic advantage gained by being the first company to enter an industry.

Question 24

The smallest portion of the total world trade comprises trade between ________.

A)high-income and middle-income nations
B)low-income and middle-income nations
C)developed countries
D)First World member countries

Question 25

One of the major pillars upon which the practice of mercantilism rested was ________.

A)economies of scale
B)pricing mechanism
C)excessive imports
D)trade surpluses

Question 26

According to Michael Porter,advanced factors account for the sustained competitive advantage a country enjoys in a product.

Question 27

________ refers to the purchase,sale,or exchange of goods and services across national borders.

A)Domestic trade
B)Foreign direct investment
C)International trade
D)Mercantilism

Question 28

Most of the world merchandise trade is composed of trade in ________.

A)minerals
B)services
C)manufactured goods
D)agricultural products

Question 29

The measures of a nation's well-being other than the financial wealth accumulated through exports are irrelevant according to ________.

A)mercantilism
B)absolute advantage theory
C)factor proportions theory
D)new trade theory

Question 30

The danger of trade dependency is that ________.

A)it often leads to the exploitation of developed countries
B)political turmoils in a country might affect all dependent countries
C)the countries involved in trade often get into rivalry over trade tariff issues
D)it is difficult to end trade activities with current trade partners and find new trade partners

Question 31

A majority of the total world merchandise trade occurs among ________.

A)middle-income and low-income economies
B)high-income economies
C)newly industrialized countries
D)emerging markets

Question 32

The condition that results when the value of a nation's exports is greater than the value of its imports is called ________.

A)a trade deficit
B)a trade surplus
C)mercantilism
D)dumping

Question 33

In the maturing product stage of the international product life cycle theory,production facilities are introduced in countries with the highest demand.

Question 34

The importance of trade for a nation can be measured by ________.

A)examining the amount of wealth acquired by the national government through restrictive trade policies
B)the living standards of people involved in only trade activities
C)the number of acquired territories the nation has that serves as sources of inexpensive raw materials
D)examining the volume of its trade relative to its total output

Question 35

National competitive advantage theory states that a nation's competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.

Question 36

Companies that belong to a nation's internationally competitive industries exist in isolation from supporting industries.

Question 37

Which of the following was a prominent mercantilist nation?

A)U)S.
B)China
C)Britain
D)Japan

Question 38

Nations following the theory of ________ believed that the world's wealth was limited and that a nation could increase its share of the pie only at the expense of its neighbors.

A)absolute advantage
B)comparative advantage
C)mercantilism
D)factor proportions

Question 39

Which of the following statements is incorrect with regard to the importance of colonies for mercantilist nations?

A)They served as sources of inexpensive raw materials.
B)They served as markets for higher-priced finished goods.
C)They served as a source of military protection.
D)They served as a source of profits for mercantilist powers.

Question 40

The condition that results when the value of a country's imports is greater than the value of its exports is called ________.

A)a trade deficit
B)economies of scale
C)a break-even point
D)absolute advantage

Question 41

The theory of comparative advantage was proposed by ________.

A)David Ricardo
B)Adam Smith
C)Bertil Ohlin
D)Raymond Vernon

Question 42

Who proposed the theory of absolute advantage?

A)David Ricardo
B)Adam Smith
C)Bertil Ohlin
D)Raymond Vernon

Question 43

Country A produces a ton of coffee using one unit of resources.Country B produces two tons of coffee using one unit of resources.Which of the following is true regarding Country A and Country B?

A)Country A has an absolute advantage in producing coffee.
B)Country B has an absolute advantage in producing coffee.
C)Neither Country A nor Country B has an absolute advantage in producing coffee.
D)Both Country A and Country B have an absolute advantage in producing coffee.

Question 44

Which of the following refers to the ability of a nation to produce a good more efficiently than any other nation?

A)mercantilism
B)comparative advantage
C)absolute advantage
D)neomercantilism

Question 45

To complete his business bookkeeping work each month,a business owner spends about 20 hours and in the process,has to give up $900 in income.If he hired a bookkeeper to do the work,the job would be completed in 15 hours and would cost him $600.Should the owner hire the bookkeeper or continue to do the work himself?

A)He should hire the bookkeeper because the bookkeeper has an absolute advantage in completing the books.
B)He should do the bookkeeping himself because he has an absolute advantage in completing the books.
C)He should hire the bookkeeper only if the bookkeeper agrees to give him a discount on the service price.
D)He should hire the bookkeeper only if the bookkeeper is willing to complete the work in 12 hours.

Question 46

Factor proportions theory was developed by ________.

A)Smith and Ricardo
B)Ricardo and Ohlin
C)Heckscher and Ohlin
D)Heckscher and Smith

Question 47

When a country is not able to produce a good more efficiently than other nations,but produces the good more efficiently than it does any other good,it is said to have a(n)________.

A)absolute advantage
B)resource advantage
C)first-mover advantage
D)comparative advantage

Question 48

Which of the following is true about the theory of absolute advantage?

A)The theory accepts the mercantilist idea that international trade is a zero-sum game.
B)The theory approves the objective of national governments to acquire wealth through restrictive trade policies.
C)The theory emphasizes that nations should open their doors to trade so that people can obtain more goods at cheaper rates.
D)The theory measures a nation's wealth by how much gold and silver it has on reserve.

Question 49

Another term for neomercantilism is ________.

A)new trade
B)free trade
C)economic nationalism
D)political nationalism

Question 50

According to the theory of ________,trade is beneficial even if one country is less efficient in the production of two goods,as long as it is less inefficient in the production of one of the goods.

A)absolute advantage
B)mercantilism
C)comparative advantage
D)factor proportions

Question 51

Which of the following is an assumption made by the comparative advantage theory?

A)maximization of production and consumption
B)government interference and control in trade activities
C)creation of trade deficits
D)creation of trade surpluses

Question 52

Both absolute and comparative advantage theories assume that ________ is the only resource used in the production process.

A)land
B)labor
C)capital
D)equipment

Question 53

The theory of absolute advantage destroys the mercantilist idea that international trade is a ________.

A)positive-sum game
B)zero-sum game
C)negative-sum game
D)win-win game

Question 54

When there are gains to be had by both countries that are party to an exchange,international trade is considered a(n)________.

A)positive-sum game
B)equal-sum game
C)negative-sum game
D)zero-sum game

Question 55

Today,countries seen by others as trying to maintain a trade surplus and expand their national treasures at the expense of other nations are accused of practicing ________.

A)totalitarianism
B)anti-mercantilism
C)social stratification
D)economic nationalism

Question 56

Which of the following statements is true regarding the assumptions of the absolute and comparative advantage theories?

A)The theories assume that there are many number of countries engaged in the production and consumption of just two goods.
B)The theories assume that there are additional costs for transporting traded goods from one country to another.
C)The theories assume labor to be the only resource used in the production process.
D)The theories assume that specialization in the production of one particular good results in gains in efficiency.

Question 57

The ________ theory states that countries produce and export goods that require resources available in abundance and import goods that require resources in short supply.

A)new trade
B)absolute advantage
C)international product life cycle
D)factor proportions

Question 58

Adam Smith believed that ________.

A)governments should determine trade flows
B)market forces should determine trade flows
C)international trade should be restricted by tariffs and quotas
D)countries should produce most goods themselves and trade as little as possible

Question 59

The theory of absolute advantage measures a nation's wealth by determining the ________.

A)amount of gold it has on reserve
B)quantity of minerals it has on reserve
C)total trade volume in the country
D)living standards of its people

Question 60

The focus of factor proportions theory is on the ________.

A)productivity of the production process
B)cost-effectiveness of the production process
C)use of depleting production factors
D)use of expensive production factors

Question 61

The international product life cycle theory was put forth for ________.

A)service goods
B)abundant resources
C)manufactured goods
D)natural resources

Question 62

During which stage of the international product life cycle theory does demand rise and remain sustained for a fairly lengthy period of time?

A)product decline stage
B)new product stage
C)maturing product stage
D)standardized product stage

Question 63

Much production in the world today closely resembles what is predicted by the ________.

A)new trade theory
B)international product life cycle
C)theory of comparative advantage
D)theory of factor proportions

Question 64

Scenario: Foodland and Drinkland
Two countries,Foodland and Drinkland,produce food and drinks.In Foodland,one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks.In Drinkland,one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks.
Food Drinks
Foodland 20 10
Drinkland 12 24
Based on the above scenario,which of the following statements is true?

A)Foodland has an absolute advantage in producing food.
B)Foodland has an absolute advantage in producing drinks.
C)Drinkland has an absolute advantage in producing both food and drinks.
D)Drinkland has an absolute advantage in producing food.

Question 65

According to the Porter diamond,which of the following is an example of an advanced factor?

A)labor forces in the nation
B)technological infrastructure in the nation
C)climate in the nation
D)natural resources in the nation

Question 66

During which stage of the product life cycle are companies looking for low-cost production bases in developing nations to supply a growing worldwide market?

A)product decline stage
B)new product stage
C)maturing product stage
D)standardized product stage

Question 67

National competitive advantage theory states that a nation's competitiveness in an industry depends on ________.

A)the capacity of companies to create barriers to entry
B)the capacity of the industry to innovate and upgrade
C)the availability of government subsidies for industry development
D)the availability of cheap factors of production in the nation

Question 68

In the ________ of the international product life cycle,competition from other companies selling similar products pressures companies to lower prices in order to maintain sales levels.

A)product decline stage
B)new product stage
C)maturing product stage
D)standardized product stage

Question 69

Scenario: Chuck Praeger,Global Entrepreneur
Chuck Praeger has made a name for himself by selling high-quality golf equipment to customers in Europe.He would like to expand his business into the Pacific Rim countries and has therefore,begun making inquiries into potential distributors.
Chuck is convinced that his golf equipment will sell itself.But he is preparing a special presentation for Asian customers because he wants to make a good first impression.As an expert in culture of the Pacific Rim countries,which of the following would be your most likely advice to Chuck?

A)Be sure to have a tight legal contract ready,to avoid product piracy problems.
B)Aggressive salesmanship is unlikely to work in Pacific Rim countries.
C)Have plenty of English-language business cards to pass around because most Asians know English and like the language.
D)Avoid the confusion introduced by third-party contacts.

Question 70

During which of the following stages of the international product life cycle theory does high purchasing power and buyer demand in an industrialized nation encourage a company to design and introduce a product concept?

A)product decline stage
B)new product stage
C)maturing product stage
D)standardized product stage

Question 71

Which of the following is an argument offered by the new trade theory?

A)It is in line with the factor proportions theory.
B)There are gains to be made from specialization and increasing economies of scale.
C)The companies first to market forgo the opportunities to create barriers to entry.
D)Market forces alone play a role in assisting the home companies in a country.

Question 72

The Leontief paradox describes evidence ________.

A)in support of the predictions of the mercantilist theory
B)contrary to the predictions of the factor proportions theory
C)that the assumptions of international product life cycle theory are invalid
D)that the assumptions of the new trade theory are invalid

Question 73

The international product life cycle theory was developed by ________.

A)Milton Friedman
B)Karl Marx
C)Michael Porter
D)Raymond Vernon

Question 74

A product's components are manufactured in a country that can produce them at a very low cost while maintaining its quality.These components are then assembled in another country where productivity in assembly is high.This process resembles the theory of ________.

A)comparative advantage
B)mercantilism
C)the international product life cycle
D)factor proportions

Question 75

Factor proportions theory differs from the theory of comparative advantage in that the focus of factor proportions theory is on the ________.

A)usage of the most abundant factors of production,while the focus of the comparative advantage theory is on the productivity of the production process
B)accumulation of financial wealth in the form of gold by encouraging imports and discouraging exports,while the comparative advantage theory focuses on usage of the most abundant factors of production
C)productivity of the production process,while the comparative advantage theory focuses on maximization of production and consumption
D)minimization of trade surpluses,whereas the comparative advantage theory focuses on the mercantilist idea that international trade is a zero-sum game

Question 76

The ________ theory states that a country's export eventually becomes its import.

A)competitive advantage
B)factor proportions
C)international product life cycle
D)new trade

Question 77

Which element of national competitive advantage theory divides resources into two groups: basic and advanced?

A)demand conditions
B)factor conditions
C)related and supporting industries
D)firm,strategy,structure,and rivalry

Question 78

Scenario: Foodland and Drinkland
Two countries,Foodland and Drinkland,produce food and drinks.In Foodland,one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks.In Drinkland,one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks.
Food Drinks
Foodland 20 10
Drinkland 12 24
Which of the following statements is true of the above scenario?

A)Foodland has a comparative advantage in producing drinks.
B)Drinkland cannot trade with Foodland because trade is too expensive.
C)Drinkland has an absolute advantage in producing drinks.
D)Foodland should stop producing food and just produce drinks.

Question 79

The new trade theory is mainly at odds with the ________ theory.

A)international product life cycle
B)comparative advantage
C)national competitive advantage
D)factor proportions

Question 80

Scenario: Chuck Praeger,Global Entrepreneur
Chuck Praeger has made a name for himself by selling high-quality golf equipment to customers in Europe.He would like to expand his business into the Pacific Rim countries and has therefore,begun making inquiries into potential distributors.
Chuck believes that his business has grown because of his personal involvement in every step of the way.What advice do you offer Chuck as he continues to expand his business in new Asian markets?

A)Contact distributors directly to avoid misunderstandings that can arise when using third-party contacts.
B)Always stick to corporate settings when doing business to avoid misunderstandings that can arise in less formal environments.
C)Protect your interests by insisting on detailed contracts from the start.
D)Use proper intermediaries as required in Pacific Rim nations.