Question 1

Which of the following is true of the four attributes that make Porter's diamond?

Accepted Answer

Porter's diamond emphasizes the importance of four attributes - factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. The effect of one attribute is contingent on the state of the others, and they mutually reinforce each other. Therefore, the absence of one attribute impacts the effectiveness of the entire system. Chance events, such as major innovations, can affect Porter's diamond. However, government policies can influence the diamond regardless of the presence or absence of one of the four attributes.

Question 2

According to Porter's diamond,what are factor endowments?

Accepted Answer

According to Porter's diamond, factor endowments refer to the position of a nation regarding the components of production necessary to compete in a given industry. This includes factors such as natural resources, human resources, capital resources, and infrastructure.

Question 3

According to the new trade theory,trade,through its impact on economies of scale,is most likely to:

Accepted Answer

The new trade theory suggests that trade can decrease the average costs of goods by allowing firms to achieve economies of scale through increased production. This means that as production increases, the cost per unit decreases, leading to lower prices and increased consumer surplus. Therefore, the most likely outcome of trade, according to this theory, is a decrease in average costs rather than a decrease in the volume of goods produced or variety available to consumers. The theory also does not suggest that trade inhibits first-mover advantages, nor does it only benefit nations that differ in resource endowments or technology.

Question 4

Which of the following was being determined by the research that led to the development of the theory of national competitive advantage?

Accepted Answer

The research that led to the development of the theory of national competitive advantage aimed to determine why some countries succeed and others fail in international competition.

Question 5

Which of the following is true of a world without trade that has industries where economies of scale are important?

Accepted Answer

Without trade, industries with economies of scale would have a limited market size and therefore limited production, resulting in a limited variety of goods that a country can produce.

Question 6

According to the new trade theory,which of the following is most likely to be a result of market expansion due to trade?

Accepted Answer

According to the new trade theory, when there is market expansion due to trade, each nation may specialize in producing a narrower range of products, importing goods that it does not make. This is because trade allows countries to take advantage of economies of scale and specialization, leading to increased efficiency and lower costs.

Question 7

Which of the following is an empirically supported prediction of the new trade theory?

Accepted Answer

The new trade theory predicts that trade can increase the specialization of production within an industry, leading to economies of scale and lower costs. This is supported by empirical evidence. Choice B is a prediction of the traditional theory of comparative advantage, while choice C is a controversial topic and not necessarily supported by empirical evidence. Choice D is not a prediction of the new trade theory. Choice E is a prediction of the traditional theory of comparative advantage, not the new trade theory.

Question 8

The new trade theory is at variance with the _____ theory,which suggests that a country will predominate in the export of a product when it is particularly well endowed with those factors used intensively in its manufacture.

Accepted Answer

The Heckscher-Ohlin theory suggests that a country will have a comparative advantage in producing and exporting products that utilize factors of production that are abundantly available in that country. In contrast, the new trade theory suggests that countries can develop a competitive advantage in certain industries, even if they do not have a comparative advantage in the production of the goods.

Question 9

One of the suggestions of the new trade theory is that:

Accepted Answer

The new trade theory suggests that nations may benefit from trade even when they do not differ in resource endowments or technology.

Question 10

Which of the following advantages is most likely to be enjoyed by a company as a part of the first-mover advantages?

Accepted Answer

First-mover advantages refer to the benefits that first entrants into a market enjoy over subsequent entrants. One of the most significant advantages of being a first mover is the ability to capture scale economies ahead of later entrants, allowing the company to generate higher profits and lower costs.

Question 11

The new trade theory diverts from its advocacy of free trade by:

Accepted Answer

The new trade theory, while still recognizing the benefits of free trade, suggests that governments should take an active role in promoting and supporting trade policies to help their domestic industries compete in global markets. This is a departure from the traditional focus on laissez-faire policies in free trade.

Question 12

The economic and strategic advantages that accrue to early entrants in an industry are called:

Accepted Answer

The economic and strategic advantages that accrue to early entrants in an industry are called first-mover advantages. These advantages could include building strong brand recognition, establishing distribution networks, acquiring scarce resources, etc.

Question 13

Which of the following formed the crux of Porter's 1990 study of national competitive advantage?

Accepted Answer

Porter's 1990 study focused on determining how a country achieves international success in a particular industry, which involves analyzing the competitive advantage that a country has in that industry. This is known as the theory of competitive advantage. The other options do not accurately reflect the main focus of Porter's study.

Question 14

Which of the following creates a barrier to subsequent entries in an industry dominated by first movers?

Accepted Answer

The ability of first movers to benefit from increasing returns creates a barrier to subsequent entries in an industry because as the first movers' production volume increases, they are able to lower their costs and prices, making it difficult for new firms to compete with them. This puts the first movers in a dominant position and makes it hard for new firms to enter and succeed in the marketplace.

Question 15

Which of the following is one of the four factors included in Porter's diamond?

Accepted Answer

Firm strategy, structure, and rivalry is one of the four factors included in Porter's diamond, which emphasizes the importance of the domestic market and the level of competition within it for an industry's competitiveness. Purchasing power parity, gross national income, economies of scale, and gross domestic product are not included as factors in Porter's diamond.

Question 16

Which of the following theories generates for government intervention and strategic trade policy?

Accepted Answer

The New trade theory argues that government intervention and strategic trade policy can help foster industries that could be internationally competitive. The other theories do not support government intervention or strategic trade policy.

Question 17

According to the new trade theory,how does trade offer an opportunity for mutual gain when countries do not differ in their resource endowments or technology?

Accepted Answer

According to the new trade theory, trade can offer mutual gain through increased product variety and lower costs for consumers. This is because trade allows countries to specialize in certain industries and produce a greater variety of goods than they would be able to produce on their own. This specialization results in economies of scale, which can lead to lower production costs and ultimately lower prices for consumers. Additionally, the increased competition from trade can incentivize firms to become more efficient and improve their technology, leading to further gains in productivity and economic growth.

Question 18

According to the new trade theory:

Accepted Answer

According to the new trade theory, countries may have dominant firms in certain industries because they were the first to produce that good, giving them a first-mover advantage. This can lead to trade patterns where certain countries dominate in exporting certain goods. This is known as the theory of strategic trade policy. Options A, B, D, and E are incorrect as they do not accurately represent the main ideas of the new trade theory.

Question 19

Which of the following is a component of Porter's diamond?

Accepted Answer

Demand conditions are one of the four components of Porter's diamond, alongside factor conditions, related and supporting industries, and firm strategy, structure, and rivalry. Demand conditions refer to the size and nature of the domestic market for a particular industry. Strong demand can create advantages for local firms and spur innovation and upgrading.

Question 20

Which of the following is a result of certain products having small national markets,in the absence of trade?

Accepted Answer

When certain products have small national markets and there is no trade, demand for such products is limited, which leads to non-realization of economies of scale. This, in turn, makes it difficult for producers to achieve low unit costs and prices at low volumes of production. Therefore, choice B is the correct answer.

Quiz 6: International Trade Theory