chapter 6

Which two simultaneous outcomes are implied by new trade theory?

A nation can lower the cost of the goods being offered to consumers. A nation can increase the variety of goods available to consumers.

Factor endowments

A nation's position in areas such as skilled labor, arable land, or infrastructure

Which of the following factors do Porter label as basic factors of production? (Check all that apply.)

Climate Natural resources

Which form of returns to specialization means that the units of resources required to produce one unit are assumed to remain the same no matter where a country is on the production possibilities frontier?

Constant

According to new trade theory, the first mover's ability to benefit from increasing returns ______ for other firms.

Creates a barrier to entry

What did Porter call the concept where firms are typically most sensitive to the needs of their closest customers?

Demand conditions

Which type of returns to specialization happen when additional units of resources are required to produce each additional unit?

Diminishing

In Porter's model of the determinants of national competitive advantage, he noted many U.S. firms were led by people with ______ backgrounds, likely leading to U.S. firms' lack of attention to improving manufacturing process and product design.

Finance

Choose the four national attributes that Porter theorizes shape the environment that local firms compete in.

Firm strategy, structure, and rivalry Factor endowments Related and supporting industries Demand conditions

What assumption does the Ricardian model of comparative advantage make in terms of converting resources?

It assumes that all resources can easily shift from one thing to another.

How does the product-life cycle theory relate to the modern world?

Its relevance in the modern world seems limited as more and more products are introduced outside of the United States.

According to the Heckscher-Ohlin theory, it is expected that the United States would export capital-intensive goods and import labor-intensive goods, but the opposite was found to be true. This became known as the

Leontief paradox.

The factor that impacts all the theories of trade because companies should produce where it is most efficient is

Location

Which theory does NOT support unrestricted free trade between countries?

Mercantilism

______ is the first theory of trade that advocated that a country should export more than it imports and should accumulate gold and silver to make up the difference and maintain a trade surplus.

Mercantilism

Which of these companies is demonstrating a first-mover advantage?

Nelson Concrete recently opened a production plant in the Middle East after learning there were no competitive firms in that area.

Which trade theory has these implications: (1) nations may benefit from trade even when they do not differ in resource endowments or technology; and (2) specialization allows for scale economies and lower production costs?

New trade

What are two reasons diminishing returns to specialization occur? (Check both responses.)

Not all resources are of the same quality. Different goods use resources in different proportions.

Which theory was based on the observation that early in the development of a commodity, all the parts and labor come from the area in which it was invented?

Product life-cycle

Which aspect of Porter's Diamond is best evidenced by the U.S. semiconductor industry providing the basis for U.S. success in the production of personal computers?

Related and supporting industries

Choose three advanced factors that Porter believes are MOST significant for competitive advantage. (Check all that apply.)

Technological know-how Research facilities Skilled labor

What are three sources of economies of scale?

The ability of large-volume producers to use more specialized equipment Spreading fixed costs over a larger volume The ability of large-volume producers to use more effective, specialized employees

Firm strategy, structure, and rivalry

The conditions governing how companies are created, organized, and managed

Demand conditions

The nature of home stipulations for a product or service

Related and supporting industries

The presence or absence of businesses that are internationally competitive

True or false: The benefits from free trade are not evenly distributed throughout an economy.

True

Which scenario depicts the Leontief paradox?

U.S. exports were less capital intensive than U.S. imports.

When a country is more efficient at producing a product than any other country, the country has a(n) ______ advantage in the production of that product.

absolute

To gain competitive advantage, it is important to encourage companies to invest in __________ factors of production

advanced

A company _____ benefit from related industries that are internationally competitive and can spill over into the company.

can

Economic studies have suggested that according to the theory of ______ advantage, countries will experience higher growth rates if they follow a more open stance toward international growth.

comparative

Ricardo's theory of _____ advantage states that it makes sense for a country to specialize in the production of those goods that it produces most efficiently and then purchase the goods that it produces less efficiently from other countries, even if this means buying goods from other countries that it could produce more efficiently itself.

comparative

Heckscher and Ohlin identified differences in national factor endowments as the root of ______.

comparative advantage

Ricardo's theory of comparative advantage assumes ______ returns to scale.

constant

Country A wants to produce more rice. Unfortunately, it will have to farm less productive land to produce this rice. This fact represents the idea of ______ returns to specialization.

diminishing

It takes 12 units of resources to produce 100 pounds of silk. It takes 13 units to produce 115 pounds of silk and 15 units to produce 120 pounds of silk. This is an example of ______ returns to specialization.

diminishing

Porter argues that achieving international success in a certain industry is a function of factor endowments, domestic demand conditions, related and supported industries, and ______.

domestic rivalry

Based on new trade theory, as the size of markets increases, companies may be able to attain better ______.

economies of scale

Based on the theories of Smith, Ricardo, and Heckscher-Ohlin, in a country with access to cheap labor, productive land, and diverse plant life, it makes sense to _____ agricultural goods.

export

Portugal can produce wine and cloth with less labor than England. But, given all factors of production, England can produce cloth relatively better than Portugal. According to Ricardo's theory of comparative advantage, it make sense for England to

export cloth and import wine from Portugal.

According to Heckscher and Ohlin, each country has certain ______, such as land, labor, and capital.

factor endowments

Jameson Machinery Inc. wants to release their newest equipment in the South American market before other companies in order to establish the Jameson brand. In other words, the company wants to benefit from ____.

first-mover advantages

Preempting demand, gaining volume cost advantages, building the brand, and establishing a long-term competitive advantage are associated with

first-mover advantages.

Manatee Mfg. is able to source parts for its refrigeration products from anywhere in the world because the United States does not place any quotas or limitations on the imports they need. This is a reflection of a _____ policy.

free trade

Porter states that ______ can influence each of the four components of the diamond through subsidies, education policies, and policies toward capital markets.

government

According to Vernon's product life-cycle theory, while demand for a product is starting to grow rapidly in the United States, demand for the product in other countries is limited to _____.

high-income groups

New trade theory states that some countries specialize in the production and export of a particular product because _____.

in certain industries the world can only support a limited number of firms

A country is said to have an absolute advantage in the production of an item when the country

is more efficient than any other country at producing the item.

Wealthy country A enters into a free trade agreement with poor country B. Country B improves its productivity. Country A pays lower prices for goods imported from poor country B. However, Samuelson expresses concern that these lower prices may not offset possible ______ in wealthy country A.

lower real wage rates

When a government intervenes to achieve a surplus in the nation's balance of trade, this action is consistent with the main tenet of ______.

mercantilism

Because of economies of scale, some countries specialize in manufacturing a particular product (such as cars) for which the global market can only support a limited number of firms. This is a reflection of _____.

new trade theory

Some countries specialize in manufacturing a particular product (such as cars) for which the global market can only support a limited number of firms. This is a reflection of _____.

new trade theory

Samuelson is concerned that advances in communications technology will result in the

offshoring of service jobs.

A basic message of Ricardo's theory of comparative advantage is that: (Check the two that apply.)

potential world production is greater with unrestricted free trade than it is with restricted trade. even if countries lack an absolute advantage in the production of any good, consumers can still consume more if there are no restrictions on trade.

The ethnocentric view that most new products are developed and introduced in the United States is a key weakness in the ______ theory.

product life-cycle

When discussing constant returns to specialization, it is realistic to assume that the units of resources required to produce one unit will _____ no matter where a country is on the production possibilities frontier.

remain the same

Reflecting the theories of Smith, Ricardo, and Heckscher-Ohlin, free trade permits ______, which allows a country to manufacture and export in those areas where they have a comparative advantage.

specialization

Raymond Vernon's product life-cycle theory was based on the observation that for most of the 1900s the majority of the world's new products were developed in

the United States.

According to the theory of international trade, it makes sense for a company to disperse its production to those countries where

they can be performed most efficiently.

True or false: First-mover advantages are especially important in industries where the global market can profitably support only a limited number of firms.

true

A criticism of Ricardo's theory of comparative advantage is that it is a simple model that includes many

unrealistic assumptions.

The trade theories associated with Smith and Ricardo advocate for _____ free trade.

unrestricted