CBA 396 Ch. 6

Which of the following statements best indicates Samuelson's criticism of free trade?

By importing cheap goods from a poor country a rich country may not be able to produce a net gain if the dynamic effect of free trade is to lower real wage rates in the rich country.

According to Vernon, which of the following influences the movement of the locus of global production from advanced countries to developing countries?

Cost considerations

Which of the following components of Porter's diamond is particularly important in shaping the attributes of domestically made products and in creating pressures for innovation and quality?

Demand Conditions

Which of the following formed the crux of Porter's study of national competitive advantage?

Determining why a country achieves international success in a particular industry

Which of the following is a reason for diminishing rather than constant returns to specialization?

Different goods use different resources in different proportions.

Which of the following is true of factor endowments according to Porter?

Disadvantages in basic factors can create pressures to invest in advanced factors

According to the new trade theory, which of the following is most likely to be a result of market expansion due to trade?

Each nation may specialize in producing a narrower range of products, importing goods that it does not make.

Which of the following are unit cost reductions associated with a large scale of output?

Economies of scale

According to the product life cycle theory, as demand for a product starts to grow in other advanced countries, potential for exports from the United States will gradually increase.

False

According to the product life-cycle theory, the locus of global production initially switches from developing countries to other advanced nations and then from those nations to the United States.

False

David Ricardo's theory of comparative advantage was the first to explain why unrestricted free trade is beneficial to a country.

False

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

False

Factor endowments refer to the extent to which free trade impacts the wealth of a country.

False

Free trade refers to a situation in which a government, through quotas or duties, attempts to influence what its citizens can buy from another country, or what they can produce and sell to another country.

False

In his book The Wealth of Nations, Adam Smith supported the mercantilist assumption that trade is a zero-sum game.

False

Limits on imports are often in the interests of domestic consumers, but not domestic producers.

False

Mercantilism, propagated in the sixteenth and seventeenth centuries, advocated that countries should simultaneously encourage both imports and exports

False

Mercantilism, propagated in the sixteenth and seventeenth centuries, advocated that countries should simultaneously encourage both imports and exports.

False

Most economists prefer Ricardo's theory to the Heckscher-Ohlin theory because it makes fewer simplifying assumptions.

False

New trade theory stresses that in some cases countries specialize in the production of particular products because of underlying differences in factor endowments.

False

Porter argues that an absence of domestic rivalry is vital to the creation and persistence of international competitive advantage in an industry.

False

Porter's theory has been subjected to detailed empirical testing and it is proven that it accurately predicts international trade patterns.

False

Raymond Vernon's product life-cycle theory was based on the observation that for most of the twentieth century a very large proportion of the world's new products were developed by the firms situated in Germany and sold first in the German market.

False

The Heckscher-Ohlin theory is the best predictor of real-world international trade patterns

False

The Heckscher-Ohlin theory is the best predictor of real-world international trade patterns.

False

The theories of Smith, Ricardo, and Heckscher-Ohlin failed to identify the specific benefits of international trade.

False

While Vernon's theory is useful for explaining the pattern of international trade in the modern world, its relevance during the period of American global dominance seemed more limited.

False

Which of the following is one of the four factors included in Porter's diamond?

Firm strategy, structure, and rivalry

According to Vernon, which of the following factors obviates the need for pioneering U.S. firms to look for low-cost production sites in other countries?

Firms can charge relatively high prices for new products.

The new trade theory is at variance with which of the following theories, which suggests that a country will predominate in the export of a product when it is particularly well endowed with those factors used intensively in its manufacture?

Heckscher Ohlin

Which of the following factors is taken into consideration by David Ricardo's theory of comparative advantage in order to explain the pattern of international trade?

International differences in labor productivity

If a company were to draw from the ideas proposed in the various theories of international trade, from a profit perspective, how would it go about selecting locations for its businesses?

It would disperse its productive activities to those countries where they can be performed most efficiently.

Which of the following is a drawback of the product life-cycle theory?

Its relevance in the modern world seems limited

Which of the following is a result of certain products having small national markets, in the absence of trade?

Limited demand for such products leads to non-realization of economies of scale.

Meitneria and Seaboria specialize in the production of heavy machinery and textiles respectively. While Meitneria doesn't produce textiles, Seaboria is not as technologically advanced as Meitneria. In this situation, according to the Heckscher-Ohlin theory:

Meitneria will import textiles from Seaboria and export heavy machinery to it.

Salcia is a country that depends heavily on domestic products. The Salcian government decides on the products that can be imported and ensures that any product that can be produced at home is not imported. A major part of Salcia's trade is concentrated on exporting agricultural produce and textiles. Which of the following influences Salcia's approach to international trade?

Mercantilism

The Republic of Argonia, owing to its vast resources of arable land and fresh water, is an agrarian nation. It exports agricultural products and in turn imports products that it does not produce such as oil, machinery, computers, and electronic devices. The result is that it spends more on imports than it gains from exports. Which of the following theories prohibits such international trade?

Mercantilism

Which of the following asserts that countries should simultaneously encourage exports and discourage imports?

Mercantilism

The new trade theory states that:

NOT: differences in labor productivity between nations underlie the notion of comparative advantage.

Australia is a major producer of agricultural and dairy products and exports coffee, tea, spices, and milk products to the United States. United States is the world's third largest supplier of machinery and exports heavy machinery to Australia. What explains the trade equation between Australia and the United States?

Nations with an absolute advantage in producing certain goods trade them for goods produced by other countries.

Which of the following factor endowments would be classified as a basic factor by Michael Porter?

Natural Resources

Which of the following theories began to emerge when economists pointed out that the ability of firms to attain economies of scale might have important implications for international trade?

New Trade

Which of the following theories states that in those industries where the output required to attain economies of scale represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises?

New Trade

Which of the following theories supports government intervention and strategic trade policy?

New trade theory

According to the product life-cycle theory, the locus of global production initially switches from the United States to other advanced nations and then from those nations to developing countries. Which of the following is most likely to be a consequence of these trends?

Over time, the United States switches from being an exporter of a product to an importer of the product.

Palladia specializes in the production of beef and produces beef more efficiently than any other country. It buys wheat, which it produces less efficiently than beef, from Rhodia, even though it produces wheat more efficiently than Rhodia. Which of the following theories of international trade supports Palladia's decision to buy wheat from Rhodia?

Ricardo's theory of comparative advantage

Which of the following suggests that consumers in all nations can consume more if there are no restrictions on trade?

Ricardo's theory of comparative advantage

Which of the following was a pervasive finding of Porter's study?

Successful industries within a country tend to be grouped into clusters of related industries

Which of the following 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?

The Heckscher-Ohlin theory

On which of the following observations was Raymond Vernon's product life-cycle theory based?

The United States developed a very large proportion of the world's new products for most of the twentieth century and sold them first in the U.S. market.

Which of the following is most likely an explanation for the Leontief paradox observed in the case of the United States?

The United States has a special advantage in producing new products made with innovative technologies.

Which of the following advantages is most likely to be enjoyed by a company as a part of the first-mover advantages?

The ability to capture scale economies ahead of later entrants

Which of the following is true of the four attributes that make Porter's diamond?

The effect of one attribute is contingent on the state of others.

Sentoria is an island nation in the Pacific Ocean. Its geographical location is advantageous since it has access to a variety of aquatic life forms and also a number of freshwater sources that provide for fisheries. The lack of arable land drives local demand for seafood. The competition in the domestic fishing industry is fierce and enables Sentoria to be one of the major exporters of seafood. Which of the following theories of international trade best explains Sentoria's dominance as an exporter of seafood?

Theory of national competitive advantage

Which of the following is an empirically supported prediction of the new trade theory?

Trade increases the specialization of production within an industry.

According to the new trade theory, how does trade offer an opportunity for mutual gain when countries do not differ in their resource endowments or technology?

Trade increases the variety of goods available to consumers and lowers the costs of those goods.

A certain amount of friction is involved when resources are required to move from one economic activity to another.

True

A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

True

According to Adam Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries.

True

According to Adam Smith, market mechanism, rather than government policy, should determine a country's imports and exports.

True

According to Michael Porter, government can influence each of the four components of Porter's diamond—either positively or negatively.

True

According to Ricardo's theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to import goods that it produces less efficiently

True

According to the theory of comparative advantage, potential world production is greater with unrestricted free trade than it is with restricted trade.

True

Despite the short-term adjustment costs associated with adopting a free trade regime, trade would seem to produce greater economic growth and higher living standards in the long run.

True

Free trade is likely to increase a country's stock of resources and the efficiency with which it utilizes those resources.

True

Individual firms should invest substantial financial resources in trying to build a first-mover advantage, even if that means several years of losses before a new venture becomes profitable.

True

Michael Porter argues that advanced factors are the most significant for competitive advantage.

True

Ricardo's theory of comparative advantage is a major intellectual weapon for advocates of free trade because it provides a strong rationale for encouraging free trade.

True

The Nobel Prize-winning economist Paul Samuelson argued that contrary to the standard interpretation, in certain circumstances the theory of comparative advantage predicts that a rich country might actually be worse off by switching to a free trade regime with a poor nation.

True

The first theory of international trade that emerged in England asserted that gold and silver were the mainstays of national wealth and essential to vigorous commerce.

True

The main tenet of mercantilism was that it was in a country's best interests to maintain a trade surplus.

True

The new trade theory emerged from the thought that the ability of firms to attain economies of scale might have important implications for international trade.

True

The new trade theory suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more pioneering firms to produce that good.

True

Viewed from an Asian or European perspective, Vernon's argument that most new products are developed and introduced in the United States seems ethnocentric and increasingly dated.

True

Porter, in his diamond model, suggested that there is a strong association between which of the following and the creation and persistence of competitive advantage in an industry?

Vigorous domestic rivalry

Consider two countries Daria and Atlantis. Daria is a major producer of wheat and rice while Atlantis specializes in the production of fertilizers and manufacturing equipment. Engaging in free trade benefits both countries since Daria is an agrarian nation and Atlantis lacks arable land. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it. Which of the following is an inaccurate assumption on which this conclusion is based?

We have assumed a simple world in which there are only two countries.

Neo-mercantilists equate political power with economic power and economic power with:

a balance-of-trade surplus

A zero-sum game is a situation in which:

an economic gain by one country results in an economic loss by another.

The argument for unrestricted free trade is that both import controls and export incentives:

are self-defeating and result in wasted resources.

The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory:

argues that the pattern of international trade is determined by differences in national factor endowments.

According to the new trade theory, trade, through its impact on economies of scale, is most likely to:

decrease the average cost of goods

According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to:

develop cost-saving process innovations.

According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in:

factor endowments

Which of the following helps a firm to preempt available demand, gain cost advantages related to volume, and build an enduring brand ahead of later competitors?

first-mover advantages

Considered to be the first theory of international trade, the principal assertion of mercantilism is that:

gold and silver are the mainstays of a country's wealth and essential to vigorous commerce.

An inconsistency in the mercantilist doctrine, as pointed out by David Hume, is that:

in the long run, no country could sustain a surplus on the balance of trade.

Vernon predicts that as the demand for a new product starts to grow in other advanced countries, in the long run

it begins to limit the potential for exports from the United States

Diminishing returns to specialization occur when

more units of resources are required to produce each additional unit.

Diminishing returns to specialization occur when:

more units of resources are required to produce each additional unit.

One of the suggestions of the new trade theory is that:

nations may benefit from trade irrespective of resource endowments or technology.

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 risks inherent in introducing new products

Porter argues that a nation's firms gain competitive advantage if their domestic consumers are

sophisticated and demanding

Cadmia and Rhodia specialize in the production of textiles and agricultural products respectively. They are the best at their respective specializations. Cadmia trades textiles with Rhodia in exchange for agricultural products. Which of the following is illustrated by this form of trade between Cadmia and Rhodia?

the concept of absolute advantage

Vernon theorizes that as the market in the United States and other advanced nations matures:

the product becomes more standardized, and price becomes the main competitive weapon.

The new trade theory diverts from its advocacy of free trade by suggesting that:

there is an economic rationale for a proactive trade policy

Porter's theory suggests that it is in the best interest of business for a firm to invest in upgrading advanced factors of production.

true