Question 1

The ________ of a good is the value of what is given up to get the good.

Accepted Answer

The opportunity cost of a good is the value of what is given up to acquire that good, reflecting the trade-offs involved in any economic decision.

Question 2

Adam Smith was best known as an advocate of ________.

Accepted Answer

Adam Smith is best known for his advocacy of free-market economics, as outlined in his seminal work, "The Wealth of Nations." He argued for the benefits of an economic system based on individual self-interest guided by the "invisible hand" of the market.

Question 3

Mercantilism ________.

Accepted Answer

Mercantilism is an economic theory and practice, dominant in Europe from the 16th to the 18th century, that promotes governmental regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers. It maintains that a country's wealth is measured by its holdings of gold and silver, advocating for a positive balance of trade to increase these precious metal reserves.

Question 4

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?

Accepted Answer

The answer of Which theory suggests that a country should...

Question 5

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

Accepted Answer

The Heckscher-Ohlin theory, also known as the Heckscher-Ohlin model or H-O model, is primarily concerned with the relative factor endowments of different countries. It suggests that countries will export goods that require resources (factors of production) that are abundant domestically, and import goods that require resources that are relatively scarce. This theory extends the concept of comparative advantage by focusing on how differences in national factor endowments influence trade patterns.

Question 6

Which theory answers the question, "What determines the products for which a country will have a comparative advantage?"

Accepted Answer

The theory of relative factor endowments, also known as the Heckscher-Ohlin theory, explains that a country will have a comparative advantage in producing goods that intensively use its relatively abundant and cheap factors of production.

Question 7

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?

Accepted Answer

The theory that suggests a country should produce and export goods and services for which it has a comparative advantage is called comparative advantage. This theory proposes that a country should specialize in producing and exporting goods and services that it can produce at a lower opportunity cost than other countries and import goods and services that other countries can produce at a lower opportunity cost. This theory emphasizes the benefits of international trade and the gains from specialization and exchange for all countries involved.

Question 8

Which of the following statements is most likely true?

Accepted Answer

Nearly all countries implement some form of neomercantilist policies to protect their domestic industries and maintain competitive advantages in certain sectors. This includes tariffs, subsidies, and other measures to control trade and promote economic nationalism.

Question 9

Japan exports Toshiba Computers to the United States, and the United States exports Apple Computers to Japan. This is an example of ________.

Accepted Answer

This is an example of intraindustry trade, where countries exchange goods within the same industry, such as computers in this case.

Question 10

Which of the following was determined by Leontief?

Accepted Answer

Leontief found that contrary to the Heckscher-Ohlin theory, which would predict the capital-abundant U.S. to export capital-intensive goods and import labor-intensive goods, U.S. exports were actually less capital intensive than its imports. This finding is known as the Leontief Paradox.

Question 11

Which factors of production did Leontief focus on?

Accepted Answer

Leontief focused on capital and labor in his input-output analysis, which aimed to understand the interdependence of industries in the production process.

Question 12

What did Adam Smith believe about the ultimate effects of mercantilist policies on the health of a country's economic situation?

Accepted Answer

Adam Smith believed that mercantilist policies, which focus on accumulating wealth through trade surplus and government intervention, ultimately reduce the wealth of a country. He argued that such policies limit the potential for economic growth and efficiency by restricting free trade and the natural flow of goods and services.

Question 13

Early theories of international trade focused on the patterns of exports and imports in individual countries.

Accepted Answer

Early theories of international trade, such as Mercantilism and the Absolute Advantage theory by Adam Smith, focused on understanding why countries engage in international trade and aimed to explain the patterns of exports and imports based on the resources and capabilities of individual countries.

Question 14

Which theory incorporates the concept of opportunity cost?

Accepted Answer

Comparative advantage theory incorporates the concept of opportunity cost, as it explains how countries can benefit from specializing in producing goods for which they have the lowest opportunity cost.

Question 15

Leontief predicted that if the Heckscher-Ohlin theory held, then the United States would ________.

Accepted Answer

Leontief's paradox found that the United States, which was capital-abundant, exported labor-intensive goods and imported capital-intensive goods, contrary to the Heckscher-Ohlin theory. However, if the theory held, the U.S. would export capital-intensive goods like bulk chemicals and steel.

Question 16

Which statement is asserted by the theory of absolute advantage?

Accepted Answer

The theory of absolute advantage, proposed by Adam Smith, suggests that a country should specialize in producing and exporting goods for which it is more productive than other countries, and import goods for which other countries are more productive. This theory is based on the premise that such specialization and trade would benefit all participating countries.

Question 17

The primary flaw in the theory of absolute advantage is that the theory ________.

Accepted Answer

The primary flaw in the theory of absolute advantage is that it suggests no trade will occur when one country has an absolute advantage in all products, overlooking the benefits of trade through comparative advantage.

Question 18

Which theory promotes the notion of specializing in what you do relatively best?

Accepted Answer

Comparative advantage is the economic theory that promotes the notion of specializing in the production of goods and services where a country or individual has a lower opportunity cost compared to others. This concept encourages entities to specialize in what they do relatively best and trade for other goods or services, leading to increased efficiency and mutual benefits.

Question 19

Saudi Arabia has large crude oil reserves, and Bangladesh has a large pool of skilled workers. These are both examples of ________.

Accepted Answer

Factor endowments refer to the resources a country has available, including natural resources like oil and human resources like skilled labor.

Question 20

The Heckscher-Ohlin theory ________.

Accepted Answer

The Heckscher-Ohlin theory posits that a country will specialize in and export goods that require resources (factors of production) that are abundant domestically, and import goods that require resources in which the country is lacking. This theory emphasizes the differences in resource endowments between countries as the basis for trade.

Quiz 6: International Trade and Investment