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If Italy is more efficient at producing fine leather shoes and handbags, then Italy has a(n)

Absolute Advantage

The theory of ____ was the first to explain why unrestricted free trade benefits a country.

Absolute Advantage

A charge of 12-18 percent is levied by the government of a foreign nation on the value of automobile accessories imported from a neighboring country. This increased the price of those imported car accessories for the consumers. This foreign nation is using a(n)

Ad valorem tariff

If the U.S. Department of Education put out a contract for 150,000 laptop computers and the contract stated that preference would be given to bids that declared at least 51 percent of the materials by value in the computers were produced in the United States, which legislative act is this stipulation based on?

Buy America Act

A(n) ________ has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members, but does not have a common currency

Common Market

According to Porter, which factor endowment would be classified as an advanced factor?

Communication infrastructure

_______ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value

Dumping

Intel spreads the huge fixed costs of developing new generation chips over the nearly 2 billion chips it sells to computer makers. Intel benefits from

Economies of Scale

The ultimate controlling authority with the EU is the

European Council

Oligopoly

Every firm adjusts in the same way

Incandescent Lightings, a U.S.-based firm does not want to bear the costs of establishing production facilities in a foreign country. Incandescent Lightings should avoid

FDI

A country that relies on the pragmatic nationalist view would say that

FDI should be allowed so long as the benefits outweigh the costs

In a free trade area, all barriers to the trade of goods and services among countries are removed and a common external trade policy is adopted

False

In recent decades, there have been fewer trade blocs established to promote regional economic integration

False

The globalization of the world economy is having a negative effect on the volume of FDI

False

The location-specific advantages argument associated with John Dunning helps explain why firms prefer FDI to licensing or to exporting.

False

The process of exporting grants a foreign entity the right to produce and sell a firm's product

False

Trade creation occurs when lower-cot external suppliers are replaced by higher-cost suppliers within the free trade area

False

Factor endowments are unit cost reductions associated with a large scale of output

False - Actually economies of scale

The European Parliament, which meets in Strasbourg, France, is primarily a legislative rather than consultative body

False - debates legislature proposed by the commission

New trade theory suggests that world trade in certain products will likely be dominated by countries who acted as late-movers and took advantage of existing innovations.

False - first movers

The scope of the WTO covers all tariff and nontariff barriers to regional economic integration

False - not all nontariff

According to Vernon, what eliminates the need for pioneering U.S. firms to look for low-cost production sites in other countries?

Firms can charge relatively high prices for a new products.

The economic and strategic advantages that accrue to early entrants into an industry are called

First-mover advantages

It is one of Garrett's job responsibilities to report the amount of foreign direct investment undertaken by the government over a one-year time period. Garrett reports the ____ of FDI

Flow

Burger King licenses its brand name to foreign firms as long as they agree to run their restaurants on exactly the same lines as Burger King restaurants elsewhere in the world. In return, the foreign firms have to pay Burger King a percentage of their profits. This is an example of

Franchising

Alana lives in a country in which the government does not impose quotas on what can be imported or on what businesses can produce and sell to another country. What type of situation does this describe?

Free Trade

Identify the correct sequence of economic integration starting from the least integrated to the most integrated

Free trade area, customs union, common market, economic union, political union

______ was a multilateral agreement established in 1947 whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like

GATT

How did President Trump react to the two multilateral trade agreements, the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership, that were being pursued by the Obama administration?

He pulled the United States out of these negotiations

Which 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?

Heckscher-Ohlin theory

Italy has a direct restriction on the amount of metal products that may be imported into the country. Which instrument of trade policy does this reflect?

Import quota

The ______ argument was proposed by Alexander Hamilton in 1792 and is by far the oldest economic argument for government intervention

Infant Industry

The management team at Yum BQQ Brands has decided not to license its product because of concerns that this will create opportunities for another company to have access to their secret recipe. For this reason, the company decides that FDI is their best course of action. Which economic theory does their choice represent?

Internalization Theory

Agri-Cor sells farm equipment throughout the euro zone. The company has noticed that some customers travel to countries where equipment sells for less to obtain a better deal. What implication of adopting the euro as a common currency does this situation demonstrate?

It makes it easier to compare prices across Europe

U.S. exports are less capital-intensive than U.S. imports, despite the relative abundance of capital in the country. This is in opposition to the Heckscher-Ohlin theory and has been labelled

Leontief Paradox

Royal Chocolatier, a British manufacturer of chocolates granted U.S. company American Candy Inc. the right to produce and sell Royal Chocolatier's products in the United States. In return, American Candy Inc. has to pay a royalty fee on every unit sold. According to this information, what is being done by Royal Chocolatier?

Liscensing

________ is a pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area

MERCOSUR

Kevin lives in a nation that encourages the production of goods for exporting and to satisfy the needs of the nation's citizens so fewer imports are needed. Which trade theory does this reflect?

Mercantilism

The government of the Republic of Senna enforces tariffs and quotas to limit imported goods, while exports are subsidized. By using these instruments, the government seeks to achieve a surplus in the balance of trade. Based on this information, which approach most influences the Republic of Senna's approach to international trade?

Mercantilism

President Trump has voiced his opposition to many free trade deals. Because of this, some say that he maintains a(n) _____ view on trade

Mercantilist

Concrete Forms International needs immediate access to steel in order to produce a new product line. It cannot afford to wait and establish a new operation in a foreign country where steel is prevalent, so it decides to purchase an existing company instead. Why did Concrete Forms decide to make this purchase?

Mergers and acquisitions are quicker to execute than greenfield investments

Which approach suggests that nations may benefit from trade even when they do not differ in resource endowments or technology?

New Trade Theory

_______ justifies some limited government intervention to support the development of certain export-oriented industries.

New Trade Theory

Which theory stresses that in some cases, countries specialize in the production and export of particular products no because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms?

New trade theory

According to the theory of comparative advantage consumers in all nations can consume more if there are

No restrictions on trade

SmileBright, a dental products manufacturing company, has a market share of 30 percent in India. Three of its competitors together control 55 percent of the market. Whenever SmileBright raises or lowers the prices of its products, the other three companies quickly imitate its action. What is the market structure of this industry in India?

Oligopoly

Raymond Vernon noticed that in the 1960s, the wealth and size of the U.S. market was a natural incentive to develop new consumer products. What theory did he propose based on this fact?

Product life-cycle

India specializes in business process outsourcing and does this more efficiently than any other country. It buys agricultural commodities, which it produces less efficiently than outsourcing activities, from the United States, even though it produces these agricultural commodities more efficiently than the United States. Which international trade theory supports India's decision to buy agricultural commodities from the United States?

Ricardo's theory of comparative advantage

Which situation represents an indirect effect of FDI on employment in a host country?

The employees of ShrillPlans Corp. have more money to spend and as a result, more home construction jobs are being created in the country

The creation of a single market increases price competition for business. In other words, it creates a(n)

Threat

Gear Electronics used to buy all its component parts from a local plant in Cleveland, Ohio, but this year it has decided to buy the parts from a lower-cost facility located in Tijuana, Mexico. This is an example of

Trade Creation

As a result of the formation of a free trade area between six member countries in the Pacific Rim, one member country found that its lower-cost external suppliers were replaced by the higher-cost suppliers within the free trade area. This is an example of

Trade Diversion

The United States imports sugar from several nations. If the NAFTA agreement caused the United States to import sugar only from Canada, even though it cost more to do so, it would be an example of

Trade Diversion

The European Community was established by the

Treaty of Rome

A political union creates a central source for coordinating the economic, social, and foreign policy of member states

True

An acquisition does not result in a net increase in the number of players in a market

True

Dumping occurs when companies sell goods in a foreign market at below their costs of production

True

FDI can result in a positive contribution to a host economy by supplying capital and technology which boost the country's economy

True

Historically, most FDI has been directed at the developed nations of the world

True

Licensing is not a good option if the competitive advantage of a firm is based upon managerial or marketing knowledge that is embedded in the routines of the firm or the skills of its managers, and that is difficult to codify in a "book of blueprints."

True

One of the reasons for the trend toward greater protectionism during the 1980s and the 1990s was that many countries found ways to get around GATT regulations.

True

Quota rent refers to the extra profit that producers make when supply is artificially limited by an import quota

True

From the perspective of making a profit, it is sensible for a company to disperse production activities to countries where they can be performed most efficiently.

True.

The attractiveness of exporting is reduced when a product can easily be produced in almost any location

Truth

Foreign producers agree to _____ imposed by an exporting country because they fear more damaging punitive tariffs or import quotas might follow if they do not

VER

If a country is experiencing a surge of electronic imports from a trading partner, it might ask that country to set a limit on how much can be exported. This limit is known as a

Voluntary Export Restraint (VER)

Which organization was created to implement the GATT agreement?

WTO

From a profit perspective based on the various international theories, how would a business go about choosing locations for its various productive activities?

Where it is most efficient to produce

Paul Krugman characterizes strategic trade policy as being

a boost to national income at the expense of other countries

One focus of strategic trade policy is to help domestic companies gain

a first-mover advantage

One form of FDI is _____, which involves the establishment of a new operation in a foreign country

a greenfield investment

As a trade theory, mercantilism was based on the idea that a trade surplus would lead to

accumulations of gold and silver

Kyra works for a costume jewelry manufacturer and while their products are lower in cost, there is a high degree of consumer pressure to create the best quality jewelry possible and to constantly innovate with new jewelry designs. Which aspect of Porter's Diamond does this demonstrate?

demand conditions

The group that benefits the most from receiving subsidies is

domestic producers

The harmonization of member nations' tax rates is required to form a(n)

economic union

Some countries have a policy that entirely restricts the export of coffee products. This is called a(n)

export ban

One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that

firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets

Canada and the United States agree to remove all barriers to the trade of goods between them. However, the countries agree that each would be allowed to determine its own trade policies with regard to nonmembers. The economic integration between these countries is called a(n)

free trade area

While the countries of Canada and Mexico are committed to removing all barriers to the free flow of goods and services between each other, they are independent in their trade policy dealings with other countries. This represents a(n)

free trade area

A tariff rate quota provides a lower tariff rate to

imports within the quota

High tariff barriers and subsidies in the agricultural industry ultimately lead to

increased prices for consumers

Indonesia might have a potential comparative advantage in manufacturing textiles but is unable to compete with established textile manufacturing in Japan, at least for the near future. Indonesia could claim the

infant industry argument

Many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries. This demonstrates the

infant industry argument

Internalization theory is used to explain why a company prefers FPI over ______ as a way to enter a foreign market

licensing

For years, the world used a small nation in Central America as a place to assemble goods and benefit from cheap labor. To shift its manufacturing base from simple assembly to full-fledged manufacture of components and finished goods, the nation introduced a policy that stated 35 percent of the value of a product must be produced locally. This is an example of a(n)

local content requirement

When the management team reviewed its government contract on office furnishings, they noticed that in order to bid on the project, at least 44 percent of the value of the office furniture had to be produced in the United States. This stipulation is an example of a(n)

local content requirement

JumpIn Products is a market leader in playground equipment, which is typically large, bulky, and very heavy. In order to compete, JumpIn Products sells its entire line at very low prices. Although its products can be produced anywhere, it is considering exporting as a way to grow in overseas markets. The viability of JumpIn Products' exporting strategy could be constrained by transportation costs, particularly of products that can be produce in almost any location and have a

low value-to-weight ratio

Subsidies and quotas are example of ______ barriers a country might impose

nontariff

Vernon argues that pioneering firms in the United States kept production facilities closer to the market and centers of decision making because

of the uncertainty and risk inherent in introducing new products

Intricate Wiring Corp., based in Ohio, creates a brand new high-tech product. The demand for the product in the United States is high but very low or non-existent elsewhere. the company decides not to locate manufacturing facilities elsewhere and will simply meet the small foreign demand via exports. The theory that best explains the company's policy is

product life cycle theory

A(n) ______ refers to the extra profit that producers make when supply is artificially limited by an import quota.

quota rent

Which political ideology reflects the idea that a multinational enterprise is an instrument or imperialist domination?

radical view

SilverFinn makes high-end jewelry for women. This jewelry is manufactured and patented in Italy. Manufacturers in Argentina crate counterfeit SilverFinn jewelry and sell it in local markets at similar prices to the original SilverFinn jewelry sold in other countries. this lack of intellectual property protection is like to result in

reduction in the export opportunities for SilverFinn jewelry in Argentina

Ownership restraint is a method of

restricting inward FDI by a host country

Ownership restraint is a method of

restricting inward FDI by host country.

A tax of 32 cents is levied for each pair of eyeglasses imported into a nation. This is an example of a(n)

specific tariff

In order to encourage the agricultural industry, the French government provided low-interest loans for the purchase of seeds and fertilizers. The government also gave cash grants and made tax reductions. Which instrument of trade policy is being used by the French government?

subsidies

According to ______, location-specific advantages are of considerable importance in explaining both the rationale for and the direction of foreign direct investment.

the eclectic paradigm

According to ________, location-specific advantages are of considerable importance in explaining both the rationale for and the direction of foreign direct investment.

the eclectic paradigm

One of the main benefits that FDI provides to the home country is

the home country's balance of payments benefits from the inward flow of foreign earnings

In his theory of absolute advantage, Adam Smith advocated that _____ should determine what a country imports and what it exports.

the market mechanism

The Republic of Monaslu has the world's most efficient car manufacturing industry, while the country of Ingora has the world's most efficient electronics industry. The Republic of Monaslu trades cares with Ingora in exchange for consumer electronics. This form of trade between the two countries illustrates

the theory of absolute advantage

The basic message of _____ is that potential world production is greater with unrestricted free trade than it is with restricted trade

theory of comparative advantage

A country that imports more goods than it exports experiences a

trade deficit

Firms engage in dumping in order to

unload excess production in foreign markets

According to the product life-cycle theory, once a new product becomes widely accepted internationally then production for that product

will start to take place in other countries

A situation in which an economic gain by one country results in an economic loss by another is called a

zero-sum game