Deck 2: Theories of International Trade and Investment

Question 1

Farm land, diamond mines, and good climate conditions would all be categorized as comparative advantages for a region.

Answer 1

True

Question 2

The earliest efforts to explain international business emerged in the early 20th century.

Answer 2

False

Question 3

Specialization prohibits industries and laborers from being productive and profitable in the arena of international trade.

Answer 3

False

Question 4

In Adam Smith's opinion, mercantilism has a positive impact on a nation's wealth because it makes many wealthy people wealthier.

Question 5

In theory, nations which adhere to the absolute advantage principle will have higher standards of living than nations which follow principles of mercantilism.

Question 6

Modern globalization is associated with efforts by many governments to develop policies intended to encourage competitive advantage.

Question 7

Successful software and computer firms in the United States and India sustain competitive advantages by investing in research and development.

Question 8

In the contemporary world of international trade and investment, the most important source of national advantage is a country's natural resources.

Question 9

National industrial policies typically involve the creation of bureaucratic regulatory systems which discourage citizens from seeking advanced education.

Question 10

The total value of assets that MNEs own abroad through their investment activities is measured in FDI stock.

Question 11

Which of the following industries in Dubai contributes less than 10 percent towards the nation's GDP?

A) shipping
B) technology
C) financial
D) oil and gas

Question 12

Which of the following features would be considered the primary comparative advantage for the Persian Gulf nations?

A) petroleum
B) technology
C) infrastructures
D) education

Question 13

All of the following are comparative advantages that develop with time except ________.

A) entrepreneurial orientation
B) venture capital availability
C) innovative capacity
D) natural endowments

Question 14

Which of the following statements is a characteristic of a competitive advantage?

A) A competitive advantage is derived from deliberate national policies.
B) A competitive advantage is difficult for competitors to imitate.
C) A competitive advantage is also known as a country-specific advantage.
D) A competitive advantage includes acquired resources, such as labor.

Question 15

Theories regarding international trade and investment are categorized into which two groups?

A) classical and national
B) firm-level and comparative
C) nation-level and firm-level
D) competitive and comparative

Question 16

Born globals and firm internationalization are categorized under which of the following theories of international trade and investment?

A) nation-level theory
B) firm-level theory
C) competitive advantage
D) comparative advantage

Question 17

The idea that exports should be maximized and imports should be minimized is known by which of the following terms?

A) absolute advantage principle
B) comparative advantage principle
C) factor proportions theory
D) the mercantilist view

Question 18

Which of the following statements best explains the reason that many economists adhere to the concept of free trade between nations?

A) Unrestricted international trade increases the prosperity of poor nations.
B) Lower-cost imports reduce the expenses of firms by reducing wages.
C) Domestic product prices tend to remain lower than imported products.
D) Inexpensive exports increase consumer prosperity by reducing expenses.

Question 19

The idea that each nation is efficient in the production of some goods and less efficient in the production of other goods underlies which of the following concepts?

A) absolute advantage principle
B) comparative advantage principle
C) factor proportions theory
D) international product cycle theory

Question 20

Considering the relative efficiency held by nations led to which of the following concepts regarding the rationale for international trade?

A) monopolistic advantage theory
B) internalization theory
C) absolute advantage principle
D) comparative advantage principle

Question 21

All of the following statements characterize the comparative advantage principle except ________.

A) the principle provides the foundation for modern international trade
B) cost of production is less important than the ratio of production
C) the exportation of labor-intensive goods should be emphasized
D) nations can trade profitably even if manufacturing costs are high

Question 22

Modern international trade is hindered by all of the following except ________.

A) shipping
B) tariffs
C) regulations
D) technology

Question 23

According to the factor proportions theory, nations with an ample labor supply of low-skill labor, such as Mexico, should ________.

A) export wheat and import toys
B) export automobiles and import wool
C) export textiles and import pharmaceuticals
D) export beef and import electronics

Question 24

Which of the following was the analysis revealed by the Leontief paradox in the 1950s?

A) Despite an abundant pool of labor, the U.S. was exporting capital-intensive goods.
B) Despite having abundant capital, the U.S. was exporting labor-intensive goods.
C) Despite plentiful natural resources, the U.S. was importing oil and gas.
D) Despite a large agricultural network, the U.S. was importing grains.

Question 25

According to the international product cycle theory, inventors of a product earn the most profits at which of the following stages?

A) evolution
B) introduction
C) growth
D) maturity

Question 26

Which of the following is not an element of Porter's Diamond Model?

A) firm strategy, structure, and rivalry
B) demand conditions
C) quality of production
D) factor conditions

Question 27

All of the following are methods of innovation used by companies except ________.

A) design modifications
B) marketing alterations
C) production changes
D) capital outlays

Question 28

Northern Italy is recognized as a(n) ________ for the fashion industry.

A) economic hub
B) industrial cluster
C) competitive advantage
D) diamond model

Question 29

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

A) Economic prosperity depends on inherited national advantages.
B) Company structure inhibits creativity and competition.
C) Excessive competition drives focal firms to rival nations.
D) Rivalry among industry competitors spurs innovation.

Question 30

The collaboration between public and private sectors in an attempt to initiate economic development is known by which of the following terms?

A) national endowment policy
B) national fiscal policy
C) national industrial policy
D) national globalization policy

Question 31

An industrial cluster can best be described as ________.

A) factories and their support systems in a particular location
B) a synergy of various firms and suppliers
C) Silicon Valley
D) a concentration of supporting factors in the same industry in one place

Question 32

How do nations that lack natural or other resources compete in international business and trade?

A) Governments continue to encourage the export of goods and services that have been historically profitable.
B) Competitive advantages are initiated by multinational focal firms that manufacture products in impoverished nations.
C) Nations create their own competitive advantages by investing in education, industry, and infrastructures.
D) National industries are created and large public works projects are initiated to create employment opportunities.

Question 33

A comparative advantage is also called a(n) ________.

A) country advantage
B) location-specific advantage
C) inexpensive benefit capability
D) innovative capacity

Question 34

In internationalization process of a firm, what is the simplest form of international activity?

A) importing technology
B) exporting products
C) planning and research
D) establishing an overseas presence

Question 35

In the internationalization process, most firms do not engage in ________.

A) export activity
B) foreign marketing
C) cross-border transactions
D) extensive analysis and planning

Question 36

What is suggested by the increasing number of early internationalizing focal firms?

A) Born globals will become typical in the world of international trade.
B) The size of born globals cannot sustain the rigors of international trade.
C) Competition among born globals will eliminate multinational enterprises.
D) The economic stability of born globals threatens international trade.

Question 37

The importance of multinational enterprises on international trade and business ranks as a(n) ________.

A) development with much the same impact as the availability of electric power
B) historic event
C) invention not unlike manned flight
D) all of the above

Question 38

Which theory supports the idea that a firm chooses FDI as an entry strategy because an MNE can operate foreign subsidiaries more profitably than a local firm?

A) factor proportions theory
B) eclectic paradigm
C) internalization theory
D) monopolistic advantage theory

Question 39

Which of the following is a benefit of internalizing foreign-based value-chain activities?

A) The MNE maintains a monopolistic presence in foreign countries.
B) The MNE eliminates the expense of freight forwarders and customs brokers.
C) The MNE oversees control of foreign operations and ensures product quality.
D) The MNE learns new manufacturing methods from foreign partners.

Question 40

All of the following are typical examples of ownership-specific advantages except ________.

A) marketing skills
B) natural resources
C) economies of scale
D) trademarks

Question 41

Which of the following terms is used to refer to a collaborative venture which results in a new legal entity?

A) strategic alliance
B) collaborative partnership
C) joint venture
D) equity consortium

Question 42

Networks are relational assets that are conducted with all of the following entities except ________.

A) government and consultants
B) buyers and sellers
C) suppliers and distributors
D) none of the above

Question 43

Mercantilism Assignment
The final assignment for Daniel Parilla's international business class involves taking an in-depth look at one of the five 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 opportunities to counter his argument.

-One of Daniel's classmates most likely counters Daniel's argument with which of the following statements?

A) Restrictions on exports would lead to higher prices and possibly inflation.
B) Exporting firms would lose money due to the limited number of foreign consumers.
C) Consumers would be harmed by high prices and the lack of product choices.
D) Labor unions would demand higher wages and unemployment would increase.

Question 44

Mercantilism Assignment
The final assignment for Daniel Parilla's international business class involves taking an in-depth look at one of the five 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 opportunities to counter his argument.

-Classmates in favor of free trade over mercantilism would most likely cite which of the following reasons?

A) Free trade increases the standard of living by reducing consumer expenses.
B) Consumers faced with numerous product choices will spend more money.
C) Focal firms benefit from free trade because they can export more goods.
D) Free trade allows firms to raise prices and reach more international consumers.

Question 45

Kazmia Revitalization
The leaders of Kazmia, a small nation in the southern hemisphere, have called a meeting to discuss ways to encourage foreign firms to invest in Kazmia. The country was once a leader in diamond mining and exports; however, the diamond mines have been depleted. Meanwhile the standard of living in Kazmia has plummeted to its lowest level, and young people are fleeing the country. Government leaders must devise a plan to reinvigorate the once prosperous nation.

-The work of which of the following experts would be the most helpful to the leaders of Kazmia in their efforts to reinvent their country?

A) Raymond Vernon
B) Paul Krugman
C) John Dunning
D) Michael Porter

Question 46

Kazmia Revitalization
The leaders of Kazmia, a small nation in the southern hemisphere, have called a meeting to discuss ways to encourage foreign firms to invest in Kazmia. The country was once a leader in diamond mining and exports; however, the diamond mines have been depleted. Meanwhile the standard of living in Kazmia has plummeted to its lowest level, and young people are fleeing the country. Government leaders must devise a plan to reinvigorate the once prosperous nation.

-The first stage of creating a competitive advantage for Kazmia will most likely involve which of the following?

A) developing public works projects
B) redeveloping the country's diamond mines
C) creating a national industrial policy
D) creating a marketing campaign to attract young people back to Kazmia

Question 47

Kazmia Revitalization
The leaders of Kazmia, a small nation in the southern hemisphere, have called a meeting to discuss ways to encourage foreign firms to invest in Kazmia. The country was once a leader in diamond mining and exports; however, the diamond mines have been depleted. Meanwhile the standard of living in Kazmia has plummeted to its lowest level, and young people are fleeing the country. Government leaders must devise a plan to reinvigorate the once prosperous nation.

-Which of the following actions by the government would be the most beneficial for the long-term economic security of Kazmia?

A) encouraging renewed investment in the mining industry
B) developing an infrastructure of communications, technology, and transportation
C) discouraging trade relations until the nation is fiscally stable
D) passing laws and establishing regulatory systems to monitor MNE activities

Question 48

Kazmia Revitalization
The leaders of Kazmia, a small nation in the southern hemisphere, have called a meeting to discuss ways to encourage foreign firms to invest in Kazmia. The country was once a leader in diamond mining and exports; however, the diamond mines have been depleted. Meanwhile the standard of living in Kazmia has plummeted to its lowest level, and young people are fleeing the country. Government leaders must devise a plan to reinvigorate the once prosperous nation.

-Which of the following countries would provide the best example for Kazmia for achieving substantial national competitive advantage?

A) Britain
B) Guatemala
C) Spain
D) North Korea

Question 49

Earth-Rite Organic Foods
Earth-Rite Organic Foods is an MNE based in Sweden with subsidiaries located in numerous countries around the world. Earth-Rite has annual sales of $40 billion dollars and employs more than 90,000 individuals worldwide. Earth-Rite currently dominates the organic food industry, but competitors are beginning to catch up because of a growing demand for organic food. Earth-Rite is considering a "collaborative venture" with a small chain of organic grocery stores located in Brazil, a country where Earth-Rite has no stores.

-Which of the following would be most important for Earth-Rite executives to consider when deciding whether to collaborate with the Brazilian grocery store chain?

A) How much money will Earth-Rite save on advertising by entering a joint venture?
B) Will a collaborative venture enable Earth-Rite to internationalize rapidly in Brazil?
C) What is the density of international trade facilitators in Brazil?
D) Who will be responsible for training grocery store employees in Brazil?

Question 50

Earth-Rite Organic Foods
Earth-Rite Organic Foods is an MNE based in Sweden with subsidiaries located in numerous countries around the world. Earth-Rite has annual sales of $40 billion dollars and employs more than 90,000 individuals worldwide. Earth-Rite currently dominates the organic food industry, but competitors are beginning to catch up because of a growing demand for organic food. Earth-Rite is considering a "collaborative venture" with a small chain of organic grocery stores located in Brazil, a country where Earth-Rite has no stores.

-Which of the following would be a benefit for Earth-Rite if the MNE entered into a joint venture with the Brazilian grocery store chain?

A) low risks because no equity would be committed
B) simplified international value-chain activity
C) access to the Brazilian store's extensive assets
D) ease of navigation through foreign distribution channels

Question 51

In a short essay, describe the two leading theories of international trade and investment. What do economists and scholars hope to learn from an analysis of international trade and investment?

Question 52

In a short essay, explain what the world would be like without international trade.

Question 53

In a short essay, contrast the theory of mercantilism with the theory of free trade. Why is free trade preferred by most modern nations?

Question 54

How does opportunity cost relate to comparative advantage? In a short essay, explain the connection between the two terms and provide an example for illustration.

Question 55

In a short essay, explain the factor proportions theory and provide an example for illustration purposes. How does the theory differ from other international trade theories?

Question 56

In a short essay, explain what appears to be the current trend in international business.

Question 57

In a short essay, explain the international product life cycle theory and the internationalization process model. Discuss the ways in which these models describe how companies expand abroad.

Question 58

Explain the limitations of early trade theories, and discuss why born global firms exemplify a contemporary trade approach.

Question 59

Why do some MNEs enter international markets through Foreign Direct Investment (FDI) instead of through exporting? In a short essay, explain why P&G chose FDI-based entry. How does FDI-based entry relate to internalization theory?

Question 60

According to Dunning's eclectic paradigm, an MNE must meet three conditions before successfully entering a foreign market via foreign direct investment (FDI). Explain these conditions in a short essay.

Question 61

Collaborative ventures became a popular entry strategy in the 1980s. Describe the two major types of international collaborative ventures and explain the benefits of this internationalization approach.