Deck 5: International Trade Theories

Question 1

__________ refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country.

A)Autonomous trade
B)Free trade
C)Clear commerce
D)Unencumbered commerce
E)NAFTA

Answer 1

B

Question 2

Which of the following statements accurately characterizes mercantilism?

A)It is a new but largely discredited doctrine
B)It is a new, highly credible doctrine
C)It is an old yet highly credible doctrine
D)It is an old and largely discredited doctrine
E)It still influences many governments

Answer 2

E

Question 3

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

A)export and import trade balance
B)an import trade embargo
C)an export trade surplus
D)an export trade deficit
E)large reserve of gold

Answer 3

C

Question 4

The success of the rose industry in Ecuador is a good example of the economic benefits of what?

A)Free trade
B)Restrictive government regulations
C)New tax rules
D)Technological advancements
E)Firm rivalry

Question 5

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

A)ethnocentrism
B)capitalism
C)collectivism
D)nationalism
E)mercantilism

Question 6

A situation in which a gain by one party results in a loss by another is called a(n) __________.

A)transfer of wealth
B)unbalanced scorecard
C)zero-sum game
D)positive-sum game
E)transaction

Question 7

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

A)retain these goods for strictly domestic sales
B)trade these goods for the goods produced by other countries
C)sell these goods to the highest domestic or international bidder
D)prohibit the import of these goods from other countries
E)stockpile these goods until international demand increases

Question 8

__________ basic argument, articulated through the theory of absolute advantage, is that a country should never produce goods at home that it can buy at a low cost from another country.

A)David Ricardo's
B)Michael Porter's
C)Bertil Ohlin's
D)Adam Smith's
E)John Vernon's

Question 9

Which of the following international management scholars first argued that countries differ in their ability to produce goods efficiently?

A)David Ricardo
B)Eli Heckscher
C)Michael Porter
D)Adam Smith
E)Raymond Vernon

Question 10

Which of the following is a situation in which all countries can benefit, even if some benefit more than others?

A)Near equivalent-result game
B)Positive-sum game
C)Balanced scorecard
D)Zero-sum game
E)Economic progression

Question 11

_______ is not consistent with the central beliefs of mercantilism.

A)Government should intervene to achieve a surplus in the balance of trade
B)Policies should be put in place to encourage exports and discourage imports
C)Imports should be limited by tariffs and quotas
D)Exports should be subsidized
E)Local manufacturing companies should be protected from foreign competition

Question 12

In his 1776 landmark book, The Wealth of Nations, __________ attacked the mercantilist assumption that trade is a zero-sum game.

A)Geert Hofstede
B)Max Weber
C)Michael Porter
D)Adam Smith
E)David Ricardo

Question 13

Hagelstam observed that in most trade negotiations, the approach of individual negotiating countries has been to press for trade _______ in areas where their own comparative competitive advantages are the strongest, and to resist _______ in areas where they are less competitive and fear that imports would replace domestic production.

A)socialization; liberalization
B)capitalization; socialization
C)liberalization; liberalization
D)capitalization; capitalization
E)equality; growth

Question 14

The theory of __________ was advanced by Adam Smith.

A)absolute advantage
B)capitalism
C)similar opportunity
D)mercantilism
E)comparative advantage

Question 15

According to David Hume, if England had a balance-of-trade surplus with France, the resulting inflow of gold and silver would:

A)have no effect on England's economic conditions
B)increase the money supply and cause inflation in England
C)England's prices would fall
D)France's prices would rise
E)increase the wealth of the monarchy

Question 16

__________, the first theory of international trade, principal assertion was that gold and silver were the mainstays of national wealth and essential to vigorous commerce.

A)Collectivism's
B)Mercantilism's
C)Capitalism's
D)Economic conservatism's
E)Market capitalism

Question 17

In his 1817 book entitled Principles of Political Economy, __________ introduced the theory of comparative advantage.

A)Adam Smith
B)David Ricardo
C)Raymond Vernon
D)Max Weber
E)Michael Porter

Question 18

_______ is a situation in which one country is more efficient at producing a product than any other country.

A)Absolute advantage
B)Relative advantage
C)Comparative advantage
D)Pertinent advantage
E)Favourable factor endowment

Question 19

The flaw with mercantilism was that it viewed trade as a __________.

A)zero-sum game
B)economic necessity
C)non essential economic activity
D)threat to a government's independence
E)luxury for consumers

Question 20

Which of the following international trade scholars was the first to explain why unrestricted free trade is beneficial to a country?

A)Adam Smith
B)Bertil Ohlin
C)Eli Heckscher
D)Paul Krugman
E)David Ricardo

Question 21

Most economists, according to the textbook, prefer the Heckscher-Ohlin theory to Ricardo's theory (i.e.comparative advantage) because which of the following two factors?

A)It makes fewer simplifying assumptions and it has been subjected to many empirical tests
B)It has been subjected to many empirical tests and it has stood the test of time
C)It makes fewer simplifying assumptions and it has been acknowledged by the World Trade Organization as the better of the two theories
D)It has been acknowledged as the better of the two theories by the World Trade Organization, and it has stood the test of time
E)Ricardo's theory is almost 200 years old, while Heckscher-Ohlin's theory is quite modern

Question 22

Which of the following statements is a fair comparison of the Heckscher-Ohlin theory and the Ricardo theory (i.e.comparative advantage) of free trade?

A)both theories argues that the pattern of international trade is determined by currency exchange rates
B)the Heckscher-Olin theory argues that the pattern of international trade is determined by trade endowments, while the Ricardo theory argues that the pattern of international trade is determined by differences in productivity
C)both theories argue that the pattern of international trade is determined by differences in productivity
D)the Heckscher-Olin theory argues that the pattern of international trade is determined by differences in productivity, while the Ricardo theory argues that the pattern of international trade is determined by trade endowments
E)the Heckscher-Olin theory argues that the pattern of international trade is determined by differences in demand conditions, while the Ricardo theory argues that the pattern of international trade is determined by national competitive advantages

Question 23

Dynamic gains in both the stock of a country's resources and the efficiency with which resources are utilized will cause a country's PPF to:

A)shift inward
B)shift outward
C)make no appreciable change
D)no longer be influential
E)reflect new technologies

Question 24

Governments often ease the transition toward free trade by _______ those who lose their jobs as a result.

A)offering welfare to
B)creating new jobs for
C)giving government jobs to
D)putting up temporary trade barriers
E)helping to retrain

Question 25

_______ argued that comparative advantage rises from differences in national factor endowments.

A)Heckscher and Ohlin
B)Smith
C)Sachs and Warner
D)Ricardo
E)Porter

Question 26

A situation in which a country specializes in producing the goods it produces most efficiently and buys the products it produces less efficiently from other countries, even if it could produce the good more efficiently itself is referred to as:

A)comprehensive advantage
B)pertinent advantage
C)comparative advantage
D)absolute advantage
E)inherent advantage

Question 27

_______ is the basic message of the theory of comparative advantage.

A)Potential world production is greater with unrestricted free trade than it is with restricted trade.
B)Potential world production is not significantly affected by trade policy.
C)Potential world production is greater with restricted trade.
D)It makes sense for a country to specialize in the production of those goods that it produces most efficiently and to buy the goods that it products less efficiently from other countries, unless this means buying goods from other countries that it could produce more efficiently itself.
E)None of these answers is correct.

Question 28

The theory of comparative advantage

A)provides a strong rationale for encouraging international trade.
B)provides a strong rationale for discouraging international trade.
C)neither encourages nor discourages international trade.
D)provides a weak rationale for discouraging international trade.
E)is considered wrong by many

Question 29

Which of these occurs if an economy is opened to trade?

A)Free trade might increase the efficiency with which a country uses its resources.
B)Economies of small-scale production would not be available as trade expands the size of the total market available to domestic firms.
C)Free trade would decrease a country's stock of resources as increased supplies of labour and capital from abroad become available for use within the country.
D)Domestic producers would be stimulated to look for new ways to increase their productivity.
E)Prices for consumer goods may increase

Question 30

In terms of explaining why some countries export automobiles, consumer electronics, and machine tools, while other countries export chemicals, watches, and jewellery, David Ricardo's theory of comparative advantage offer an explanation in terms of

A)international differences in intellectual capital.
B)international differences in labour productivity.
C)the interplay between the proportions in which the factors of production (such as land, labour, and capital) are available in different countries and the proportions in which they are needed for producing particular goods.
D)the cultural histories of the exporting nations.
E)the geographic location of potential trading partners

Question 31

To an even greater degree than the theory of absolute advantage, the theory of __________ suggests that trade is a positive-sum game in which all gain.

A)total advantage
B)mercantilism
C)comparative advantage
D)paradoxical advantage
E)eclectic paradigm

Question 32

Which theory predicts that countries will export those goods that make intensive use of those factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce?

A)Heckscher-Cormier
B)Ricardo-Olin
C)Heckscher-Olin
D)Carrier-Roller
E)Smith-Ricardo

Question 33

Frankel and Romer found that on average, a _______ percent increase in the ratio of a country's trade to its gross domestic product increases income per person by at least one-half percent.

A)10
B)27
C)1
D)50
E)2

Question 34

Swedish economists, __________ and __________, advanced a theory of trade that argued that comparative advantage arises from differences in national factor endowments.

A)Durbin; Coles
B)Heckscher; Ohlin
C)Delhomme; Rivette
D)Mouton; Penn
E)Borg; Abba

Question 35

Ricardo's theory of comparative advantage suggests that consumers in all nations can consume more if there are

A)trade restrictions on services only.
B)no trade restrictions.
C)severe trade restrictions.
D)trade restrictions on manufactured goods only.
E)restrictions on currencies

Question 36

The Heckscher-Olin theory argues that the pattern of international trade is determined by differences in:

A)productivity
B)political interests
C)factor endowments
D)national priorities
E)first mover advantages

Question 37

The Heckscher-Ohlin theory has a(n) _______ appeal.

A)political
B)commonsense
C)economic
D)cost efficiency
E)historical

Question 38

The Heckscher-Ohlin theory ________ in explaining why some countries export oil while others export textiles.

A)emphasizes the interplay between the proportions in which the factors of production (such as land, labour, and capital) are available in different countries
B)emphasizes international differences in labour productivity
C)emphasizes international differences in intellectual capital
D)emphasizes international differences in cultural histories
E)emphasizes the difference in living standards of consumers

Question 39

One of the limitations to the theory of comparative advantage is that resources do not always move easily from one economic activity to another and the process creates:

A)inflation.
B)friction and human suffering.
C)new government regulations and higher taxes.
D)new product development.
E)excessive transportation costs and retraining concerns

Question 40

The theory of comparative advantage, advanced by __________, is the intellectual basis of the modern argument for unrestricted free trade.

A)Michael Porter
B)David Ricardo
C)Bertil Ohlin
D)Adam Smith
E)Wassily Leontief

Question 41

As the market in the U.S.and other advanced nations matures, the product becomes more standardized and price becomes:

A)governmentally regulated.
B)greater.
C)unimportant.
D)the main competitive weapon.
E)more differentiated

Question 42

What is a possible explanation for observing the Leontief paradox?

A)The Leontief paradox makes perfect sense.
B)The U.S.has a special advantage in producing new products or goods made with innovative technologies.
C)Other countries don't have the technologies that the U.S.has.
D)Labour costs are much lower in developing countries
E)For many products the market size is much larger in India and China.

Question 43

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

A)first-mover advantages
B)initial-class advantages
C)early-entrant advantages
D)first-stage benefits
E)initial-entrant advantage

Question 44

Learning effects were first documented in the aerospace industry where it was found that each time accumulated output of airframes was doubled, unit costs declined to _______ percent of their previous level.

A)90
B)80
C)50
D)40
E)60

Question 45

Economies of scale and learning effects both increase the efficiency of resource utilization, therefore increasing

A)costs.
B)capital.
C)factor endowments.
D)productivity.
E)profitability

Question 46

The __________ theory argues that due to the presence of substantial scale economies, world demand will support only a few firms in many industries.

A)Heckscher-Ohlin
B)Leontief's paradox
C)product life-cycle
D)new trade
E)Porter

Question 47

_______ is/are unit cost reductions associated with a large scale of output.

A)Product life-cycle
B)Economies of scale
C)Learning effects
D)First-mover advantage
E)Late-mover volumes

Question 48

New trade theorists stress the role of the following three variables in giving firm first-mover advantages?

A)availability of capital, entrepreneurship, and favourable government policies
B)entrepreneurship, favourable foreign exchange rates, and innovation
C)luck, entrepreneurship, and innovation
D)modernization, luck, and the availability of capital
E)availability of capital, low labour costs and innovation

Question 49

Vernon's product life-cycle theory was based on the observation that for most of the 20^th century a very large proportion of the world's new products had been developed by U.S.firms and sold first in the __________ market.

A)Japanese
B)Western European
C)U.S.
D)Canadian
E)South American market

Question 50

_______ theory of international trade suggests that the production of products is likely to switch from advanced countries to developing countries over time.

A)New trade
B)Comparative advantage
C)Heckscher-Ohlin
D)Product life-cycle
E)Competitive advantage

Question 51

Contrary to what the Heckscher-Ohlin theory would predict, the United States has been a primary importer rather than an exporter of capital goods.This phenomenon is referred to as the __________ paradox.

A)Theler
B)Leontief
C)Cormier
D)Ricardo
E)Porter

Question 52

Cost savings that come from learning by doing is referred to as:

A)economies of scale.
B)first-mover advantage.
C)learning effects.
D)factor endowments.
E)late-mover advantage

Question 53

One early response to the failure of the Heckscher-Ohlin theory to explain the observed pattern of international trade was the __________.

A)theory of rising costs
B)product life-cycle theory
C)theory of comparative advantage
D)theory of cultural constraints
E)the Leontieff Paradox

Question 54

According to the textbook, historically the product-life-cycle theory is an:

A)accurate explanation of international trade patterns for manufactured goods but not for services
B)accurate explanation of international trade patterns
C)accurate explanation of international trade patterns in some countries but not in others
D)inaccurate explanation of international trade patterns
E)accurate explanation of international travel and transportation volumes

Question 55

Who initially proposed the product life-cycle theory in the mid-1960s?

A)Cormier
B)Heckscher
C)Vernon
D)Smith
E)Porter

Question 56

According to the new trade theorists, because early entrants are able to gain __________, the early entrants into an industry may get a lock on the world market that discourages subsequent entry.

A)high brand awareness
B)highly skilled employees
C)high legitimacy
D)economies of scale
E)market penetration

Question 57

The new trade theorists argue that the United States leads in exports of commercial jet aircraft not because it is better endowed with the factors of production required to manufacture aircraft, but because:

A)U.S.built commercial jet aircraft have the best safety record
B)the U.S.commercial jet aircraft industry has a lower wage rate than foreign competitors
C)the World Trade Organization has given preferential treatment to the U.S.commercial jet aircraft industry
D)one of the first movers in the industry was DeHavilland
E)one of the first movers was Boeing

Question 58

Which of the following choices correctly matches a scholar with the theory that he or she proposed?

A)Adam Smith/Comparative Advantage
B)David Ricardo/New Trade
C)Raymond Vernon/Product Life Cycle
D)Eli Heckscher/Absolute Advantage
E)Michael Porter/Factor Endowment

Question 59

Because of substantial economies of scale, the __________ theory argues that in many industries there are increasing returns to specialization.

A)Leontief's paradox
B)product life-cycle
C)new trade
D)Heckscher-Ohlin
E)Porter

Question 60

Which theory of international trade directly explains why there are only two to three producers of airlines in the world today?

A)absolute advantage
B)new trade
C)comparative advantage
D)product life cycle
E)mercantilism

Question 61

The success of the rose industry in Ecuador is a good example of the economic benefits of free trade

Question 62

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

A)new trade
B)absolute advantage
C)comparative advantage
D)national competitive advantage
E)factor endowments

Question 63

Unlike the naturally endowed basic factors, advanced factors are a product of investment by all of the following except

A)companies.
B)governments.
C)demographics.
D)individuals.
E)none of these answers is correct

Question 64

Domestic rivalry creates pressure to do all of the following except:

A)to innovate.
B)to reduce costs.
C)to improve employee relations.
D)to invest in upgrading advanced factors.
E)to improve efficiency

Question 65

Which of the following two theories justify some limited and selective government intervention to support the development of certain export-oriented industries?

A)The theory of national competitive advantage and the Heckscher-Ohlin theory
B)The theory of absolute advantage and the new trade theory
C)The Heckscher-Ohlin theory and theory of comparative advantage
D)The theory of mercantilism and the Heckscher-Ohlin theory
E)The new trade theory and theory of national competitive advantage

Question 66

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?

A)Balanced trade
B)Heckscher-Olin
C)New trade
D)Product life-cycle
E)National competitive advantage

Question 67

Who argued that successful industries within a country tend to be grouped into "clusters" of related industries?

A)Porter
B)Vernon
C)Ricardo
D)Heckscher
E)Sachs

Question 68

Porter argues that the presence of all components is usually required for the "diamond" to boost:

A)international recognition.
B)competitive performance.
C)corporate social responsibility.
D)employee morale.
E)national export surpluses

Question 69

In his study, Porter observed that there are a disproportionate number of people with finance backgrounds on the top management teams of many __________ industries.

A)Japanese
B)French
C)United States
D)South Korean
E)German

Question 70

_______, by its choice of policies, can detract from or improve national advantage.

A)A company
B)Government
C)A market
D)Individuals.
E)Shareholders

Question 71

Porter's thesis was that four broad attributes of a nation shape the environment in which local firms compete, and that these attributes promote or impede the creation of competitive advantage.All of the following is/are attributes except:

A)factor endowments
B)customs
C)firm strategy, structure, and rivalry
D)related and supporting industries
E)demand conditions

Question 72

_______ occurs(s) when employees move between firms within a region and when national industry associations bring employees from different companies together for regular conferences or workshops.

A)Employee competition
B)Espionage
C)Knowledge flows
D)First-mover advantage
E)industrial espionage

Question 73

In his study dealing with the competitive advantage of nations, Porter argued that in regard to demand conditions, a nation's firms' gain competitive advantage if their domestic consumers are __________ and __________.

A)unpretentious; passive
B)modest; passive
C)exacting; unpretentious
D)sophisticated; demanding
E)fractious; unsatisfied

Question 74

_______, according to Michael Porter, are a nation's position in factors of production such as skilled labour or the infrastructure necessary to compete in a given industry.

A)Demand endowments
B)Factor endowments
C)Factor competencies
D)Demand conditions
E)National resources

Question 75

Porter argued that in regard to factor endowments, __________ factors are the most significant for competitive advantage in his study dealing with the competitive advantage of nations.

A)standard
B)basic
C)advanced
D)complementary
E)exclusive

Question 76

In 1990, who published the results of an intensive research effort that attempted to determine why some nations succeed and others fail in international competition?

A)Eli Heckscher
B)Michael Porter
C)Bertil Ohlin
D)Raymond Vernon
E)Wassily Leontief

Question 77

According to the new trade theory, the reason Boeing was the first mover in commercial jet aircraft manufacture was that Boeing was

A)lucky and innovative.
B)creative and showed bureaucracy.
C)bureaucratic and entrepreneurial.
D)cash rich.
E)the only company large enough to assume the risk

Question 78

The New Trade Theory began to emerge in the ______

A)1960s
B)1970s
C)1980s
D)1990s
E)2000s

Question 79

The conditions governing how companies are created, organized, and managed and the nature of domestic rivalry is referred to as

A)relating and supporting industries.
B)demand conditions.
C)factor endowments.
D)firm strategy, structure, and rivalry.
E)corporate regulations

Question 80

We would expect Porter's model to predict _______, if he is correct.

A)currency exchange rates
B)membership in the World Trade Organization
C)the pattern of international trade
D)factor endowments
E)trade costs