Question 1

The ________ rests on the premise that countries differ in the type and quantity of production factors they possess.

Accepted Answer

The factor proportions theory, also known as the Heckscher-Ohlin theory, is based on the idea that countries possess different production factors such as labor, capital, and natural resources in varying quantities and proportions. According to this theory, countries will specialize in producing goods that make intensive use of their abundant factors, and trade these goods with other countries in exchange for goods that make intensive use of their scarce factors.

Question 2

Which of the following is an element of the comparative advantage principle?

Accepted Answer

The principle of comparative advantage involves the relative efficiency of production, meaning a country, company, or individual can produce a good at a lower opportunity cost than another. This concept does not directly relate to the absolute cost of production or the balance of trade but rather focuses on the efficiency and opportunity cost of producing one good over another.

Question 3

Mercantilism Assignment (Scenario)
The final assignment for Daniel Parilla's international business class involves taking an in-depth look at one of the six classical perspectives that explain the rationale for international trade. Daniel plans to present an argument in favor of mercantilism. Daniel will be attempting to convince his classmates that mercantilism leads to national prosperity. Daniel's peers will be given the opportunity to counter his argument.
-Which of the following, if true, weakens Daniel's proposition?

Accepted Answer

Option C weakens Daniel's proposition because it highlights the downside of mercantilism. Restricting imports reduces consumer choices, which could lead to dissatisfaction among the general public. This could cause the level of public support for the practice of mercantilism to diminish, dampening the possibility of national prosperity that Daniel argues. The other options are either not directly related to the effects of mercantilism or can be seen as supporting Daniel's argument.

Question 4

Nations running a trade surplus ________.

Accepted Answer

A trade surplus occurs when a country exports more goods and services than it imports. Therefore, option C is the correct answer. A trade surplus is seen as an economic advantage for a country as it brings in more foreign currency and can lead to job growth in the exporting industries. Option A is incorrect as a trade surplus indicates that a country is exporting more than it is importing. Option B is incorrect as countries generally try to promote exports to increase their trade surplus. Option D is incorrect as it describes a trade deficit, which occurs when a country imports more goods and services than it exports.

Question 5

________ argues that increasing returns to scale, especially economies of scale, are important for superior international performance in industries that succeed best as their production volume increases.

Accepted Answer

The concept of increasing returns to scale, particularly economies of scale, is a key feature of the New Trade Theory, which argues that firms can achieve superior international performance in industries that produce high volumes of output due to lower production costs and higher efficiency.

Question 6

The ________ states that it can be beneficial for two countries to trade without barriers as long as one is relatively more efficient at producing goods or services needed by the other.

Accepted Answer

The principle of comparative advantage states that it is beneficial for countries to trade with each other as long as one country has a lower opportunity cost in producing a particular good or service than the other. This principle suggests that countries should specialize in producing goods or services in which they have a comparative advantage and then trade with other countries for goods in which they don't have a comparative advantage.

Question 7

The ________ is one of the three key modern perspectives that helps explain the development of national competitive advantage.

Accepted Answer

The answer of The ________ is one of the three...

Question 8

In the ________ phase of international product life cycle theory, knowledge about how to produce the product is widespread and manufacturing becomes straightforward.

Accepted Answer

In the standardization phase, knowledge about how to produce the product is widespread and manufacturing becomes straightforward. This is because the product has become standardized and the manufacturing process has been optimized, resulting in increased efficiency in production.

Question 9

Which of the following is true with regard to new trade theory?

Accepted Answer

According to new trade theory, trade is beneficial even for countries that produce only a limited variety of products. This is because countries can specialize in the production of specific products and benefit from economies of scale and enhanced efficiency in production. The theory also suggests that firms can gain a competitive advantage through differentiation and innovation, rather than merely achieving economies of scale. The theory is not solely based on the premise of production factors.

Question 10

Which of the following is true about the first stage of evolution in the international product life cycle theory?

Accepted Answer

The answer of Which of the following is true about...

Question 11

Mercantilism Assignment (Scenario)
The final assignment for Daniel Parilla's international business class involves taking an in-depth look at one of the six classical perspectives that explain the rationale for international trade. Daniel plans to present an argument in favor of mercantilism. Daniel will be attempting to convince his classmates that mercantilism leads to national prosperity. Daniel's peers will be given the opportunity to counter his argument.
-Which of the following statements strengthens the proposition that free trade is beneficial to nations?

Accepted Answer

Option A strengthens the proposition that free trade is beneficial to nations as it suggests that free trade reduces consumer expenses, which ultimately leads to an increase in the standard of living.

Question 12

In his International Product Life Cycle (IPLC) Theory, Raymond Vernon observed that each product and its manufacturing technologies go through three stages of evolution: introduction, maturity, and ________.

Accepted Answer

The answer of In his International Product Life Cycle (IPLC)...

Question 13

Which of the following was the analysis revealed by the "Leontief paradox"?

Accepted Answer

The "Leontief paradox" is an economic discovery made by Wassily Leontief (a Nobel laureate in economics) in 1953. According to his analysis, despite having an abundance of highly capitalized resources, the U.S. exports more labor-intensive goods than it imports and imports more capital-intensive goods than it exports. This finding was surprising, as it contradicted the traditional predictions of the Heckscher-Ohlin model. Therefore, option B is the correct answer.

Question 14

Which of the following is true about the determinants of national competitive advantage?

Accepted Answer

The strength and sophistication of buyer demand play a crucial role in facilitating the development of competitive advantages in particular industries. It emphasizes the importance of tailoring products and services to meet the demands of the local market, which in turn enhances the competitiveness of the industry. A, C, and D are incorrect as the presence of strong competitors, factors of production, and vigorous competitive rivalry among firms are factors that affect national competitive advantage, but their effects may vary depending on the industry and context.

Question 15

According to the ________, a country benefits by producing only those products in which it has complete advantage or that it can produce using fewer resources than another country.

Accepted Answer

The absolute advantage principle suggests that a country benefits by producing goods for which it has an absolute advantage, meaning it can produce more efficiently (using fewer resources) than another country.

Question 16

Which of the following is a typical outcome of free trade?

Accepted Answer

Free trade typically leads to increased competition and access to larger markets for businesses, which can result in increased economic growth and prosperity, particularly for developing countries that have historically struggled to compete in global markets. Lower tariffs and trade barriers can also lead to cheaper imported goods for consumers, further buoying the economy.

Question 17

According to Porter's competitive advantage of nations, ________ refer to the nature of home-market demand for specific products and services.

Accepted Answer

According to Porter, demand conditions refer to the nature of home-market demand for specific products and services, which can drive firms to innovate and improve their competitive advantage. The other options listed (A, B, and D) refer to other aspects of Porter's diamond model, but do not specifically address home-market demand.

Question 18

Which of the following is true about absolute advantage principle?

Accepted Answer

The absolute advantage principle allows a nation to consume more than it otherwise could, generally at lower cost. It does not address the impact of enhanced product specialization on communal welfare, nor is it the only approach that can be used to explain why nations attempt to run a trade surplus. It also does not explain the process by which firms acquire and retain value-chain activities inside the firm.

Question 19

Which of the following statements would be supported by Michael Porter?

Accepted Answer

Michael Porter is a well-known management theorist who developed the concept of "Porter's Five Forces," which helps organizations understand various competitive forces that impact their industry. According to Porter, rivalry among competitors is beneficial because it spurs innovation and drives companies to improve their products and services. Therefore, the statement "Rivalry among industry competitors spurs innovation" would be supported by Porter.

Option A is not supported by Porter, as he believes that a nation's economic prosperity can be improved through the adoption of competitive strategies. Option B is also not supported, as strong competition can actually spur innovation and lead to competitive advantage. Option C is also not supported, as demanding customers can incentivize companies to innovate and improve their offerings.

Question 20

Which of the following is the last stage of evolution in the international product life cycle theory?

Accepted Answer

The last stage of evolution in the international product life cycle theory is standardization, where the product has become fully mature and standardized, and production is outsourced to lower-cost countries. The other options (temporary monopoly, decline, and diversification) are earlier stages in the theory.

Quiz 6: Theories of International Trade and Investment