Question 1

Propagated in the 16^th and 17^th centuries,_____ advocated that countries should simultaneously encourage exports and discourage imports.

Accepted Answer

Mercantilism is an economic theory that was popular in the 16th and 17th centuries which advocated for countries to encourage exports and discourage imports in order to increase the nation's wealth. It believed that a country's power and wealth was based on its accumulation of precious metals and therefore, its balance of trade surplus.

Question 2

Trade produces net gains for all involved and hence is a:

Accepted Answer

Trade is a positive-sum game as it creates net gains for all involved. This means that trade benefits all parties and increases overall welfare without creating any losers. It is not a zero-sum game where one party's gain is another party's loss, nor is it a balance-of-trade game or an equilibrium-gain game.

Question 3

The theory of _____,developed by Michael Porter,focuses on the importance of country factors,in addition to factor endowments,such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products.

Accepted Answer

The theory of national competitive advantage, also known as the diamond model, was developed by Michael Porter and emphasizes the importance of country-specific factors such as domestic demand, domestic rivalry, related and supporting industries, and factor conditions in determining a nation's ability to succeed in particular industries.

Question 4

According to Smith,countries should specialize in the production of goods for which they have an absolute advantage and then:

Accepted Answer

Smith's theory of absolute advantage suggests that countries should specialize in producing goods in which they have an absolute advantage (meaning they can produce the good more efficiently than other countries) and then trade these goods with other countries. This allows each country to benefit from their strengths, and potentially access goods that they are not able to produce as efficiently themselves. Therefore, option B is the best choice - countries should trade these goods for the goods produced by other countries.

Question 5

This theory explains the observed patterns of international trade by emphasizing the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods.

Accepted Answer

The theory that explains the observed patterns of international trade by emphasizing the interplay between the proportions in which factors of production are available and the proportions in which they are needed for producing particular goods is known as the Heckscher-Ohlin theory. This theory suggests that countries will specialize in producing goods that utilize their abundant factors of production and import goods that require factors that are scarce in their economy.

Question 6

Free trade:

Accepted Answer

Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country. This means that there are no restrictions or limitations on the flow of goods and services between countries. It promotes competition, specialization, and efficient resource allocation, leading to lower prices, greater consumer choice, and increased economic growth.

Question 7

According to the theory of _____,it makes sense for a country to specialize in producing the goods it produces most efficiently and buy the products it produces less efficiently from other countries,even if it could produce the good more efficiently itself.

Accepted Answer

The theory described is the principle of comparative advantage, which states that countries should focus on producing goods for which they have the lowest opportunity cost and import goods for which they have a higher opportunity cost. This allows for increased efficiency and overall benefits to global trade.

Question 8

Which theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments,but because in certain industries the world market can support only a limited number of firms?

Accepted Answer

The theory that stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments but because in certain industries, the world market can support only a limited number of firms is the New Trade theory. This theory suggests that economies of scale and network effects create a first-mover advantage for companies in certain industries, leading to concentrated production and trade in those industries.

Question 9

The theory of _____ makes a crude case for government involvement in promoting exports and limiting imports.

Accepted Answer

The theory described in the sentence is mercantilism, which advocates for government intervention in the economy to promote exports and restrict imports for the purpose of increasing a nation's wealth and power. Free trade, absolute advantage, and comparative advantage, on the other hand, all promote the benefits of international trade and generally do not support government intervention in trade.

Question 10

The different combinations of two goods that an economy could efficiently produce with limited productive resources can be referred to as a country's:

Accepted Answer

The production possibility frontier (PPF) represents the different combinations of two goods that an economy can efficiently produce with limited productive resources. It shows the trade-off between producing one good over the other, given that resources are scarce. The PPF is a graphical representation of the opportunity cost faced by an economy when it chooses to produce one good over the other. Thus, option D is the correct answer.

Question 11

The main tenet of mercantilism was that it was in a country's best interest to maintain a trade:

Accepted Answer

The main tenet of mercantilism was to maintain a trade surplus, where a country exports more than it imports, thus accumulating wealth in the form of gold, silver, and other precious metals. This was believed to be crucial for a country's economic growth and power. Balancing trade, imposing embargoes, or having a trade deficit were not deemed favorable under mercantilist principles.

Question 12

When a government limits imports via tariffs and quotas,and subsidizes exports in order to maximize exports and minimize imports,the country is following:

Accepted Answer

The strategy of limiting imports, promoting exports through subsidies, and protecting domestic industries is typical of the mercantilist philosophy, which believes that a country's wealth is measured by its accumulation of gold and silver through a positive balance of trade. This approach is seen as outdated and largely discredited by modern economists, who advocate for free trade and specialization based on comparative advantage.

Question 13

China,deliberately keeping its currency value low against the U.S.dollar in order to sell more goods to the United States,and thus amass a trade surplus and foreign exchange reserves,is viewed by critics as following a:

Accepted Answer

"Neo-mercantilist policy" refers to a country's deliberate manipulation of its currency to achieve a trade surplus and gain economic advantage at the expense of other countries. This is exactly what critics accuse China of doing by keeping its currency value low against the US dollar. Therefore, option B is the correct choice. Option A ("zero-sum game") and option C ("positive-sum game") are not applicable to this scenario, and option D ("free trade policy") is incorrect as it implies no currency manipulation.

Question 14

This theory,advanced by the 19^th-century English economist David Ricardo,forms the intellectual basis of the modern argument for unrestricted free trade.

Accepted Answer

The theory described in the question is comparative advantage, which was advanced by David Ricardo in the 19th century and argues that countries should specialize in producing goods and services in which they are relatively more efficient, and then trade with other countries to get the goods and services they need. This theory serves as the basis for the modern argument for unrestricted free trade. The Heckscher-Ohlin theory emphasizes the role of factor endowments in determining trade patterns, while mercantilism emphasizes the accumulation of gold and trade surpluses as the goal of trade policy. Absolute advantage, another theory advanced by Ricardo, argues that countries should specialize in producing goods and services in which they are absolutely more efficient.

Question 15

According to the _____,the United States is a major player in the commercial jet aircraft industry because American firms were first movers in the world market.

Accepted Answer

New trade theory suggests that the United States became a major player in the commercial jet aircraft industry due to first-mover advantages and economies of scale, which are key components of this theory.

Question 16

Mercantilism viewed trade as a(n):

Accepted Answer

Mercantilism viewed trade as a zero-sum game, where one country's gain was seen as another country's loss. This meant that countries sought to export more than they imported in order to accumulate gold and silver, which was seen as the measure of a country's wealth and power.

Question 17

Identify the theory that can be interpreted as justifying some limited government intervention to support the development of certain export-oriented industries.

Accepted Answer

The theory of national competitive advantage, also known as the diamond model, suggests that certain industries in a country may have a competitive advantage in the global market based on factors such as skilled labor, infrastructure, and government policies. This theory can be interpreted as justifying limited government intervention to support the development of these industries in order to enhance the country's overall competitiveness in the global market.

Question 18

Which of the following is an assumption of the Heckscher-Ohlin theory?

Accepted Answer

The Heckscher-Ohlin theory assumes that countries have varying endowments of the various factors of production (such as labor, capital, and natural resources) and that they will specialize in the production of goods that use their abundant factors more intensively, while importing goods that use their scarce factors more intensively. This forms the basis of the theory of comparative advantage. The other options are not assumptions of the Heckscher-Ohlin theory.

Question 19

All of the following theories show why it is beneficial for a country to engage in international trade even for products it is able to produce for itself except:

Accepted Answer

Mercantilism is a theory that suggests a country should export more than it imports in order to accumulate gold and other valuable resources. It does not necessarily take into account the benefits of international trade or comparative advantage. The other three theories listed all demonstrate how countries can benefit from engaging in international trade even for products they could produce for themselves.

Question 20

Identify the incorrect statement pertaining to Raymond Vernon's product life-cycle theory.

Accepted Answer

According to Vernon's theory, a product in the early stage of the product life cycle is typically produced in the country of its innovation and then exported to other countries. It is not imported by the country where it was innovated.

Quiz 5: International Trade Theory

Propagated in the 16^th and 17^th centuries,_____ advocated that countries should simultaneously encourage exports and discourage imports.

Trade produces net gains for all involved and hence is a:

The theory of _____,developed by Michael Porter,focuses on the importance of country factors,in addition to factor endowments,such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products.

According to Smith,countries should specialize in the production of goods for which they have an absolute advantage and then:

This theory explains the observed patterns of international trade by emphasizing the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods.

Free trade:

According to the theory of _____,it makes sense for a country to specialize in producing the goods it produces most efficiently and buy the products it produces less efficiently from other countries,even if it could produce the good more efficiently itself.

Which theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments,but because in certain industries the world market can support only a limited number of firms?

The theory of _____ makes a crude case for government involvement in promoting exports and limiting imports.

The different combinations of two goods that an economy could efficiently produce with limited productive resources can be referred to as a country's:

The main tenet of mercantilism was that it was in a country's best interest to maintain a trade:

When a government limits imports via tariffs and quotas,and subsidizes exports in order to maximize exports and minimize imports,the country is following:

China,deliberately keeping its currency value low against the U.S.dollar in order to sell more goods to the United States,and thus amass a trade surplus and foreign exchange reserves,is viewed by critics as following a:

This theory,advanced by the 19^th-century English economist David Ricardo,forms the intellectual basis of the modern argument for unrestricted free trade.

According to the _____,the United States is a major player in the commercial jet aircraft industry because American firms were first movers in the world market.

Mercantilism viewed trade as a(n) :

Identify the theory that can be interpreted as justifying some limited government intervention to support the development of certain export-oriented industries.

Which of the following is an assumption of the Heckscher-Ohlin theory?

All of the following theories show why it is beneficial for a country to engage in international trade even for products it is able to produce for itself except:

Identify the incorrect statement pertaining to Raymond Vernon's product life-cycle theory.

Quiz 5: International Trade Theory

Propagated in the 16th and 17th centuries,_____ advocated that countries should simultaneously encourage exports and discourage imports.

Trade produces net gains for all involved and hence is a:

The theory of _____,developed by Michael Porter,focuses on the importance of country factors,in addition to factor endowments,such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products.

According to Smith,countries should specialize in the production of goods for which they have an absolute advantage and then:

This theory explains the observed patterns of international trade by emphasizing the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods.

Free trade:

According to the theory of _____,it makes sense for a country to specialize in producing the goods it produces most efficiently and buy the products it produces less efficiently from other countries,even if it could produce the good more efficiently itself.

Which theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments,but because in certain industries the world market can support only a limited number of firms?

The theory of _____ makes a crude case for government involvement in promoting exports and limiting imports.

The different combinations of two goods that an economy could efficiently produce with limited productive resources can be referred to as a country's:

The main tenet of mercantilism was that it was in a country's best interest to maintain a trade:

When a government limits imports via tariffs and quotas,and subsidizes exports in order to maximize exports and minimize imports,the country is following:

China,deliberately keeping its currency value low against the U.S.dollar in order to sell more goods to the United States,and thus amass a trade surplus and foreign exchange reserves,is viewed by critics as following a:

This theory,advanced by the 19th-century English economist David Ricardo,forms the intellectual basis of the modern argument for unrestricted free trade.

According to the _____,the United States is a major player in the commercial jet aircraft industry because American firms were first movers in the world market.

Mercantilism viewed trade as a(n) :

Identify the theory that can be interpreted as justifying some limited government intervention to support the development of certain export-oriented industries.

Which of the following is an assumption of the Heckscher-Ohlin theory?

All of the following theories show why it is beneficial for a country to engage in international trade even for products it is able to produce for itself except:

Identify the incorrect statement pertaining to Raymond Vernon's product life-cycle theory.

Propagated in the 16^th and 17^th centuries,_____ advocated that countries should simultaneously encourage exports and discourage imports.

This theory,advanced by the 19^th-century English economist David Ricardo,forms the intellectual basis of the modern argument for unrestricted free trade.