Deck 5: International Trade Theory

Question 1

When a country's currency is stronger relative to other nations,domestic products are more expensive than imports.

Answer 1

True

Question 2

Trade in services tends to be relatively more important for the world's richest countries.

Answer 2

True

Question 3

The importance of trade for a nation can be measured by ________.

A) examining the amount of wealth acquired by the national government through restrictive trade policies
B) the living standards of people involved in only trade activities
C) the number of acquired territories the nation has that serves as sources of inexpensive raw materials
D) examining the volume of its trade relative to its total output

Answer 3

D

Question 4

International trade is the purchase,sale,or exchange of goods and services across national borders.

Question 5

Discuss the dangers of trade dependency.

Question 6

________ says that nations should accumulate financial wealth,usually in the form of gold,by encouraging exports and discouraging imports.

A) Absolute advantage theory
B) Factor proportions theory
C) Mercantilism
D) Communism

Question 7

Most of the world merchandise trade is composed of trade in ________.

A) minerals
B) services
C) manufactured goods
D) agricultural products

Question 8

Scenario: Better Mousetrap Inc.
Better Mousetrap Inc. is a manufacturing company that sells pest control products. Recently the company launched an innovative mousetrap with a unique design that has been selling well in the U.S. market. Senior Vice President Marc Wallace, even recommended expanding sales overseas in order to increase company revenues.
In reviewing his fulfillment process,Jack realizes that different customers opt for different types of shipping based on their preferences.Which of the following would most likely help Jack provide better shipping service to his customers?

A) introduce overnight delivery but at a very high cost
B) reduce costs by implementing a cheaper but slower delivery method
C) implement a universal delivery method to capitalize on efficiency gains
D) offer customers a choice of delivery methods with different speeds and costs

Question 9

The smallest portion of the total world trade comprises trade between ________.

A) high-income and middle-income nations
B) low-income and middle-income nations
C) developed countries
D) First World member countries

Question 10

The value of trade passing through the borders of all countries always exceeds the amount of goods and services they produce.

Question 11

Discuss the volume of international trade,and explain the role government and chance play in the growth of international trade.

Question 12

The danger of trade dependency is that ________.

A) it often leads to the exploitation of developed countries
B) political turmoil in a country might affect all dependent countries
C) the countries involved in trade often get into rivalry over trade tariff issues
D) it is difficult to end trade activities with current trade partners and find new trade partners

Question 13

Describe the potential benefits of international trade.Why would a nation trading with a neo-mercantilist country be at a disadvantage?

Question 14

Trade deficit occurs when the value of a country's exports is greater than the value of its imports.

Question 15

The condition that results when the value of a country's imports is greater than the value of its exports is called ________.

A) a trade deficit
B) economies of scale
C) a trade surplus
D) absolute advantage

Question 16

Most of the world's merchandise trade is composed of trade in manufactured products.

Question 17

A majority of the total world merchandise trade occurs among ________.

A) middle-income and low-income economies
B) high-income economies
C) newly industrialized countries
D) emerging markets

Question 18

According to Adam Smith,international trade should not be restricted by tariffs and quotas in order to give a country an absolute advantage.

Question 19

The term ________ refers to the voluntary exchange of goods,services,assets,or money between one person or organization and another across national borders.

A) sales
B) transaction
C) international trade
D) strategic management

Question 20

The condition that results when a nation's exports are greater than its imports is called ________.

A) a trade deficit
B) a trade surplus
C) mercantilism
D) dumping

Question 21

Discuss the three essential pillars of the theory of mercantilism.

Question 22

Today,countries seen by others as trying to maintain a trade surplus and expand their national treasures at the expense of other nations are accused of practicing ________.

A) totalitarianism
B) anti-mercantilism
C) social stratification
D) economic nationalism

Question 23

According to mercantilism,the accumulation of national wealth depended on the ________.

A) increase in a nation's trade surplus
B) increase in a nation's trade deficit
C) expansion of a nation's total value of trade
D) expansion of a nation's total volume of trade

Question 24

Nations following the theory of ________ believed that the world's wealth was limited and that a nation could increase its share of the pie only at the expense of its neighbors.

A) absolute advantage
B) comparative advantage
C) mercantilism
D) factor proportions

Question 25

Who proposed the theory of absolute advantage?

A) David Ricardo
B) Adam Smith
C) Bertil Ohlin
D) Raymond Vernon

Question 26

Which of the following refers to the ability of a nation to produce a good more efficiently than any other nation?

A) mercantilism
B) comparative advantage
C) absolute advantage
D) neomercantilism

Question 27

Which of the following statements is incorrect with regard to the importance of colonies for mercantilist nations?

A) They served as sources of inexpensive raw materials.
B) They served as markets for higher-priced finished goods.
C) They served as a source of military protection.
D) They served as a source of profits for mercantilist powers.

Question 28

Mercantilist countries used to amass wealth by acquiring less-developed territories around the world.

Question 29

According to mercantilism,what should a country's primary goal be?

A) protecting citizens from unfair labor practices
B) encouraging imports to prevent resource depletion
C) promoting exports to enlarge gold and silver holdings
D) ensuring sufficient labor for low-wage jobs in the textile industry

Question 30

Trade between most nations is presently characterized by a certain degree of isolationism.

Question 31

The theory of absolute advantage destroys the mercantilist idea that international trade is a ________.

A) positive-sum game
B) zero-sum game
C) negative-sum game
D) win-win game

Question 32

The measures of a nation's well-being other than the financial wealth accumulated through exports are irrelevant according to ________.

A) mercantilism
B) absolute advantage theory
C) factor proportions theory
D) new trade theory

Question 33

Which of the following is true about the theory of absolute advantage?

A) The theory accepts the mercantilist idea that international trade is a zero-sum game.
B) The theory approves the objective of national governments to acquire wealth through restrictive trade policies.
C) The theory emphasizes that nations should open their doors to trade so that people can obtain more goods at cheaper rates.
D) The theory measures a nation's wealth by how much gold and silver it has on reserve.

Question 34

One of the major pillars upon which the practice of mercantilism rested was ________.

A) economies of scale
B) pricing mechanism
C) excessive imports
D) trade surpluses

Question 35

The theory of absolute advantage measures a nation's wealth by determining the ________.

A) amount of gold it has on reserve
B) quantity of minerals it has on reserve
C) total trade volume in the country
D) living standards of its people

Question 36

Mercantilism states that nations should only concern themselves with accumulating financial wealth.

Question 37

Mercantilism views competition for the world's wealth as a positive-sum game.

Question 38

Another term for neomercantilism is ________.

A) new trade
B) free trade
C) economic nationalism
D) political nationalism

Question 39

Which theory suggests that a country should export those goods and services for which it is more productive than other countries and import those goods and services for which other countries are more productive?

A) mercantilism
B) comparative advantage
C) absolute advantage
D) specialization of countries

Question 40

Explain mercantilism.What were its major flaws?

Question 41

A product's components are manufactured in a country that can produce them at a very low cost while maintaining its quality.These components are then assembled in another country where productivity in assembly is high.This process resembles the theory of ________.

A) comparative advantage
B) mercantilism
C) the international product life cycle
D) factor proportions

Question 42

Much production in the world today closely resembles what is predicted by the ________.

A) new trade theory
B) international product life cycle
C) theory of comparative advantage
D) theory of factor proportions

Question 43

According to the theory of ________,trade is beneficial even if one country is less efficient in the production of two goods,as long as it is less inefficient in the production of one of the goods.

A) absolute advantage
B) mercantilism
C) comparative advantage
D) factor proportions

Question 44

The theories of comparative advantage and absolute advantage assume that countries are driven only by the maximization of production and consumption.

Question 45

The ability of a nation to produce a good more efficiently than any other nation is called its absolute advantage.

Question 46

If these two countries were to gain from trading with each other,this would support the notion that trade is a ________.

A) zero-sum game
B) negative experience
C) positive-sum game
D) form of economic nationalism

Question 47

When a country is not able to produce a good more efficiently than other nations,but produces the good more efficiently than it does any other good,it is said to have a(n)________.

A) absolute advantage
B) resource advantage
C) first-mover advantage
D) comparative advantage

Question 48

The theory of comparative advantage was proposed by ________.

A) David Ricardo
B) Adam Smith
C) Bertil Ohlin
D) Raymond Vernon

Question 49

Which theory suggests that a country should produce and export those goods and services for which it is relatively more productive than other countries and import those goods and services for which other countries are relatively more productive?

A) relative advantage
B) comparative advantage
C) absolute advantage
D) specialization of countries

Question 50

Which theory suggests that a country should produce and export those goods and services for which it is relatively more productive than other countries and import those goods and services for which other countries are relatively more productive?

A) relative advantage
B) comparative advantage
C) absolute advantage
D) specialization of countries

Question 51

Country A produces a ton of coffee using one unit of resources.Country B produces two tons of coffee using one unit of resources.Which of the following is true regarding Country A and Country B?

A) Country A has an absolute advantage in producing coffee.
B) Country B has an absolute advantage in producing coffee.
C) Neither Country A nor Country B has an absolute advantage in producing coffee.
D) Both Country A and Country B have an absolute advantage in producing coffee.

Question 52

Scenario: Foodland and Drinkland
Two countries, Foodland and Drinkland, produce food and drinks. In Foodland, one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks. In Drinkland, one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks.
Food Drinks
Foodland 20 10
Drinkland 12 24
Based on the above scenario,which of the following statements is true?

A) Foodland has an absolute advantage in producing food.
B) Foodland has an absolute advantage in producing drinks.
C) Drinkland has an absolute advantage in producing both food and drinks.
D) Drinkland has an absolute advantage in producing food.

Question 53

The theory of absolute advantage destroys the mercantilist idea that international trade is a zero-sum game.

Question 54

Economist David Ricardo developed the theory of comparative advantage.

Question 55

Scenario: Foodland and Drinkland
Two countries, Foodland and Drinkland, produce food and drinks. In Foodland, one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks. In Drinkland, one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks.
Food Drinks
Foodland 20 10
Drinkland 12 24
Which of the following statements is true of the above scenario?

A) Foodland has a comparative advantage in producing drinks.
B) Drinkland cannot trade with Foodland because trade is too expensive.
C) Drinkland has an absolute advantage in producing drinks.
D) Foodland should stop producing food and just produce drinks.

Question 56

The theory of absolute advantage measures a nation's wealth by the standard of living of its people.

Question 57

When there are gains to be had by both countries that are party to an exchange,international trade is considered a(n)________.

A) positive-sum game
B) equal-sum game
C) negative-sum game
D) zero-sum game

Question 58

To complete his business bookkeeping work each month,a business owner spends about 20 hours and in the process,has to give up $900 in income.If he hired a bookkeeper to do the work,the job would be completed in 15 hours and would cost him $600.Should the owner hire the bookkeeper or continue to do the work himself?

A) He should hire the bookkeeper because the bookkeeper has an absolute advantage in completing the books.
B) He should do the bookkeeping himself because he has an absolute advantage in completing the books.
C) He should hire the bookkeeper only if the bookkeeper agrees to give him a discount on the service price.
D) He should hire the bookkeeper only if the bookkeeper is willing to complete the work in 12 hours.

Question 59

Both absolute and comparative advantage theories assume that ________ is the only resource used in the production process.

A) land
B) labor
C) capital
D) equipment

Question 60

Which of the following is an assumption made by the comparative advantage theory?

A) maximization of production and consumption
B) government interference and control in trade activities
C) creation of trade deficits
D) creation of trade surpluses

Question 61

Factor proportions theory differs from the theory of comparative advantage in that the focus of factor proportions theory is on the ________.

A) usage of the most abundant factors of production, while the focus of the comparative advantage theory is on the productivity of the production process
B) accumulation of financial wealth in the form of gold by encouraging imports and discouraging exports, while the comparative advantage theory focuses on usage of the most abundant factors of production
C) productivity of the production process, while the comparative advantage theory focuses on maximization of production and consumption
D) minimization of trade surpluses, whereas the comparative advantage theory focuses on the mercantilist idea that international trade is a zero-sum game

Question 62

The factor proportions theory of international trade was developed by Heckscher-Ohlin.

Question 63

Explain the factor proportions theory and discuss why it is at odds with the new trade theory.

Question 64

Factor proportions theory states that a country will produce and export those goods that require resources abundantly available within the country.

Question 65

During which of the following stages of the international product life cycle theory does high purchasing power and buyer demand in an industrialized nation encourage a company to design and introduce a product concept?

A) product decline stage
B) new product stage
C) maturing product stage
D) standardized product stage

Question 66

Which theory listed below is also called the Heckscher-Ohlin theory?

A) relative advantage
B) comparative advantage
C) factor proportions theory
D) specialization of countries

Question 67

The theories of comparative and absolute advantage assume that specialization in the production of one particular good results in efficiency gains.

Question 68

Explain how the theory of absolute advantage conflicts with the theory of mercantilism.

Question 69

Explain the theory of comparative advantage using an example,and describe its assumptions and limitations.

Question 70

Which factors of production did Leontief focus on?

A) land and labor
B) land and technology
C) capital and labor
D) labor and technology

Question 71

Discuss the factor proportions theory and describe the evidence on this theory.

Question 72

The international product life cycle theory was put forth for ________.

A) service goods
B) abundant resources
C) manufactured goods
D) natural resources

Question 73

The ________ theory states that a country's export eventually becomes its import.

A) competitive advantage
B) factor proportions
C) international product life cycle
D) new trade

Question 74

The ________ theory states that countries produce and export goods that require resources available in abundance and import goods that require resources in short supply.

A) new trade
B) absolute advantage
C) international product life cycle
D) factor proportions

Question 75

In which stage of the international product life cycle does the innovating firm's country become a net importer of the product?

A) new product stage
B) maturing product stage
C) standardized product stage
D) never

Question 76

The international product life cycle theory was developed by ________.

A) Milton Friedman
B) Karl Marx
C) Michael Porter
D) Raymond Vernon

Question 77

During which stage of the international product life cycle theory does demand rise and remain sustained for a fairly lengthy period of time?

A) product decline stage
B) new product stage
C) maturing product stage
D) standardized product stage

Question 78

The focus of factor proportions theory is on the ________.

A) productivity of the production process
B) cost-effectiveness of the production process
C) use of depleting production factors
D) use of expensive production factors

Question 79

Factor proportions theory states that factors in great supply relative to demand will be more costly than factors in short supply relative to demand.

Question 80

How does the theory of comparative advantage differ from the factor proportions theory? Include a description of the factor proportions theory in your answer.