MG Ch. 5

Scenario: Foodland and Drinkland Two countries, Foodland and Drinkland, produce food and drinks. In Foodland, one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks. In Drinkland, one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks. Food Drinks Foodland 20 10 Drinkland 12 24 52) Based on the above scenario, which of the following statements is true? A) Foodland has an absolute advantage in producing food. B) Foodland has an absolute advantage in producing drinks. C) Drinkland has an absolute advantage in producing both food and drinks. D) Drinkland has an absolute advantage in producing food.

A) Foodland has an absolute advantage in producing food.A) Foodland has an absolute advantage in producing food.

44) To complete his business bookkeeping work each month, a business owner spends about 20 hours and in the process, has to give up $900 in income. If he hired a bookkeeper to do the work, the job would be completed in 15 hours and would cost him $600. Should the owner hire the bookkeeper or continue to do the work himself? A) He should hire the bookkeeper because the bookkeeper has an absolute advantage in completing the books. B) He should do the bookkeeping himself because he has an absolute advantage in completing the books. C) He should hire the bookkeeper only if the bookkeeper agrees to give him a discount on the service price. D) He should hire the bookkeeper only if the bookkeeper is willing to complete the work in 12 hours.

A) He should hire the bookkeeper because the bookkeeper has an absolute advantage in completing the books.

8) The condition that results when the value of a country's imports is greater than the value of its exports is called ________. A) a trade deficit B) economies of scale C) a trade surplus D) absolute advantage

A) a trade deficit

83) Wallace expects that markets abroad will soon become fully aware of the existence of the product and its benefits. Which of the following life cycle stages will the product be a part of during that period? A) maturing product stage B) product decline stage C) standardized product stage D) new product stage

A) maturing product stage

21) The measures of a nation's well-being other than the financial wealth accumulated through exports are irrelevant according to ________. A) mercantilism B) absolute advantage theory C) factor proportions theory D) new trade theory

A) mercantilism

41) When there are gains to be had by both countries that are party to an exchange, international trade is considered a(n) ________. A) positive-sum game B) equal-sum game C) negative-sum game D) zero-sum game

A) positive-sum game

67) Factor proportions theory differs from the theory of comparative advantage in that the focus of factor proportions theory is on the ________. A) usage of the most abundant factors of production, while the focus of the comparative advantage theory is on the productivity of the production process B) accumulation of financial wealth in the form of gold by encouraging imports and discouraging exports, while the comparative advantage theory focuses on usage of the most abundant factors of production C) productivity of the production process, while the comparative advantage theory focuses on maximization of production and consumption D) minimization of trade surpluses, whereas the comparative advantage theory focuses on the mercantilist idea that international trade is a zero-sum game

A) usage of the most abundant factors of production, while the focus of the comparative advantage theory is on the productivity of the production process

45) Country A produces a ton of coffee using one unit of resources. Country B produces two tons of coffee using one unit of resources. Which of the following is true regarding Country A and Country B? A) Country A has an absolute advantage in producing coffee. B) Country B has an absolute advantage in producing coffee. C) Neither Country A nor Country B has an absolute advantage in producing coffee. D) Both Country A and Country B have an absolute advantage in producing coffee.

B) Country B has an absolute advantage in producing coffee.

88) Which of the following is an argument offered by the new trade theory? A) It is in line with the factor proportions theory. B) There are gains to be made from specialization and increasing economies of scale. C) The companies first to market forgo the opportunities to create barriers to entry. D) Market forces alone play a role in assisting the home companies in a country.

B) There are gains to be made from specialization and increasing economies of scale.

7) The condition that results when a nation's exports are greater than its imports is called ________. A) a trade deficit B) a trade surplus C) mercantilism D) dumping

B) a trade surplus

95) Which element of national competitive advantage theory divides resources into two groups: basic and advanced? A) demand conditions B) factor conditions C) related and supporting industries D) firm, strategy, structure, and rivalry

B) factor conditions

49) Both absolute and comparative advantage theories assume that ________ is the only resource used in the production process. A) land B) labor C) capital D) equipment

B) labor

78) During which of the following stages of the international product life cycle theory does high purchasing power and buyer demand in an industrialized nation encourage a company to design and introduce a product concept? A) product decline stage B) new product stage C) maturing product stage D) standardized product stage

B) new product stage

Scenario: Better Mousetrap Inc. Better Mousetrap Inc. is a manufacturing company that sells pest control products. Recently the company launched an innovative mousetrap with a unique design that has been selling well in the U.S. market. Senior Vice President Marc Wallace, even recommended expanding sales overseas in order to increase company revenues. 82) Wallace's executive team reviews the stages of the international product life cycle to understand better what to expect when the product is sold overseas. Since there is virtually no export market for the product at present, the product is most likely in which of the following stages of the international product life cycle? A) maturing product stage B) new product stage C) product decline stage D) standardized product stage

B) new product stage

6) The danger of trade dependency is that ________. A) it often leads to the exploitation of developed countries B) political turmoil in a country might affect all dependent countries C) the countries involved in trade often get into rivalry over trade tariff issues D) it is difficult to end trade activities with current trade partners and find new trade partners

B) political turmoil in a country might affect all dependent countries

94) According to the Porter diamond, which of the following is an example of an advanced factor? A) labor forces in the nation B) technological infrastructure in the nation C) climate in the nation D) natural resources in the nation

B) technological infrastructure in the nation

93) National competitive advantage theory states that a nation's competitiveness in an industry depends on ________. A) the capacity of companies to create barriers to entry B) the capacity of the industry to innovate and upgrade C) the availability of government subsidies for industry development D) the availability of cheap factors of production in the nation

B) the capacity of the industry to innovate and upgrade

39) The theory of absolute advantage destroys the mercantilist idea that international trade is a ________. A) positive-sum game B) zero-sum game C) negative-sum game D) win-win game

B) zero-sum game

53) Which of the following statements is true of the above scenario? A) Foodland has a comparative advantage in producing drinks. B) Drinkland cannot trade with Foodland because trade is too expensive. C) Drinkland has an absolute advantage in producing drinks. D) Foodland should stop producing food and just produce drinks.

C) Drinkland has an absolute advantage in producing drinks.

20) ________ says that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports. A) Absolute advantage theory B) Factor proportions theory C) Mercantilism D) Communism

C) Mercantilism

25) Which of the following statements is incorrect with regard to the importance of colonies for mercantilist nations? A) They served as sources of inexpensive raw materials. B) They served as markets for higher-priced finished goods. C) They served as a source of military protection. D) They served as a source of profits for mercantilist powers.

C) They served as a source of military protection.

37) 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? A) mercantilism B) comparative advantage C) absolute advantage D) specialization of countries

C) absolute advantage

1) The term ________ refers to the voluntary exchange of goods, services, assets, or money between one person or organization and another across national borders. A) sales B) transaction C) international trade D) strategic management

C) international trade

79) During which stage of the international product life cycle theory does demand rise and remain sustained for a fairly lengthy period of time? A) product decline stage B) new product stage C) maturing product stage D) standardized product stage

C) maturing product stage

26) Nations following the theory of ________ believed that the world's wealth was limited and that a nation could increase its share of the pie only at the expense of its neighbors. A) absolute advantage B) comparative advantage C) mercantilism D) factor proportions

C) mercantilism

54) If these two countries were to gain from trading with each other, this would support the notion that trade is a ________. A) zero-sum game B) negative experience C) positive-sum game D) form of economic nationalism

C) positive-sum game

22) According to mercantilism, what should a country's primary goal be? 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

C) promoting exports to enlarge gold and silver holdings

80) In which stage of the international product life cycle does the innovating firm's country become a net importer of the product? A) new product stage B) maturing product stage C) standardized product stage D) never

C) standardized product stage

42) When a country is not able to produce a good more efficiently than other nations, but produces the good more efficiently than it does any other good, it is said to have a(n) ________. A) absolute advantage B) resource advantage C) first-mover advantage D) comparative advantage

D) comparative advantage

64) The ________ theory states that countries produce and export goods that require resources available in abundance and import goods that require resources in short supply. A) new trade B) absolute advantage C) international product life cycle D) factor proportions

D) factor proportions

23) One of the major pillars upon which the practice of mercantilism rested was ________. A) economies of scale B) pricing mechanism C) excessive imports D) trade surpluses

D) trade surpluses