Question 1

Which of the following is a major benefit of engaging in free trade?

Accepted Answer

Countries can benefit from exchanging goods that they can produce efficiently to obtain products that they cannot produce.

Question 2

The principle of mercantilism views trade as a(n) ________ game.

Accepted Answer

The flaw with mercantilism was that it viewed trade as a zero-sum game, in which a gain by one country results in a loss by another.

Question 3

Which of the following observations is consistent with Michael Porter's theory of national competitive advantage?

Accepted Answer

Michael Porter's theory of national competitive advantage attempts to explain why particular nations achieve international success in particular industries. In addition to factor endowments, Porter points out 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.

Question 4

Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly?

Accepted Answer

New trade 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.

Question 5

According to Ricardo's theory of comparative advantage, countries should

Accepted Answer

According to Ricardo's theory of comparative advantage, 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 produces less efficiently from other countries.

Question 6

The Heckscher-Ohlin theory predicts that countries will

Accepted Answer

The Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce.

Question 7

Which of the following is the main principle of mercantilism?

Accepted Answer

The main tenet of mercantilism is that it is in a country's best interests to maintain a trade surplus, to export more than it imported. By doing so, a country would accumulate gold and silver and, consequently, increase its national wealth, prestige, and power.

Question 8

The theory of comparative advantage suggests that trade is a ________ game in which all countries that participate realize economic gains.

Accepted Answer

The theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains.

Question 9

Identify the theory that supports the view that, in some cases, countries export for the reason that the world market can support only a limited number of firms.

Accepted Answer

New trade 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.

Question 10

________ supports the idea that countries should export more than they import.

Accepted Answer

The main tenet of mercantilism was that it is in a country's best interests to maintain a trade surplus, to export more than it imported.

Question 11

A capital-intensive country exports products that are capital intensive. Which theory is this an example of?

Accepted Answer

The given situation follows the Heckscher-Ohlin theory.

Question 12

Which of the following refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country?

Accepted Answer

Free trade 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.

Question 13

________ argued that countries should specialize in the production of goods for which they have an absolute advantage.

Accepted Answer

According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries.

Question 14

________ stresses that in some cases countries specialize in the production and export of particular products because the world market can support only a limited number of firms.

Accepted Answer

New trade 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.

Question 15

Which of the following theories emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods?

Accepted Answer

The Heckscher-Ohlin theory emphasizes the interplay between the proportions in which the factors of production (such as land, labor, and capital) are available in different countries and the proportions in which they are needed for producing particular goods.

Question 16

The ________ argues that a large proportion of the world's new products had been developed by U.S. firms.

Accepted Answer

The product life-cycle theory argues that a large proportion of the world's new products had been developed by U.S. firms.

Question 17

Which of the following is a theory that can be used to justify limited government intervention to support the development of certain export-oriented industries?

Accepted Answer

Both the new trade theory and Porter's theory of national competitive advantage can be interpreted as justifying some limited government intervention to support the development of certain export-oriented industries.

Question 18

David Ricardo's theory of comparative advantage explains global trade in terms of the

Accepted Answer

David Ricardo's theory of comparative advantage offers an explanation in terms of international differences in labor productivity.

Question 19

The ________ theory argues that the pattern of international trade is determined by differences in factor endowments.

Accepted Answer

The Heckscher-Ohlin theory argues that the pattern of international trade is determined by differences in factor endowments.

Question 20

________ are unit cost reductions associated with a large scale of output.

Accepted Answer

Economies of scale are unit cost reductions associated with a large scale of output.

Quiz 6: International Trade Theory

Which of the following is a major benefit of engaging in free trade?

The principle of mercantilism views trade as a(n) ________ game.

Which of the following observations is consistent with Michael Porter's theory of national competitive advantage?

Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly?

According to Ricardo's theory of comparative advantage, countries should

The Heckscher-Ohlin theory predicts that countries will

Which of the following is the main principle of mercantilism?

The theory of comparative advantage suggests that trade is a ________ game in which all countries that participate realize economic gains.

Identify the theory that supports the view that, in some cases, countries export for the reason that the world market can support only a limited number of firms.

________ supports the idea that countries should export more than they import.

A capital-intensive country exports products that are capital intensive. Which theory is this an example of?

Which of the following refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country?

________ argued that countries should specialize in the production of goods for which they have an absolute advantage.

________ stresses that in some cases countries specialize in the production and export of particular products because the world market can support only a limited number of firms.

Which of the following theories emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods?

The ________ argues that a large proportion of the world's new products had been developed by U.S. firms.

Which of the following is a theory that can be used to justify limited government intervention to support the development of certain export-oriented industries?

David Ricardo's theory of comparative advantage explains global trade in terms of the

The ________ theory argues that the pattern of international trade is determined by differences in factor endowments.

________ are unit cost reductions associated with a large scale of output.