Chapt. 6

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.

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.

True or false: Most economists prefer the Ricardian model when discussing trade even though it is a relatively poor predictor of real-world international trade.

False

______ 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.

Free trade

What theory argues that free trade is beneficial, but that differences in factor endowments, not productivity, determine the pattern of international trade?

Heckscher-Ohlin

Which theory does NOT support unrestricted free trade between countries?

Mercantilism

______ theory states that, because of economies of scale, trade can increase the variety of goods available and decrease the average cost of these goods.

New trade

What aspect of free trade does Samuelson see as a potential negative influence on international trade?

Offshoring of service jobs such as call centers

Which theory is said to predict trade patterns more accurately?

Ricardo

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.

True or false: The benefits from free trade are not evenly distributed throughout an economy.

True

What two simultaneous outcomes are implied by new trade theory?

a nation can lower the cost of the goods being offered to consumers a nation can increase the variety of goods available to consumers

Economist David Hume argued that an inherent inconsistency with mercantilism is that in the long run no country could sustain

a surplus on the balance of trade.

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

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

The reductions in the cost of a single unit that result from large scale output of that product are called

economies of scale.

The Heckscher-Ohlin theory of international trade focuses on ______ when explaining what a country chooses to export.

factors of production

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 firms.

To shift a country's production possibility frontier outward, it is necessary to (Check the two that apply.)

increase the stock of the country's resources. increase the efficiency with which resources are used.

One explanation for the Leontief paradox is that the US has an advantage and exports goods produced with

innovative technologies.

When applying reasoning for why Japan exports automobiles or why Switzerland exports watches, David Ricardo's theory of comparative advantage bases the explanation in terms of differences in

labor productivity.

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

The final conclusion of the product life-cycle theory is that ultimately a product

may be exported back to the country where it was originally invented.

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

The ethnocentric view that most new products are developed and introduced in the US is a key weakness in the ______ theory.

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

The ______ shows the combination of goods and/or services that can be produced by a country based on available resources.

production possibilities frontier

What are three sources of economies of scale?

the ability of large-volume producers to use more effective, specialized employees the ability of large-volume producers to use more specialized equipment spreading fixed costs over a larger volume

The main criticism of mercantilism was that

the goal of a constant positive balance of trade is impossible.