MGT 302 CH7

When considering free trade opportunities in Mexico, with access to cheap labor and diverse plant life, it makes sense for Mexico to _____ agricultural goods.

EXPORT

When trying to understand why Japan exports automobiles or why Switzerland exports watches, David Ricardo's theory of comparative advantage bases the explanation in terms of differences in

labor productivity.

What are two basic factors of production as labeled by Porter?

Climate Natural resources

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

T

Which two of these attributes did Porter believe are MOST significant for competitive advantage?

-Demand conditions-Factor endowments

What two situations are consistent with Ricardo's theory of comparative advantage?

-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

According to Heckscher and Ohlin, each country has certain factor endowments. What are two examples of these?

Correct Answer labor land

True or false: Porter would agree that there is a weak association between vigorous domestic rivalry and the creation of competitive advantage.

F

______ is the opposite of economic isolationism.

Free trade

New trade theory, which states that countries may have an advantage in exporting because of first-mover advantages, is different from which theory that says countries have export advantages because of factor endowments?

Heckscher-Ohlin

According to the Heckscher-Ohlin theory, it is expected that the US 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.

______ is a theory of trade which advocates that a country should export more than it imports which would result in the accumulation of gold and silver and increased national wealth and power.

Mercantilism

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

True or false: The product life-cycle theory suggests that mature industries tend to shift production out of the United States and into low-cost assembly locations.

T

What are three sources of economies of scale?

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

How would experts reply to the question, "Is Porter's theory correct?"

We do not know. It has not been subjected to empirical testing.

A country has an absolute advantage when it is able to produce

a greater quantity of a product than its competitors, using the same amount of resources.

Porter argues that ______ factors are the most significant when determining competitive advantage for a country.

advanced

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

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 possibility frontier?

constant

Porter states that firms are typically most sensitive to the needs of their closest customers. He called this _____ conditions.

demand

Even though it was extra work for the company to implement, Johan was happy that consumers had asked for a better grade of plastic for the toys his company produced. In this instance, the competitive advantage of Johan's company is being affected by _____.

demand conditions

An assembly line in a candy factory is an example of _____ because it allows the candy company to benefit from cost reductions based on the vast amounts of candy produced.

economies of scale

Under new trade theory, as the size of markets increase, companies may be able to develop better ______.

economies of scale

Which of the four attributes identified by Porter would be evident in a country that has the necessary infrastructure to compete in a given industry?

factor endowments

The Heckscher-Ohlin theory of international trade focuses on ______ when explaining what a country chooses to export.

factors of production

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

finance

According to new trade theory, the dominance of the United States in the commercial jet aircraft industry is related to - mover advantages. (Choose first or late.)

first

Carl's company was able to gain economic advantage over all of its competition when it premiered the digital camera into South America before them. This is an example of a _____.

first-mover advantage

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

first-mover advantages.

A country that does not implement quotas on imported products and does not limit what its citizens can produce and sell to another country is practicing _____.

free trade

Ricardo's theory encourages ______ because it suggests that trade is a positive-sum game.

free trade

According to mercantilism, _____ were the mainstays of national wealth and were essential to business activity.

gold and silver

It is realistic to assume that the units of resources required to produce one unit of a good will _____ no matter where a country is on the production possibilities frontier.

increase

According to Adam Smith, a country has an absolute advantage in the production of a product when it _____.

is more efficient than any other country at producing it

Leontief questioned the validity of the Heckscher-Ohlin theory based on his assumption that the US would be an exporter of _____.

more capital-intensive goods

Which trade theory explains why countries are trade partners when they are trading similar goods and services?

new and trade

Which trade theory states that for products where economies of scale are significant and represent a substantial amount of world demand, the first movers in an industry can gain a scale-based cost advantage that is not available to late entrants?

new trade

A country which has related and supporting industries that spill over into other industries can have a _____ on that country's competitive advantage.

positive effect

Photocopiers were initially exported from the United States. As more and more foreign competitors entered the market, the United States began to import photocopiers. This is an example of which theory?

product life-cycle

According to Porter, when _____ industries invest in advanced factors of production, it can help an industry achieve a global competitive advantage.

related and supporting

Free trade has the benefit of ______, which allows a country to manufacture and export in locations 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.

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

the government

According to David Ricardo's theory of comparative advantage, a country should focus on _____.

the production of goods it produces most efficiently