Int Bus Chapter 6

Which term indicates that the units of resources required to produce a good are assumed to remain fixed no matter where one is on a country's production possibility frontier? -constant returns to specialization -experience curve -economies of scope -economies of scale -diseconomies of scale

constant returns to specialization

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

false

Those who follow the mercantilist doctrine would not want government intervention to be the reason for a surplus in the balance of trade. -true -false

false

Airbus pioneered the development of the new superjumbo jet at a cost of $15 billion. It quickly obtained contracts for many of the 400 units that are expected to be ordered in the next 20 years, thereby effectively shutting out its competitor, Boeing. Airbus benefits from -economies of scale. -first-mover advantages. -comparative advantages. -absolute advantages. -factor endowments.

first-mover advantages.

Economies of scale are achieved as the result of __________ that creates unit cost reductions. -trade policies -absolute advantages -large scale output -diminishing returns -increased tariffs

large scale output

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 is an example of -a first-mover advantage. -Samuelson's critique. -a zero-sum game. -a positive-sum game. -Leontief's paradox

Leontief's paradox

As a trade theory, mercantilism was based on the idea that a trade surplus would lead to -accumulations of gold and silver. -lower levels of national wealth. -absolute advantage among all trading partners. -first-mover advantages. -lower levels of inflation and a steady economy.

accumulations of gold and silver.

Which trade theory suggests that trade is a positive-sum game in which all participating countries realize economic gains? -mercantilism -Leontief's paradox -Samuelson critique -comparative advantage -Heckscher-Ohlin theory

comparative advantage

The trade theories of Smith and Ricardo promote the idea that American consumers should buy products made in the United States whenever possible to help save jobs from foreign competition. -true -false

false

Which theory stresses that in some cases, countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms? -Heckscher-Ohlin theory -new trade theory -mercantilism -theory of comparative advantage -theory of absolute advantage

new trade theory

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

true

Factor endowments refer to the availability of land and labor which affect the ability of a country to produce goods. -true -false

true

Which statement best conceptualizes the relationship between trade and economic growth? -Free trade hampers economic growth and leads to lower living standards in the long run. -Free trade has historically benefited poor counties and hence trade barriers should be introduced to protect rich countries from exploitation. -Within a group of developing countries, closed economies grow faster than open economies. -Countries open to international trade display higher growth rates than those that close their economies to trade. -The Leontief paradox notes that adopting an open economy and embracing free trade does not reward a nation with higher economic growth.

Countries open to international trade display higher growth rates than those that close their economies to trade.

Country J and Country S specialize in the production of dairy and textiles respectively. While Country J doesn't produce textiles, Country S is not as technologically advanced as Country J. In this situation, according to the Heckscher-Ohlin theory -Country J will recruit workers from Country S to improve its standing in the textile industry. -Country S will recruit experts from Country J to specialize in the production of dairy. -Country J and Country S will raise their trade barriers to protect their economies. -Country J will import textiles from Country S and export dairy to it. -Country J will invest more than Country S in the production of textiles to exploit its comparative advantage.

Country J will import textiles from Country S and export dairy to it.

Why do diminishing rather than constant returns to specialization sometimes occur? -Trade does not affect the distribution of income within a country. -All resources are of the same quality. -Resources can shift from the production of one good to another seamlessly. -Different goods use different resources in different proportions. -Each country has a fixed stock of resources.

Different goods use different resources in different proportions.

According to new trade theory, what is most likely to be a result of market expansion due to trade? -A wide variety of products is produced at greater unit costs than in the absence of trade. -The ability to capture first-mover advantages is restricted in a world that allows trade. -When countries do not differ in their resource endowments or technology, trade does not offer mutual benefits. -As the variety of products increases, demand for individual products decreases, leading to non-realization of economies of scale. -Each nation may specialize in producing a narrower range of products, importing goods that it does not make.

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

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? -theory of comparative advantage -Heckscher-Ohlin theory -theory of absolute advantage -Samuelson's critique -mercantilism

Heckscher-Ohlin theory

What might result in the absence of trade, if certain products have small national markets? -At low volumes of production, unit costs and prices would be lowered. -Limited demand for such products leads to non-realization of economies of scale. -The first movers in an industry may get a lock on the world market that discourages subsequent entry. -The variety of products available to consumers increases. -Each nation will specialize in producing a narrower range of products than it would in the presence of trade.

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

What might result in the absence of trade, if certain products have small national markets? -At low volumes of production, unit costs and prices would be lowered. -Limited demand for such products leads to non-realization of economies of scale. -The variety of products available to consumers increases. -Each nation will specialize in producing a narrower range of products than it would in the presence of trade. -The first movers in an industry may get a lock on the world market that discourages subsequent entry.

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

Garments are exported from China to the United States on a daily basis. In turn, the United States exports agricultural products like soybeans to China. Which statement best explains the trade equation between China and the United States? -Gold and silver are the mainstays of national wealth and essential to vigorous commerce. -Countries are simultaneously encouraging exports and discouraging imports. -First entrants to the industry ensure their nations have the first-mover advantages. -Nations with an absolute advantage in producing certain goods trade them for goods produced by other countries. -Tariff barriers determine the flow of goods and services between nations.

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

__________ justifies some limited government intervention to support the development of certain export-oriented industries. -Mercantilism -Theory of absolute advantage -Heckscher-Ohlin theory -New trade theory -Theory of comparative advantage

New trade theory

Country A specializes in the production of steel and produces steel more efficiently than any other country. It buys corn, which it produces less efficiently than steel, from Country B, even though it produces corn more efficiently than Country B. Which theory of international trade supports Country A's decision to buy corn from Country B? -Adam Smith's theory of absolute advantage -Leontief's paradox -Samuelson critique -Ricardo's theory of comparative advantage -mercantilism

Ricardo's theory of comparative advantage

One of the central beliefs of mercantilism is that -potential world production is greater with unrestricted free trade than it is with restricted trade. -a country's government should intervene to achieve a surplus in the balance of trade. -a large volume of trade is essential regardless of whether it comes from imports or exports. -trade is a positive-sum game in which all countries benefit from trading with each other. -a country that has an absolute advantage in the production of all goods derives no benefits from international trade.

a country's government should intervene to achieve a surplus in the balance of trade.

Country X and Country Z specialize in the production of agricultural equipment and wheat respectively. Country X exports agricultural equipment to Country Z, which in turn exports wheat to Country X. According to the theory of comparative advantage, this mutually beneficial trade relationship is an example of -a positive-sum game. -the advantages of mercantilism. -a zero-sum game. -the significance of trade barriers. -a first-mover advantage.

a positive-sum game.

If France is more efficient at producing fine wines than other nations, then France has a(n) -comparative advantage. -mercantilist advantage. -first-mover advantage. -absolute advantage -unsustainable advantage.

absolute advantage

The theory of __________ was the first to explain why unrestricted free trade benefits a country. -absolute advantage -zero-sum game -free trade -Heckscher-Ohlin -national competitive advantage

absolute advantage

A zero-sum game occurs when -the market mechanism determines what a country imports and what it exports. -a country engages in international trade even for products it is able to produce for itself. -an economic gain by one country results in an economic loss by another. -one country has an absolute advantage in the production of all goods. -limits on imports are done in the interests of domestic producers, but not domestic consumers.

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

One difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory -suggests that trade is a positive-sum game in which all countries that participate realize economic gains. -makes more simplifying assumptions. -cannot be subjected to empirical tests. -actually predicts trade patterns with greater accuracy. -argues that the pattern of international trade is determined by differences in national factor endowments.

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

A neo-mercantilist strategy would promote -boosting imports and limiting exports. -the equal distribution of exports and imports. -limiting both imports and exports. -boosting exports and limiting imports. -boosting both imports and exports.

boosting exports and limiting imports.

According to Porter, which factor endowment would be classified as an advanced factor? -demographics -location -communication infrastructure -climate -natural resources

communication infrastructure

A business that follows the product life-cycle theory would agree that __________ influence the movement of the locus of global production from advanced countries to developing countries. -firm structures -factor endowments -cost considerations -supporting industries -domestic competition

cost considerations

Aesha works for a moderately priced running shoe manufacturer and while their products are lower in cost, there is a high degree of consumer pressure to create the best quality running shoes possible and to constantly innovate with new designs. Which aspect of Porter's Diamond does this demonstrate? -demand conditions -related and supporting industries -factor endowments -first-mover advantages -firm structure and rivalry

demand conditions

One of the rebuttals to Samuelson's critique of the free trade model is that -the strict immigration policies of the United States help insulate the economy from inward migration. -the developing nations are unlikely to run into diminishing returns in a near future. -the United States' ability to achieve constant returns to specialization is unparalleled. -developing nations are unlikely to upgrade the skill level of their workforce rapidly enough. -introducing trade barriers may in fact be beneficial to developed nations to some extent.

developing nations are unlikely to upgrade the skill level of their workforce rapidly enough.

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. -diminishing returns. -absolute advantages. -comparative advantages. -factor endowments.

economies of scale.

Tavis lives in southern Florida where there is sufficient land and labor to successfully grow gourds and melons. Heckscher-Ohlin would consider the land and labor to be -innovative technologies. -economies of scale. -location economics. -resource allocations. -factor endowments.

factor endowments.

According to the product life-cycle theory, as demand for a product grows rapidly in the United States, it will also grow rapidly in other advanced nations and diminish potential exports from the United States. -true -false

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. -true -false

false

According to the product life-cycle theory, the ultimate result is that production of goods becomes concentrated in the country where a product originated—typically, a developed nation. -true -false

false

Adam Smith supported the mercantilist assumption because he believed that countries differ in their ability to produce goods efficiently. -true -false

false

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

false

New trade theory suggests that world trade will increase the average cost of goods. -true -false

false

The practice of mercantilism discouraged countries from exporting but encouraged them to import the goods they needed. -true -false

false

The theory of free trade is enhanced by the idea that resources typically move easily from one economic activity to another and allow nations to adapt quickly. -true -false

false

The economic and strategic advantages that accrue to early entrants into an industry are called -absolute advantages. -sustainable advantages. -first-mover advantages. -comparative advantages. -mercantilist advantages.

first-mover advantages.

An inconsistency in the mercantilist doctrine, as pointed out by David Hume, is that -trade is a zero-sum game rather than a positive-sum game as postulated by the theory. -in the long run, no country could sustain a surplus on the balance of trade. -the volume of a country's imports increases as an indirect consequence of mercantilism. -the exclusion of government influence in matters pertaining to trade is not ideal. -it was not backed by either sound political principles or social ideologies.

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

According to new trade theory, trade, through its impact on economies of scale, is most likely to -reduce the volume of the goods produced. -increase the average costs of goods. -inhibit first-mover advantages in all industries. -increase the variety of goods available to consumers -benefit only nations that differ in resource endowments or technology.

increase the variety of goods available to consumers

Paul Samuelson's critique of free trade is based on the idea that the wealthier nation in the trade agreement might not recognize a net gain if the trade creates -lower real wage rates in the wealthier nation. -a barrier from trading with other nations. -more job opportunities in the wealthier nation. -the development of a monopoly. -an economic downturn in the poorer nation.

lower real wage rates in the wealthier nation.

New trade theorists would agree that a country might become dominant in the export of a good simply because it was -provided with favorable government policies. -eliminating supply conditions. -following the lead of others. -lucky to be the first to produce the good. -achieving factor endowments.

lucky to be the first to produce the good.

Brianna lives in a nation that encourages the production of goods for exporting and to satisfy the needs of the nation's citizens. This results in the nation relying less on importing goods. Which trade theory does this reflect? -mercantilism -theory of absolute advantage -Heckscher-Ohlin theory -new trade theory -theory of comparative advantage

mercantilism

The government of a South American nation 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 is influencing the international trade efforts in this nation? -theory of absolute advantage -mercantilism -new trade theory -product life-cycle theory -Heckscher-Ohlin theory

mercantilism

Which approach suggests that nations may benefit from trade even when they do not differ in resource endowments or technology? -theory of comparative advantage -mercantilism -Heckscher-Ohlin theory -new trade theory -theory of absolute advantage

new trade theory

According to Ricardo's theory of comparative advantage, consumers in all nations can consume more if there are -more monopolistic businesses. -fewer monopolistic businesses. -stronger restrictions on trade. -no restrictions on trade. -fewer incentives for intellectual property.

no restrictions on trade.

Some of Vernon's logic for the product life-cycle theory was based on the idea that the demand for most new products tends to be based on -nonprice factors. -purely price factors. -the cost of production. -the cost of labor. -the cost of goods sold.

nonprice factors.

Vernon argues that pioneering firms in the United States kept production facilities closer to the market and centers of decision making because -of the high trade barriers implemented by several Asian and European countries. -they believed that foreign production facilities were inferior in technical skills. -they believed that U.S. labor costs were much lower than those in foreign markets. -of the uncertainty and risks inherent in introducing new products. -the U.S. government was critical of outsourcing production to other countries.

of the uncertainty and risks inherent in introducing new products.

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. As a result, -the pattern of international trade is affected by differences in factor endowments rather than differences in productivity. -developing nations fail to upgrade their skill levels to compete with advanced countries. -U.S. imports become less capital-intensive than U.S. exports. -the wage rates in the United States decrease. -over time, the United States switches from being an exporter of a product to an importer of the product.

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

According to the product life-cycle theory, as the market in the United States and other advanced nations matures and the product becomes more standardized, __________ becomes the main competitive weapon. -standardization -placement -customization -price -marketing

price

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? -mercantilism -absolute advantage -product life-cycle -new trade -comparative advantage

product life-cycle

Which trade theory grew out of the fact that for most of the twentieth century, the majority of the new products in the world were developed by U.S. firms and first sold in the U.S. market? -mercantilism -new trade -comparative advantage -product life-cycle -absolute advantage

product life-cycle

In his theory of absolute advantage, Adam Smith advocated that __________ should determine what a country imports and what it exports. -political parties -foreign entities -government policy -social mores -the market mechanism

the market mechanism

The Heckscher-Ohlin theory is based on the idea that -it is more profitable for a country to balance exports and imports. -it is in a country's best interests to maintain a trade surplus. -economies of scale are a good predictor of real-world international trade patterns. -it makes more simplifying assumptions than the theory of comparative advantage. -the pattern of international trade is determined by differences in factor endowments.

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

A European nation has the world's most efficient computer monitor manufacturing industry, while a country in Central America has the world's most efficient agricultural machines industry. The European nation trades computer monitors with the Central American country in exchange for agricultural machinery. This form of trade between the two countries illustrates -the mercantilist doctrine. -the theory of absolute advantage. -the Heckscher-Ohlin theory. -a zero-sum game. -the product life-cycle theory.

the theory of absolute advantage.

The basic message of the __________ is that potential world production is greater with unrestricted free trade than it is with restricted trade. -absolute advantage theory -zero-sum game theory -mercantilist theory -theory of comparative advantage -Heckscher-Ohlin theory

theory of comparative advantage

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 -false

true

First-mover advantages are gained by those companies that are the early entrants to an industry. -true -false

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 -false

true

Mercantilism asserted that gold and silver were the mainstays of national wealth and essential to vigorous commerce. -true -false

true

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 -false

true

A situation in which an economic gain by one country results in an economic loss by another is called a -positive-sum game. -first-mover advantage. -diminishing return. -dynamic effect. -zero-sum game.

zero-sum game.