International Business- Exam 2 chapters 6-7

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 import textiles from Country S and export dairy to it.

tracks the export and import of goods and services

Current Account

__________ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

Dumping

(t/f)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.

False

(t/f)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

(t/f)Adam Smith supported the mercantilist assumption because he believed that countries differ in their ability to produce goods efficiently.

False

(t/f)Factor endowments are unit cost reductions associated with a large scale of output.

False

How did the Smoot-Hawley Act divert consumer demand away from foreign products?

It implemented a wall of tariffs.

__________ justifies some limited government intervention to support the development of certain export-oriented industries.

New trade theory

Flow of FDI out of the country

Outflows of FDI

(t/f)A specific tariff is levied as a fixed charge for each unit of an imported good.

True

(t/f)After the Great Depression, there was a favorable shift in the U.S. government toward free trade.

True

(t/f)Dumping occurs when companies sell goods in a foreign market at below their costs of production.

True

(t/f)Factor endowments refer to the availability of land and labor which affect the ability of a country to produce goods.

True

(t/f)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

(t/f)Government intervention can be self-defeating because it tends to protect the inefficient rather than help firms become efficient global competitors.

True

(t/f)Governments sometimes rely on trade policy to try to improve the human rights policies of trading partners

True

(t/f)Paul Krugman believed that a trade policy aimed at establishing domestic firms in a dominant position boosts national income but at the expense of other countries.

True

(t/f)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

(t/f)The British decision to withdraw from the European Union suggests that there isn't a global consensus on the issue of free trade.

True

Paul Krugman characterizes strategic trade policy as being

a boost to national income at the expense of other countries

If Switzerland decides it wants to make it difficult for other countries to export cheese to Swiss businesses and creates pasteurization standards that don't exist anywhere else in the world, it would be implementing __________ policies as a way to restrict these imports.

administrative trade

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

holistic explanation of fdi

eclectic paradigm

The economic and strategic advantages that accrue to early entrants into an industry are called

first-mover advantages.

Simone lives in a country in which the government does not impose quotas on what can be imported or on what businesses can produce and sell to another country. What type of situation does this describe?

free trade

establishments of a new operation in a foreign country

greenfield investment

A South American nation has a direct restriction on the amount of vegetables that may be imported into the country. Which instrument of trade policy does this reflect?

import quota

A tariff rate quota provides a lower tariff rate to

imports within the quota.

The __________ argument was proposed by Alexander Hamilton in 1792 and is by far the oldest economic argument for government intervention.

infant industry

see why firms prefer FDI over licensing for entertaining foreign markets

internalization theory

granting foreign company to produce product under license with royalty fee coming from each sale

licensing

For years, the world used a small nation in Central America as a place to assemble goods and benefit from inexpensive labor. The nation decided to shift its base from simple assembly to a full-fledged manufacture of components and finished goods. It introduced a policy that stated 65 percent of the value of a product must be produced locally. This is an example of a(n)

local content requirement.

New trade theorists would agree that a country might become dominant in the export of a good simply because it was

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

The government of a Central American country decides on the products that can be imported and ensures that any agricultural product that can be produced at home will not be imported. Instead, the government wants to maximize agricultural exports to achieve a surplus in the balance of trade. Which perspective likely influences this government's approach to international trade?

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?

mercantilism

Which approach suggests that nations may benefit from trade even when they do not differ in resource endowments or technology?

new trade theory

Subsidies and quotas are examples of __________ barriers a county might impose.

nontariff

FDI undertaken to serve the home market is known as:

offshore production

industry composed with limited number of large firms

oligopoly

A(n) __________ refers to the extra profit that producers make when supply is artificially limited by an import quota.

quota rent

A tax of 14 cents is levied for each ceramic plate imported into a nation. This is an example of a(n)

specific tariff.

In order to encourage the wine production industry, the Italian government provided low-interest loans for the purchase of equipment and plants. The government also gave cash grants and made tax reductions. Which instrument of trade policy is being used by the Italian government?

subsidies

The U.S. agriculture industry has long-benefited from high tariff rates and _____ that protect domestic agriculture and traditional farming communities.

subsidies

flow of FDI

the amount of FDI undertaken over a given time period

Foreign Direct Investment (FDI)

the buying of permanent property and businesses in foreign nations

in his theory of absolute advantage, Adam Smith advocated that __________ should determine what a country imports and what it exports.

the market mechanism

The Heckscher-Ohlin theory is based on the idea that

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

The basic message of the __________ is that potential world production is greater with unrestricted free trade than it is with restricted trade.

theory of comparative advantage