Question 1

Identify the theory that argues that advanced nations have an incentive to develop a new offering and hence such nations always tend to create a good or service for the first time.

Accepted Answer

The theory that argues that advanced nations have an incentive to develop a new offering and hence such nations always tend to create a good or service for the first time is the product life-cycle theory. This theory suggests that advanced nations have the resources and capabilities to innovate and create new products, which they can then introduce to the global market for the first time. As the product becomes more widely adopted, other countries may begin to produce it as well, leading to a decline in the advanced nation's relative advantage.

Question 2

Which of the following factors, according to Porter's national Diamond, is most likely to give a country competitive advantage over another country?

Accepted Answer

According to Porter's national diamond model, the most important factor for competitive advantage is factor conditions, including skilled labor, infrastructure, and technology. While natural resources can be an advantage, they are not the most important factor as they can be obtained through trade. Climate and demographics are also not as important as factor conditions in the diamond model.

Question 3

Identify the theory that predicts that countries will export those goods that make intensive use of factors that are locally abundant.

Accepted Answer

The theory that predicts that countries will export those goods that make intensive use of factors that are locally abundant is the Heckscher-Ohlin theory. This theory suggests that a country will specialize in and export goods that require factors of production that are abundant in that country, and import goods that require factors of production that are scarce in that country.

Question 4

Which of the following is the reason why most economists prefer Heckscher-Ohlin theory to Ricardo's theory?

Accepted Answer

Heckscher-Ohlin theory is preferred by most economists because it makes fewer simplifying assumptions and is more applicable to the real world. Unlike Ricardo's theory, it also takes into account differences in factor endowments and their impact on national competitiveness. While Ricardo's theory considers the law of marginal returns, this is not the main reason why economists prefer Heckscher-Ohlin.

Question 5

Which of the following terms refers to the unit cost reductions associated with large sized outputs?

Accepted Answer

Economies of scale refer to the unit cost reductions associated with large sized outputs. A refers to the ability of one entity to produce a good or service at a lower cost than another entity. C refers to the situation where every additional unit of input results in the same amount of output, and D refers to the situation where every additional unit of input results in smaller increases in output.

Question 6

Country X, a poor country, invents a revolutionary electronic product. The country markets this new product in other poor countries to garner large profits. This occurrence is against the idea of ____.

Accepted Answer

The theory argues that the wealth of such advanced countries as the United States gives them an incentive to develop new consumer goods. The theory also argues that new products are always introduced in developed nations.

Question 7

Which of the following theories suggests that first mover advantage is significant in the export of a good?

Accepted Answer

New trade theory suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good. Because they are able to gain economies of scale, the first movers in an industry may get a lock on the world market that discourages subsequent entry.

Question 8

Which of the following theories stress the role of luck, entrepreneurship, and innovation in the production and export of a good or service by the firms in a country?

Accepted Answer

The New trade theory emphasizes the role of luck, entrepreneurship, and innovation in producing and exporting goods or services by firms in a country, rather than just relying on comparative advantage or specialization.

Question 9

Porter argues that a nation's firms gain competitive advantage if ____.

Accepted Answer

Porter argues that a nation's firms gain competitive advantage if their domestic consumers are demanding. This is because a demanding domestic market forces firms to improve their products and services to meet the high expectations of consumers, making them more competitive in other markets as well.

Question 10

Which of the following is an example of a basic factor that a nation will possess as proposed by Porter?

Accepted Answer

Such factors as natural resources, climate, location, and demographics are basic factors. Factors such as communication infrastructure, sophisticated and skilled labor, research facilities, and technological know-how are examples of and advanced factors.

Question 11

Which of the following is one of the four attributes present in Porter's diamond?

Accepted Answer

Factor endowments refer to a country's available resources, such as natural resources or skilled labor. It is one of the four attributes included in Porter's diamond model of national advantage, which also includes related and supporting industries, firm strategy, structure, and rivalry, and demand conditions. A is incorrect because economies of scale refer to the cost advantages of producing goods or services in large quantities. C and D are incorrect because structural and procedural innovations refer to specific types of innovation, but are not part of Porter's diamond model.

Question 12

Which of the following is a major limitation of the simple Ricardian model of comparative advantage?

Accepted Answer

The simple Ricardian model of comparative advantage ignores the principle of diminishing marginal returns, which means that as more units of a good are produced, the marginal cost increases and the marginal benefit decreases. This is unrealistic as it assumes that there are no limits to specialization and assumes that the opportunity cost of producing a good remains constant regardless of how much of it is produced.

Question 13

Company A entered the production of office software before its competitors. Because of this, the company's products are more familiar among and favored by customers. This situation exemplifies the ____.

Accepted Answer

The situation described in the scenario exemplifies the first-mover advantage, which refers to the advantage a company gains by being the first to enter a market or introduce a new product. This can result in higher market share, better brand recognition, and established customer loyalty before competitors can even begin to catch up.

Question 14

Which of the following is a major disadvantage of the product life-cycle theory introduced by Vernon?

Accepted Answer

The theory is criticized for its ethnocentric outlook and its limited applicability to modern global business practices. It is also considered to be outdated in the context of globalization and the rise of emerging markets.

Question 15

Wal-Mart makes bulk purchases from its vendors and hence it is able to get better deals than its competitors. This allows Wal-Mart to offer greater discounts to its customers. In this case, Wal-Mart benefits from ____.

Accepted Answer

Wal-Mart benefits from economies of scale as it is able to make bulk purchases from its vendors and get better deals than its competitors, which allows Wal-Mart to offer greater discounts to its customers. This is a characteristic of economies of scale, where increased production results in lower per-unit costs.

Question 16

Which of the following statements is true of the Leontief Paradox?

Accepted Answer

The Leontief Paradox raised questions about the validity of the Heckscher-Ohlin theory, which suggests that countries will specialize in producing goods that use their abundant factors of production. Leontief's findings showed that the US, a capital-rich country, was importing capital-intensive goods and exporting labor-intensive goods, which contradicted the Heckscher-Ohlin theory.

Question 17

Which of the following arguments supports the Paul Samuelson's critique?

Accepted Answer

Paul Samuelson's critique argues against the traditional economic theory that free trade will always lead to economic gains for all parties involved. He argues that in some cases, a rich country engaging in free trade with a poor country may actually result in net losses for the rich country. Choice A supports this argument by stating that a rich country cannot produce net gains by engaging in free trade with a poor country. Choices B, C, and D do not support Samuelson's critique.

Question 18

Which of the following terms refers to the extent to which a country is gifted with such resources as land, labor, and capital?

Accepted Answer

Factor endowments refer to the resources available in a country including land, labor, and capital. Current accounts refer to the balance of payments for a country, national balance is not a commonly used term in economics, and national accounts refer to a system of measuring a country's economic activity including GDP and GNP.

Question 19

What will happen, according to Paul Samuelson's critique, if a rich country enters into a free trade agreement with a poor country?

Accepted Answer

Paul Samuelson's critique argues that when a rich country enters into a free trade agreement with a poor country, there will be a dynamic gain in the efficiency with which resources are used in the poor country. The poor country's productivity will improve rapidly.

Question 20

Textile industry in a nation is characterized by vigorous domestic rivalry. Which of the following observations of this nation's international competency is most likely to be true?

Accepted Answer

The presence of vigorous domestic rivalry indicates that the textile firms in this nation are constantly competing and innovating to maintain their market share. This results in the development of unique capabilities and potentially a competitive advantage in international trade. Option A may or may not be true for the specific nation in question. Option C is not necessarily true as domestic customers can still be demanding despite intense rivalry. Option D may not be true as the intense rivalry may have led to technological advancements and access to advanced factors necessary for international competency.

Quiz 6: International Trade Theory