C211 Chapter 5 Trading Internationally

Which of the following is NOT a nontariff trade barrier (NTB)?

*a. Cultural distance b. Import quotas c. Local content requirements d. Subsidies

Which of the following is NOT a political argument against free trade?

*a. Protection for infant industries b. Consumer protection c. Environmental and social responsibility d. National security

_____ are tariffs levied on imports sold below costs to drive domestic firms out of business.

Antidumping duties

What theory suggests that nations will develop comparative advantages based on their locally abundant factors?

Heckscher-Ohlin theory

_____ are the most direct denial of absolute or comparative advantage.

Quotas

An import quota is:

Restriction on the quantity of imports that can be brought into a country.

The _____ theory advocates government intervention in highly capital-intensive, high entry-barrier industries in which domestic firms may have little chance without government assistance.

Strategic trade

_____ are government payments to domestic firms.

Subsidies

Free trade is defined as:

The idea that market forces should determine how much to trade with little or no government intervention.

_____ are politically motivated trade sanctions against foreign countries to signal displeasure.

Trade Embargoes

Which of the following is an example of a subsidy?

a. A government collecting taxes on products imported from another country. *b. A government guaranteeing that farmers earn a certain amount, regardless of how much food they produce or how much it is worth. c. A government's regulation forbidding firms in that country from exporting a certain type of product or service to any other country. d. A government's regulation forbidding firms in that country from importing a certain type of product from any other country.

Which of the following theories does NOT lead to the conclusion that unrestricted free trade is in the best interests of all countries?

a. Absolute advantage theory *b. Strategic trade theory c. Comparative advantage theory d. Product life cycle theory

The theory of comparative advantage was advocated by:

a. Adam Smith. b. Milton Friedman. *c. David Ricardo. d. Michael Porter.

Which of the following was the first international trade theory to account for changes in the patterns of trade over time?

a. Comparative advantage theory *b. Product life cycle theory c. Factor endowment theory d. Absolute advantage theory

Which theory is based on the notion that competitive advantage is dependant on the four interacting aspects of factor endowments, domestic demand, firm strategy, and related and supporting industries?

a. Comparative advantage theory b. Product life cycle theory c. Strategic trade theory *d. National competitive advantage of industries theory

In which of the following ways is the theory of comparative advantage linked to the Heckscher-Ohlin theory?

a. Dynamic changes in the patterns of trade over time b. Extent to which government influences international trade c. Sustainability of wealth in the short run *d. Dependency on a nation's locally available abundant factors

Which of the following is NOT a motivation for trading internationally?

a. Firms that are producing valuable, rare, and inimitable goods can earn more revenue by selling their goods to a broader audience. b. The people of a country have the opportunity to purchase valuable, rare, and inimitable goods from other countries that would be difficult or impossible to produce in their own countries at a reasonable price. c. Countries can earn revenue by collecting taxes on imports and exports. *d. Institutions can either limit or facilitate trade.

Which of the following ideas is closely linked to the theory of absolute advantage?

a. Governments should actively protect domestic industries from imports and vigorously promote exports. b. Nations should specialize in economic activities in which they have comparative advantage. *c. Free market forces should determine how much to trade with minimal government intervention. d. All international trade must be closely regulated by governments.

Which of the following are the two key components of a balance of trade?

a. Importing and exporting *b. Surplus and deficit c. Service and merchandise d. Offshoring and inshoring

Which of the following is true of the strategic trade theory?

a. It explains patterns of trade based on factor endowments. *b. It provides direct policy advice. c. It advocates complete deregulation of international trade. d. It is the first theory to account for dynamic changes in trade patterns.

Which of the following is true of voluntary export restraints?

a. It is an extra tax imposed by a country on its exports. b. It is a government payment to domestic firms. *c. It is an export quota levied by a country on the quantity of its exports. d. It is an example of a tariff barrier.

Which of the following trade theories divides the nations of the world into three categories?

a. National competitive advantage of industries b. Factor endowment c. Strategic trade *d. Product life cycle

Which of the following describes the maturing stage in the product life cycle theory?

a. The production of a product commanding a price premium will be concentrated in the lead innovation nation. b. The production of the product moves to low-cost developing nations. *c. The demand and ability to produce the product grow in developed nations. d. The product is commoditized.

The modern trade theories include the following EXCEPT:

a. Theory of national competitive advantage of industries *b. Theory of comparative advantage c. Theory of product life cycle d. Theory of strategic trade

Chile requires 50 units of resource to produce one ton of wine and 20 units of resource to produce one ton of blueberries. France requires 30 units of resource to produce one ton of wine and 40 units of resource to produce one ton of blueberries. Which of the following is true?

a. There is no reason for Chile and France to trade. b. France has a comparative advantage in blueberries. c. Chile has a comparative advantage in wine. *d. France has a comparative advantage in wine.

In which of these categories is the United States NOT the top trading nation?

a. Top merchandise importer b. Top service exporter c. Top service importer *d. Top merchandise exporter

Which of the following arguments advocates that the US trade deficit with China is a huge problem?

a. Two-thirds of Chinese exports are generated by foreign invested firms in China, and numerous US firms have invested in and benefited from such operations in China. b. Every consumer benefits from cheap prices brought from China by US firms such as Wal-Mart. *c. Cheap imports sold at "the China price" push down prices and cause deflation. d. Tariffs will not bring back US jobs, which will simply go to Mexico or Malaysia.

Peru is rich with gold and copper mines. Assume that Peruvians have set up expert systems for mining and exporting more of these natural resources than any other country. This is an example of:

a. a comparable advantage. *b. an absolute advantage. c. an absolute resource. d. a competitive advantage.

Trade deficit refers to:

a. an economic condition in which a nation exports more than it imports. b. an economic condition in which a nation imports at a high cost. c. an economic condition in which a nation exports at a low cost. *d. an economic condition in which a nation imports more than it exports.

The three modern theories of international trade are:

a. comparative advantage, product life cycle, absolute advantage. b. comparative advantage, product life cycle, national competitive advantage of industries. *c. product life cycle, strategic trade, national competitive advantage of industries. d. product life cycle, strategic trade, comparative advantage.

According to the theory of absolute advantage, under free trade,

a. each nation loses by specializing in economic activities in which a nation has absolute advantage. b. every country has an absolute advantage in a certain economic activity. *c. each nation gains by specializing in economic activities in which a nation has absolute advantage. d. no country has an absolute advantage in economic activities.

Assume that Germany passes a law regarding automobile manufacturing. The law states that at least 50% of the components of each car must be made in Germany and at least 35% of the assembly work must be done in Germany. This is an example of:

a. non-tariff barriers. b. voluntary export restraints. *c. local content requirements. d. antidumping duties.

To express its opposition to the political regime in Myanmar, the United States has banned the importation of jade and other gemstones from that country. This is an example of a:

a. trade deficit. b. trade imbalance. c. trade theory. *d. trade embargo.

The theory of mercantilism:

a. views international trade as a win-win game. *b. views international trade as a zero-sum game. c. believes that free market forces should determine how much to trade. d. believes that a nation that imports more than exports less will become richer.

In the context of NTBs, _____ are bureaucratic rules that make it harder to import foreign goods.

administrative policies

The theory of comparative advantage _____.

explains patterns of trade based on factor endowments

The _____ theory is based on the assumption that the wealth of the world is fixed.

mercantilism

Import quotas are a type of _____.

nontariff barrier

Factor endowment is _____.

the extent to which different countries possess various factors of production

In the context of tariff barriers, deadweight costs = _____.

total inefficiency - net gain