Question 1

___________ is the political and economic policy aimed at increasing a nation's wealth and power by encouraging the export of goods in return for gold.
A)Democracy
B)Autarky
C)Absolute advantage
D)Monopoly
E)Mercantilism

Accepted Answer

Mercantilism is the political and economic policy that promotes the export of goods in exchange for gold or silver, with the aim of increasing a nation's wealth and power. The policy involves a strong focus on trade, tariffs, and protectionism to ensure a favorable balance of trade, and the accumulation of precious metals. This policy was particularly popular in Europe from the 16th to the 18th centuries.

Question 2

According to the ____________,each country should specialize in the production and export of that good which it produces most efficiently,with the fewest labor hours.
A)theory of comparative advantage
B)theory of absolute advantage
C)theory of factor proportions
D)Leontief Paradox
E)product cycle theory

Accepted Answer

The theory of absolute advantage, developed by Adam Smith, posits that a country should specialize in producing and exporting goods for which it has the lowest absolute cost of production (i.e., it can produce the good using fewer resources than another country). This theory focuses on the efficiency of producing a good, measured in terms of labor hours or other resources, without considering the relative efficiency across different goods, which is the focus of the theory of comparative advantage.

Question 3

The countries of Honduras and Belize engage in trade of bananas and sugar cane. Although Honduras has an absolute advantage in the production of both bananas and sugar cane,it is relatively more efficient in the production of bananas. Therefore,Honduras exports bananas to Belize and imports sugar cane from Belize. This example demonstrates the:
A)Product cycle theory
B)Theory of absolute advantage
C)Theory of factor proportions
D)Leontief Paradox
E)Theory of comparative advantage

Accepted Answer

This example demonstrates the theory of comparative advantage, as Honduras exports the good in which it has a relatively greater comparative advantage (bananas) and imports the good in which it has a relatively lesser comparative advantage (sugar cane) from Belize. The theory of absolute advantage suggests that Honduras should produce both goods as it has an absolute advantage in the production of both, but the example shows that it is more efficient in producing bananas. The product cycle theory and the theory of factor proportions are not relevant to this example. The Leontief Paradox is a phenomenon in international trade where a country that exports capital-intensive goods imports labor-intensive goods, which is not applicable here.

Question 4

__________ theory views products as passing through four stages: introduction,growth,maturity,and decline.
A)Absolute advantage
B)Competitive advantage of nations
C)Factor proportions
D)Overlapping product ranges
E)Product cycle

Accepted Answer

The theory that views products as passing through four stages: introduction, growth, maturity, and decline is known as the product cycle theory. Therefore, the correct choice is E.

Question 5

A(n)______________ represents the total productive capabilities of a nation and is used in the formulation of classical and modern trade theory.
A)trade comparison chart
B)trade theory diagram
C)supply and demand curve
D)production possibility frontier
E)advantage matrix

Accepted Answer

The production possibility frontier (PPF) represents the maximum output combinations of two goods that an economy can produce with its available resources and technology. The PPF concept is commonly used in classical and modern trade theory to explain comparative advantage and trade patterns between countries.

Question 6

Even if one country was most efficient in the production of two products,it must be relatively more efficient in the production of one good. It should then specialize in the production and export of that good in exchange for the importation of the other goods. This describes the:
A)Theory of comparative advantage
B)Theory of absolute advantage
C)Theory of factor proportions
D)Leontief Paradox
E)Product cycle theory

Accepted Answer

The theory of comparative advantage states that even if one country is more efficient in producing all goods, it should specialize in the production and export of the good in which it has a comparative advantage and import the others. Therefore, the given scenario described is an example of the theory of comparative advantage.

Question 7

The overlapping product ranges described by Linder would today be called:
A)Marketing strategies
B)Production frontiers
C)Market segments
D)Product segments
E)Product targets

Accepted Answer

Linder's theory suggests that countries with similar levels of per capita income will have similar market segments and demand patterns. These market segments can overlap, leading to the production of similar products by different countries. Therefore, the overlapping product ranges can be defined as market segments.

Question 8

As per-capita income in China rises,the complexity and quality level of the products demanded by Chinese consumers also rises. This is a principle of which theory?
A)Theory of absolute advantage
B)Overlapping product ranges theory
C)Competitive advantage of nations theory
D)Imperfect markets theory
E)Product cycle theory

Accepted Answer

The overlapping product ranges theory suggests that as income levels rise, consumers demand more complex and higher-quality products, which aligns with the scenario described.

Question 9

___________ refers to self sufficiency during feudal times.
A)Oligarchy
B)Monarchy
C)Autarky
D)Monopoly
E)Mercantilism

Accepted Answer

Autarky refers to the policy of self-sufficiency, which was prevalent during feudal times. It involves a lack of reliance on external trade and an emphasis on domestic production to meet the needs of the population.

Question 10

___________ refers to the returns foregone on any resource or asset from using it in its next best use.
A)Alternative cost
B)Trade cost
C)Capital risk
D)Opportunity cost
E)Absolute advantage risk

Accepted Answer

Opportunity cost refers to the highest valued alternative that must be sacrificed in order to choose an option. It is the value of the next best alternative forgone.

Question 11

________ analysis is a method for estimating market activities and potential that measures the factor inflows into production and the resultant outflow of products.
A)Cost-benefit
B)Input-output
C)Financial
D)Opportunity cost
E)Comparative

Accepted Answer

The description of the method suggests that it is Input-Output analysis, which measures the inputs needed for production and the outputs produced as a result. Cost-benefit analysis is a tool used to weigh the benefits of an action against its costs, while financial analysis is concerned with financial statements and performance metrics. Opportunity cost analysis is a comparison between the potential benefits of different choices, and comparative analysis involves comparing different products or markets.

Question 12

Focusing on labor and capital,the ____________ is the systematic explanation of the source of comparative advantage.
A)factor proportions theory
B)strategic trade theory
C)theory of absolute advantage
D)product cycle theory
E)overlapping product ranges theory

Accepted Answer

The factor proportions theory explains that a country will specialize in and export products that use its abundant factor(s) of production relatively more intensively than the other country. This theory is specifically focused on labor and capital as factors of production.

Question 13

The United States is known to be more capital abundant than labor abundant. According to ____________ theory,the U.S.should export capital intensive goods in exchange for labor intensive goods.
A)competitive advantage
B)overlapping product ranges
C)product cycle
D)strategic trade
E)factor proportions

Accepted Answer

The theory that suggests that a country will export goods that use relatively abundant factors of production and import goods that use relatively scarce factors of production is called factor proportions theory. Since the U.S. is more capital abundant, according to this theory, it should export capital-intensive goods (which require more capital than labor) in exchange for labor-intensive goods (which require more labor than capital). Therefore, option E is the correct answer.

Question 14

Adam Smith explains that industrial societies can increase output using the same labor-hours as in preindustrial society through:
A)Comparative advantage
B)Division of labor
C)Opportunity costs
D)Gains from trade
E)Absolute advantage

Accepted Answer

Adam Smith believed that the division of labor could greatly increase productivity in industrial societies. By breaking down tasks into smaller, simpler steps, each worker could focus on a specific task and become more skilled and efficient at completing that task. This would result in a higher overall level of productivity, even using the same amount of labor-hours as in preindustrial societies.

Question 15

Although it is generally believed that the United States is a capital abundant country,it has been found on numerous occasions that its exports are more labor intensive than capital intensive. This is known as the:
A)Linder Concern
B)Adam Smith Conundrum
C)Heckscher-Ohlin Problem
D)Leontief Paradox
E)Ricardo Phenomenon

Accepted Answer

The phenomenon where a capital abundant country like the United States exports goods that are more labor intensive than capital intensive is called the Leontief Paradox. This contradicts the predictions of the Heckscher-Ohlin theory, which suggests that in capital abundant countries, capital-intensive goods should be exported.

Question 16

What are the two factors of production considered in the factor proportions theory?
A)Technology and capital
B)Land and labor
C)Labor and capital
D)Capital and land
E)Labor and technology

Accepted Answer

The factor proportions theory, also known as the Heckscher-Ohlin theory, considers two factors of production: labor and capital. This theory explains that countries will specialize in and export goods that use their abundant factor(s) of production and import goods that use their scarce factor(s) of production.

Question 17

At a large zipper factory in China,there is an assembly line of workers. One worker prepares the metal for melting,another sets the molds,a third pours the metal,a forth takes it to the curer,a fifth does quality control,and a sixth packages the zippers for shipment. Through this process,the factory can make thousands of zippers per day. This procedure is best described as:
A)Job enrichment
B)Mercantilism
C)Division of labor
D)Gains from trade
E)Workers compensation

Accepted Answer

The procedure described in the scenario is a classic example of division of labor, where each worker specializes in a specific task in the production process, leading to increased efficiency and productivity.

Question 18

Staffan Linder's Overlapping Product Ranges Theory focuses on:
A)Consumer demand
B)Production
C)Commodities supply
D)Agriculture
E)Services

Accepted Answer

Staffan Linder's Overlapping Product Ranges Theory emphasizes consumer demand as a key factor in international trade, suggesting that countries with similar demand structures are more likely to trade with each other.

Question 19

The evolution of trade into the form we see today reflects three events: the collapse of feudal society,the emergence of the mercantilist philosophy,and:
A)The Great Depression
B)The establishment of ancient international trade routes
C)The dot.com bust
D)The life cycle of the colonial systems of the European nation-states
E)The emergence a service-centered society

Accepted Answer

The collapse of feudal society led to the emergence of the nation-state system, which in turn led to the colonization of distant lands. This gave rise to colonial systems of trade, which transformed into global trade as the colonial powers declined. Therefore, the life cycle of the colonial systems of European nation-states is the key event that led to the evolution of trade as we see it today.

Question 20

The _____________ introduced the benefits of mass production,lowered prices,and increased supply of goods.
A)industrial revolution
B)agricultural revolution
C)communications revolution
D)commodities revolution
E)wireless revolution

Accepted Answer

The benefits of mass production, lowered prices, and increased supply of goods are all characteristics of the Industrial Revolution, which began in the late 18th century and transformed the way goods were produced and consumed in society. The Agricultural Revolution, on the other hand, primarily involved improvements in farming methods and technology, while the Communications Revolution, Commodities Revolution, and Wireless Revolution are not widely recognized historical periods with significant impacts on production and consumption.

Quiz 3: The Theory of Trade and Investment

___________ is the political and economic policy aimed at increasing a nation's wealth and power by encouraging the export of goods in return for gold.

According to the ____________,each country should specialize in the production and export of that good which it produces most efficiently,with the fewest labor hours.

__________ theory views products as passing through four stages: introduction,growth,maturity,and decline.

A(n) ______________ represents the total productive capabilities of a nation and is used in the formulation of classical and modern trade theory.

Even if one country was most efficient in the production of two products,it must be relatively more efficient in the production of one good. It should then specialize in the production and export of that good in exchange for the importation of the other goods. This describes the:

The overlapping product ranges described by Linder would today be called:

As per-capita income in China rises,the complexity and quality level of the products demanded by Chinese consumers also rises. This is a principle of which theory?

___________ refers to self sufficiency during feudal times.

___________ refers to the returns foregone on any resource or asset from using it in its next best use.

________ analysis is a method for estimating market activities and potential that measures the factor inflows into production and the resultant outflow of products.

Focusing on labor and capital,the ____________ is the systematic explanation of the source of comparative advantage.

The United States is known to be more capital abundant than labor abundant. According to ____________ theory,the U.S.should export capital intensive goods in exchange for labor intensive goods.

Adam Smith explains that industrial societies can increase output using the same labor-hours as in preindustrial society through:

Although it is generally believed that the United States is a capital abundant country,it has been found on numerous occasions that its exports are more labor intensive than capital intensive. This is known as the:

What are the two factors of production considered in the factor proportions theory?

Staffan Linder's Overlapping Product Ranges Theory focuses on:

The evolution of trade into the form we see today reflects three events: the collapse of feudal society,the emergence of the mercantilist philosophy,and:

The _____________ introduced the benefits of mass production,lowered prices,and increased supply of goods.