chapter 6 smart book
What are two reasons diminishing returns to specialization occur? (Check both responses.)
Different goods use resources in different proportions. Not all resources are of the same quality.
What is the likely result for the gains from specialization according to the concept of diminishing returns?
Gains are likely to be exhausted before specialization is complete.
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
What is the theory that states that countries will export goods that make intensive use of the factors that are abundant in the economy?
Heckscher-Ohlin
What theory argues that free trade is beneficial, but that differences in factor endowments, not productivity, determine the pattern of international trade?
Heckscher-Ohlin
______ raised questions about the Heckscher-Ohlin theory.
Leontief
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
What three predictions of new trade theory regarding trade patterns are supported by studies? (Check all that apply.)
Trade increases the variety of products available. Trade increases the specialization of production within an industry. Trade leads to lower average costs.
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
United States
What two simultaneous outcomes are implied by new trade theory?
a nation can increase the variety of goods available to consumers a nation can lower the cost of the goods being offered to consumers
the theory of ______ advantage was the first to attack the tenet of mercantilism which implied that trade is a zero-sum game
absolute
In order to gain competitive advantage, it would be more important to encourage a company to invest in ____ factors of production.
advanced
according to Adam Smith's theory of absolute advantage, who benefits from engaging in trade
both countries engaging in a trade process
according to Adam Smith's theory of absolute advantage, who benefits from engaging in trade?
both countries engaging in a trade process
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
Porter states that a company can gain ______ advantage if their home customers are demanding and knowledgeable.
competitive
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, first movers in an industry can gain a scale-based _____ advantage that later entrants find almost impossible to match.
cost
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
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 produce120 pounds of silk. This is an example of ______ returns to specialization.
diminishing
Which type of returns to specialization happen when additional units of resources are required to produce each additional unit?
diminishing
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
which type of returns to specialization happen when additional units of resources are required to produce each additional unit
diminishing
What concept negates the idea that a country can specialize to the degree suggested by the Ricardian model?
diminishing returns
According to Michael Porter, there is a strong correlation between _____ and the creation and persistence of competitive advantage in an industry.
domestic rivalry
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
The reductions in the cost of a single unit that result from large scale output of that product are called
economies of scale
Which of the following statements regarding openness of an economy and growth is TRUE?
economies that are open to trade grow at a faster rate economically than those that are closed
a basic message of Ricardo's theory of comparative advantage is that
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 potential world production is greater with unrestricted free trade than it is with restricted trade
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
according to Adam Smith, a country should produce all goods at home that it can, even if it could buy those goods at a lower cost from other countries t/f
false
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
first
Preempting demand, gaining volume cost advantages, building the brand, and establishing a long-term competitive advantage are associated with
first mover advantages
Porter developed ______ broad attributes of a nation that shape the environment in which local firms compete.
four
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
ricardo's theory encourages ______ because it suggests that trade is a positive-sum game where all participating countries realize economic gains
free trade
Porter states that ______ can influence each of the four components of the diamond through subsidies, education policies and policies towards capital markets.
government
if a country has an open economy and embraces free trade, citizens, on average, will benefit from ______ income levels and living standards
higher
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 firm
Generally, an open economy can ____unavailable correct a country's stock of resources
increase
To shift a country's production possibility frontier outward, it is necessary to
increase the efficiency with which resources are used. increase the stock of the country's resources.
One explanation for the Leontief paradox is that the US has an advantage and exports goods produced with
innovative technologies
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
free trade
is reflected in a nation in which the government does not attempt to influence what its citizens can buy from another country by applying import duties or what citizens can produce and sell to another country
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
A company decides to outsource all product designs to Singapore because it has been found to have the most efficient design companies. In this situation, the ______ implication for international business is being considered.
location
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
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 wage rates
____________ 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
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
which theory does NOT support unrestricted free trade between countries
mercantilism
Free trade _____ the efficient use of resources within a country.
might increase
Which theory states that for products where economies of scale are significant and that control a substantial amount of world demand, the first movers in an industry can gain a scale-based cost advantage NOT available to late entrants?
new trade
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
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
Samuelson is concerned that advances in communications technology will result in the
offshoring of service jobs
Sachs and Warner found a strong correlation between a(n) ______ response to trade and economic growth.
open
The ethnocentric view that most new products are developed and introduced in the US is a key weakness in the ______ theory.
product life cycle
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
While not as relevant today, the trade theory that was useful in explaining the pattern of trade when the US dominated the global market is the ______ theory.
product life cycle
Which aspect of Porter's Diamond is best evidenced by the US semiconductor industry providing the basis for US success in the production of personal computers?
related and supporting industries
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
Choose three advanced factors that Porter believes are MOST significant for competitive advantage
skilled labor research facilities technology know how's
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
what are the three sources of economic scale
spreading fixed costs over a larger volume the ability of large-volume producers to use more effective, specialized employees the ability of large-volume producers to use more specialized equipment
Free trade can result in dynamic gains that ______ economic growth.
stimulate
The Leontief paradox would be used to explain which of these situations?
the US exports goods that require skilled labor and imports heavy manufacturing products that require large amounts of capital.
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 the most efficiently
in the real world, it costs money to move products from one country to another, but Ricardo's model does not address these ______ costs
transportion
New trade theory is very useful in explaining trade patterns. t/f
true
the benefits from free trade are not evenly distributed throughout an economy t/f
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