IB w/ OB Chapter 6 Quiz Questions

Which of the following is a condition of Dunning's eclectic theory? Select one: a. The firm must own a competitive advantage that overcomes competing against foreign firms in their markets. b. Research and development costs must outweigh expenses related to foreign direct investment. c. The firm must benefit more from outsourcing a service than controlling a foreign business. d. Business activity must be more profitable in a domestic location than in a foreign location.

The correct answer is: The firm must own a competitive advantage that overcomes competing against foreign firms in their markets.

Which of the following was determined by Leontief? Select one: a. U.S. exports were less capital intensive than imports. b. U.S. exports were more capital intensive than imports. c. Relative factor endowments were not a factor in determining trade patterns. d. Specialization was not a factor in determining imports and exports.

The correct answer is: U.S. exports were less capital intensive than imports.

Which theory suggests that a country should export those goods and services for which it is more productive than other countries and import those goods and services for which other countries are more productive? Select one: a. mercantilism b. comparative advantage c. absolute advantage d. specialization of countries

The correct answer is: absolute advantage

Firm-based theories of international trade are best at explaining trade in all of the following types of products except ________. Select one: a. aluminum b. televisions c. bulldozers d. stereo equipment

The correct answer is: aluminum

What type of trade were the early country-based theories of international trade most useful in understanding? Select one: a. services b. brand name goods c. commodities d. high-tech goods

The correct answer is: commodities

Which theory suggests that a country should produce and export those goods and services for which it is relatively more productive than other countries are and import those goods and services for which other countries are relatively more productive? Select one: a. relative advantage b. comparative advantage c. absolute advantage d. specialization of countries

The correct answer is: comparative advantage

Supply factors affecting the decision to undertake FDI include all of the following except ________. Select one: a. logistics b. production costs c. customer mobility d. access to key technology

The correct answer is: customer mobility

What is the primary focus of the new trade theory developed by Krugman, Helpman, and Lancaster? Select one: a. protecting intellectual property rights b. expanding research and development c. developing economies of scale d. exploiting the experience curve

The correct answer is: developing economies of scale

Which theory suggests that trade flows can be determined by firms making the necessary research and development expenditures? Select one: a. global strategic rivalry theory b. national competitive advantage theory c. international product life cycle theory d. country similarity theory

The correct answer is: global strategic rivalry theory

Which of the following is not one of the conditions specified in eclectic theory for the occurrence of foreign direct investment? Select one: a. ownership advantage b. location advantage c. home country advantage d. internalization advantage

The correct answer is: home country advantage

The first theories of international trade used ________ as a unit of analysis. Select one: a. individual countries b. country clusters c. regions d. continents

The correct answer is: individual countries

Which theory explains why a firm would choose to enter a foreign market via FDI rather than exploit its ownership advantages internationally through other means? Select one: a. eclectic theory b. internalization theory c. relative factor endowments d. national competitive advantage

The correct answer is: internalization theory

Which theory of international trade explains that success in international trade comes from the interaction of four country- and firm-specific elements? Select one: a. national competitive advantage b. country similarity c. absolute advantage d. relative factor endowments

The correct answer is: national competitive advantage

The country similarity theory suggests that most trade in manufactured goods should be between countries with similar ________. Select one: a. labor costs b. per capita incomes c. natural resources d. cultures and languages

The correct answer is: per capita incomes

Which international trade theory originated in the marketing field? Select one: a. new trade theory b. product life cycle theory c. country similarity theory d. theory of competitive advantage

The correct answer is: product life cycle theory

According to mercantilism, what should a country's primary goal be? Select one: a. protecting citizens from unfair labor practices b. encouraging imports to prevent resource depletion c. promoting exports to enlarge gold and silver holdings d. ensuring sufficient labor for low-wage jobs in the textile industry

The correct answer is: promoting exports to enlarge gold and silver holdings

Which theory answers the question, "What determines the products for which a country will have a comparative advantage?" Select one: a. relative advantage b. absolute advantage c. relative factor endowments d. specialization of countries

The correct answer is: relative factor endowments

Demand factors affecting the decision to undertake FDI include all of the following except ________. Select one: a. customer access b. marketing advantages c. customer mobility d. resource availability

The correct answer is: resource availability

Foreign portfolio investments are most likely motivated by the desire for ________. Select one: a. risk reduction b. controlling ownership c. active management d. immediate globalization

The correct answer is: risk reduction

Which of the following is a characteristic of most Mittelstand firms? Select one: a. emphasis on low price guarantees b. reliance on global supply chains c. dependence on foreign investors d. specialization in product niches

The correct answer is: specialization in product niches

Coffman Electronics produces small, portable printers. The market for the product has stabilized, and Coffman has shifted production to Taiwan. However, Coffman's marketing department in the U.S. remains responsible for advertising and branding decisions. Coffman Electronics is most likely in the ________ product stage of the product life cycle. Select one: a. globalized b. standardized c. maturing d. new

The correct answer is: standardized

In which stage of the international product life cycle does the innovating firm's country become a net importer of the product? Select one: a. new product stage b. maturing product stage c. standardized product stage d. never

The correct answer is: standardized product stage

The Heckscher-Ohlin theory ________. Select one: a. suggests that a country should export those goods for which it is more productive than other countries and trade for those goods for which other countries are more productive b. states that a country should produce and export those goods for which it is relatively more productive than other countries and import those goods for which other countries are relatively more productive than it is c. suggests that a country will have a comparative advantage in producing products that intensively use resources it has in abundance d. argues that most trade in manufactured goods should be between countries with similar per capita incomes

The correct answer is: suggests that a country will have a comparative advantage in producing products that intensively use resources it has in abundance

Which of the following factors are not included in Porter's view of factor endowments? Select one: a. land b. capital c. work ethic of workforce d. educational level of workforce

The correct answer is: work ethic of workforce

Compare and contrast the theories of absolute advantage and comparative advantage.

The theory of absolute advantage suggest that a country should export those goods and services for which it is more productive than other countries are and import those goods and services for which other countries are more productive than it is. Numerically speaking this theory sounds perfect and would result in perfect efficiency and world trade. The theory of comparative advantage suggests that a country should produce and export those goods and services for which it is relatively more productive than other countries are and import those goods and services for which other countries are relatively more productive than it is. The theory of comparative advantages encompasses the underlying principles of the theory of absolute advantage only making it less specific, because the system is too complex. Comparative advantage adds in more variables of what drives productivity and streamlines efficiency. It carries with it opportunity cost and that provides options to prioritize goods and services better between entities.

Examine the impact of the product life cycle on international trade and international investment. (p.164)

There are three stages of the product life cycle: stage 1 - new product stage, stage 2 - maturing product stage, and stage 3 - standardized product stage. According to this theory, domestic production begins in stage 1, peaks in stage 2, and slumps in stage 3. Exports by the innovating firm's country also begin in stage 1 and peak in stage 2. By stage 3, however, the innovating firm's country becomes a net importer of the product. Foreign competition begins to begin to emerge towards the end of stage 1 as the advantages become apparent. In stage 2, foreign competitors expand their productive capacity, thus servicing an increasing portion of their home markets and perhaps becoming net exporters. As competition intensifies in stage 2, however, the innovating firm and its domestic and foreign rivals seek to lower their production costs by shifting production to low-cost sites in less-developed countries. Eventually, in stage 3, the less-developed countries may become net exporters of the product.

Discuss the reasons why the majority of FDI (foreign direct investment) goes to developed countries rather than developing countries. How does the ownership advantage theory influence FDI?

When looking at the influencing factors of Federal Direct Investment (FDI) it becomes apparent that developed countries would have a greater number of influencing factor on the list. Developed countries are generally more likely to have better supply factors. A developed country will have better roads to move supply around, easier access to key technologies, resource availability, and will probably be easier to communicate with. A developed country will generally have better demand factors; customer access, marketing advantages and availability, exploitation of competitive advantage being targeted, and customer mobility. Political factors in a developing country are going to be a lot more stable and reliable. They are less likely to have less trade barriers and economic development incentives. Ownership advantage theory states that a firm must own some unique competitive advantage that overcomes the disadvantages of competing with foreign firms on their home turf. The principle behind this theory is that a firm will not break into a new market unless it has ownership in a competitive advantage that makes it worth the FDI.