Question 1

Using the specific factors model,assume that strawberry production requires the specific factor of land,tractor production requires the specific factor of capital,and labor is variable.If the United States is capital abundant compared to Mexico,and Mexico is land abundant compared to the United States,then in the short run with trade we would expect
A)the income of U.S.land owners to increase.
B)the income of U.S.workers to increase.
C)the income of Mexican workers to increase.
D)the income of Mexican land owners to increase.

Accepted Answer

The answer of Using the specific factors model,assume that strawberry...

Question 2

What is the Heckscher-Ohlin theorem? Using the case studies in the chapter on U.S.trade with China describe the theory and the resulting trade patterns that would support it.

Accepted Answer

The answer of What is the Heckscher-Ohlin theorem? Using the...

Question 3

The opportunity cost of producing in low-income,developing countries rises over the product cycle,according to theory.

Accepted Answer

The answer of The opportunity cost of producing in low-income,developing...

Question 4

Empirical tests of the theory of comparative advantage have provided
A)strong support for both the Ricardian and Heckscher-Ohlin models.
B)mixed support for the Ricardian model and strong support for the Heckscher-Ohlin model.
C)strong support for the Ricardian model and mixed support for the Heckscher-Ohlin model.
D)mixed support for both Ricardian and Heckscher-Ohlin models.
E)no support for either the Ricardian or the Heckscher-Ohlin models.

Accepted Answer

The answer of Empirical tests of the theory of comparative...

Question 5

If the case study on U.S./ China trade is correct in its analysis of factor abundance,
A)Chinese capital owners should see their income rise as trade increases.
B)U)S.skilled labor inputs should see their incomes fall as trade increases.
C)U)S.capital owners should see their income fall as trade increases.
D)Chinese unskilled labor should see their income rise as trade increases.

Accepted Answer

The answer of If the case study on U.S./ China...

Question 6

The bulk of offshoring is vertical,relating to producing a component piece in an overall supply chain production.

Accepted Answer

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Question 7

Which of the following would NOT be associated with the LATE PHASE of the product cycle?
A)Consumption in high income countries begins to exceed production.
B)Increasing share of output is moving to developing countries where abundant low skilled and semi-skilled labor keep production costs low.
C)Consumption continues to grow in low income countries.
D)There is experimentation and improvement in design and manufacturing.

Accepted Answer

Experimentation and improvement in design and manufacturing are typically associated with the early phase of the product cycle, not the late phase where production is established and consumption patterns are more stable.

Question 8

Which of the following is TRUE according to the case study on U.S./ China trade presented in the chapter?
A)China has relative abundance in capital.
B)China has relative abundance in skilled labor.
C)The United States has relative scarcity in unskilled labor.
D)The United States has relative scarcity in capital.

Accepted Answer

The case study likely highlights that the United States has a relative scarcity in unskilled labor compared to China, which has an abundance of it. This is a common theme in discussions of U.S./China trade dynamics.

Question 9

The O in OLI theory stands for ownership,and the asset owned can be tangible or intangible.

Accepted Answer

The statement is true. The O in OLI theory stands for ownership, and it refers to the control and rights over an asset, which can be either tangible or intangible.

Question 10

Chinese exports of toys and footwear can be explained by factor endowments,while Chinese exports of telecommunications equipment and computers and accessories can be explained by product-cycle analysis.

Accepted Answer

Factor endowments theory suggests that a country will specialize in and export products that use its abundant factors of production, while product-cycle analysis suggests that a country will export products that it has developed and are in the maturity stage of the product life cycle. Toys and footwear are labor-intensive products, utilizing China's abundant labor force, while telecommunications equipment and computers and accessories are technologically advanced products developed and exported by China.

Question 11

Tijuana,Mexico is across the border from San Diego,California.It has become a world-leading producer and exporter of television sets and computer monitors,which it assembles in modern factories owned by multinational consumer electronics firms such as Sony.Initially,these electronics were produced in the industrialized countries of their parent companies,and after several years,the production moved to Tiajuana.This is an example of
A)the product cycle.
B)intraindustry trade.
C)the specific factors model.
D)the magnification effect.
E)None of the above.

Accepted Answer

This situation is an example of the product cycle theory, which describes the international trade pattern where a product is first produced in the country where it was invented, but eventually the production shifts to other countries as the product becomes more standardized and the production costs increase. In this case, the multinational electronic firms initially produced the television sets and computer monitors in industrialized countries, but later moved the production to Tijuana as the product became more standardized and the production costs decreased.

Question 12

OLI theory is a direct contradiction of trade theory,especially trade theory based on comparative advantage.

Accepted Answer

OLI theory (Ownership, Location, Internalization theory) is not a direct contradiction of trade theory. In fact, it is a type of trade theory that explains why firms choose to engage in foreign direct investment (FDI) instead of international trade based on comparative advantage. The theory asserts that a firm's decision to invest in a foreign country depends on whether it possesses certain ownership advantages (such as proprietary technology or brand recognition), whether there are locational advantages (such as access to natural resources or a skilled workforce), and whether internalizing the production process by investing in a foreign subsidiary is more advantageous than simply exporting the product.

Question 13

Which types of workers are most likely to favor lowering trade barriers in the United States?

Accepted Answer

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Question 14

Which of the following would be associated with the early phase of the product cycle?
A)Large amounts of production in low-income,developing countries
B)A standardized product with an assembly-line style production process
C)Sophisticated marketing and customer feedback mechanisms
D)More consumption in low-income,developing countries

Accepted Answer

In the early phase of the product cycle, products are typically new and innovative, requiring sophisticated marketing strategies to introduce them to the market and gather customer feedback for further development and improvement. This phase focuses on understanding customer needs and preferences to refine the product.

Question 15

According to OLI theory,a firm might be unwilling to license its production to a foreign firm for fear that its technology may be stolen or its brand name harmed,which leads the firm to internalize control over its asset and set up its own foreign subsidiary.

Accepted Answer

This is a correct statement according to OLI theory, which states that a firm may prefer to internalize control over its assets to minimize the risk of losing its technology or brand name. This can be achieved by setting up its own foreign subsidiary rather than licensing its production to a foreign firm.

Question 16

Offshoring became a concern in the 1980s when modern communication and transport technology made it possible for firms to relocate production abroad.

Accepted Answer

This is correct. Offshoring started to become a concern in the 1980s due to advancements in communication and transport technology that made it easier for firms to move production to other countries.

Question 17

Using the specific factors model,assume that strawberry production requires the specific factor of land,tractor production requires the specific factor of capital,and labor is variable.If the United States is capital abundant compared to Mexico,and Mexico is land abundant compared to the United States,then in the short run with trade,which of the following is TRUE?
A)Mexican wages will rise more than the increase in the price of tractors in Mexico.
B)U)S.wages will rise less than the fall in the price of tractors in the United States.
C)The owners of capital in the United States will see a larger increase in their incomes in percentage terms than the increase in the price of tractors.
D)The owners of land in Mexico will see a smaller increase in their incomes in percentage terms than the increase in the price of strawberries.

Accepted Answer

In the specific factors model, the return to the specific factor (capital in the U.S. for tractors) increases more than the price of the good (tractors) due to the increased demand for the specific factor when trade occurs.

Question 18

Nations get significant advantages if they have a single,valuable,natural resource,with little downside risk.

Accepted Answer

While having a single valuable natural resource may provide some advantages, such as a source of revenue and potential for export, relying too heavily on one resource can have significant downsides. For example, if the price of the resource drops or if the resource becomes depleted, the country could face economic and social challenges. Additionally, relying on one resource can limit the development of other industries and sectors, leading to a lack of diversification in the economy.

Question 19

Offshoring by domestic firms causes job losses not job expansion in the home market.

Accepted Answer

Offshoring can lead to job losses in certain sectors, but it can also create jobs in others by allowing firms to reduce costs, expand operations, and invest in new areas domestically.

Question 20

The L in OLI theory stands for loyalty,and this factor makes it more difficult for firms to substitute foreign operations for domestic as they fear a loss of sales due to negative publicity.

Accepted Answer

The L in OLI theory stands for Location, which refers to the advantages of conducting operations in a specific location due to factors like market access, resources, and legal/regulatory environment.

Quiz 4: Comparative Advantage and Factor Endowments