chapter 5 international business

The theory of comparative advantage was proposed by ________.

David Ricardo

Two countries, Foodland and Drinkland, produce food and drinks. In Foodland, one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks. In Drinkland, one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks. Based on the above scenario, which of the following statements is true?

Foodland has an absolute advantage in producing food.

________ says that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports.

Mercantilism

Which of the following statements is true regarding the assumptions of the absolute and comparative advantage theories?

The theories assume labor to be the only resource used in the production process.

Which of the following statements is incorrect with regard to the importance of colonies for mercantilist nations?

They served as a source of military protection.

According to the theory of ________, trade is beneficial even if one country is less efficient in the production of two goods, as long as it is less inefficient in the production of one of the goods.

comparative advantage

When a country is not able to produce a good more efficiently than other nations, but produces the good more efficiently than it does any other good, it is said to have a(n) ________.

comparative advantage

The Leontief paradox describes evidence ________.

contrary to the predictions of the factor proportions theory

A majority of the total world merchandise trade occurs among ________.

high-income economies

The ________ theory states that a country's export eventually becomes its import.

international product life cycle

Both absolute and comparative advantage theories assume that ________ is the only resource used in the production process.

labor

Nations following the theory of ________ believed that the world's wealth was limited and that a nation could increase its share of the pie only at the expense of its neighbors.

mercantilism

When there are gains to be had by both countries that are party to an exchange, international trade is considered a(n) ________.

positive-sum game

In the ________ of the international product life cycle, competition from other companies selling similar products pressures companies to lower prices in order to maintain sales levels.

standardized product stage

Much production in the world today closely resembles what is predicted by the ________.

theory of comparative advantage