Chapter 6 Smartbook Int'l Business

New trade theory implies that the first mover's ability to benefit from increasing returns ______ for other firms.

creates a barrier to entry

According to Heckscher and Ohlin, each country has certain factor endowments. What are two examples of these?

land, labor, and capital

Porter would agree that there is a strong association between _____ and the creation of competitive advantage in an industry. Multiple choice question.

vigorous domestic rivalry

What are the types of factors of production identified by Porter?

Basic and advanced

Heckscher and Ohlin identified differences in national factor endowments as the root of ______.

COMPARATIVE ADVANTAGE

What are two basic factors of production as labeled by Porter?

Climate and Natural resources

True or false: Porter would agree that there is a weak association between vigorous domestic rivalry and the creation of competitive advantage.

FALSE

The YouTube video on comparative advantage used the example of this old TV show:

Gilligan's Island

New trade theory, which states that countries may have an advantage in exporting because of first-mover advantages, is different from which theory that says countries have export advantages because of factor endowments?

HECKSCHER-OHLIN

What is the theory that states that countries will export goods that make intensive use of factor endowments that are abundant in the economy?

Heckscher-Ohlin

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

Heckscher-Ohlinnnnnn

Which trade theory states that for products where economies of scale are significant and represent a substantial amount of world demand, the first movers in an industry can gain a scale-based cost advantage that is not available to late entrants?

NEW TRADE

Which of the following theories explains global trade in terms of the international differences in labor productivity?

Ricardo's theory of comparative advantage

What are two examples of advanced factors of production as identified by Porter?

Skilled labor and Research facilities

True or false: New trade theory is very useful in explaining trade patterns.

TRUE

True or false: Successful industries within a country tend to group into clusters of related industries.

TRUEEEEEEE

What are three sources of economies of scale?

The ability of large-volume producers to use effective, specialized employees, The ability of large-volume producers to use specialized equipment, and Spreading fixed costs over a large volume of product

Which of the following two predictions of new trade theory are supported by studies?

Trade increases the specialization of production within an industry and Trade increases the variety of products available.

True or false: Under the theory of absolute advantage, a country should never produce goods at home that it could buy at a lower cost from other countries.

True

Underlying most trade theories is the notion that different countries have particular advantages in different productive activities. True or False?

Trueeeeeee

Mercantilism promoted the idea that trade was a zero-sum game which means that _____.

a gain by one country results in a loss by another

Free trade refers to a situation where

a government does not try to influence what its citizens can buy from global markets.

A country has an absolute advantage when it is able to produce

a greater quantity of a product than its competitors, using the same amount of resources.

The theory of ______ proposed by Adam Smith was the first to attack the tenet of mercantilism that trade is a zero-sum game.

absolute advantage

Porter argues that a nation's firms should

adopt policies that promote strong competition within domestic markets.

Porter argues that ______ factors are the most significant when determining competitive advantage for a country.

advanced

Adam Smith and David Ricardo pointed out limitations in mercantilism when they advocated that trade was a positive-sum game which means that _____. Multiple choice question.

all countries benefit

Ford was the first company to mass-produce cars in the United States. This gave Ford a first-mover advantage, which is

an economic and strategic advantage that accrues to early entrants into an industry.

Porter's study identified components of the German textile and apparel sector: cotton, wool, synthetic fibers, sewing machine needles, textile machinery. These were all successful industries in a single country that grouped into related industries. This grouping is an example of a(n)

cluster.

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

Porter states that firms are typically most sensitive to the needs of their closest customers. He called this _____ conditions.

demand

Even though it was extra work for the company to implement, Johan was happy that consumers had asked for a better grade of plastic for the toys his company produced. In this instance, the competitive advantage of Johan's company is being affected by _____.

demand conditions

When considering how rivalry affects competitive advantage, Porter would say that vigorous _________________ rivalry is beneficial and creates pressure to innovate and achieve competitive advantage.

domestic

A factory in Mexico produces millions of widgets a year, and has been able to reduce its costs per unit as it increased its production. This demonstrates the concept of

economies of scale.

The cost reductions that comes from increased output of a product are known as

economies of scale.

When considering free trade opportunities in Mexico, with access to cheap labor and diverse plant life, it makes sense for Mexico to _____ agricultural goods.

export

Factor endowments refer to the

extent to which a country is gifted with such resources as land, labor, and capital.

Which of the four attributes identified by Porter would be evident in a country that has the necessary infrastructure to compete in a given industry?

factor endowments

Which two of these attributes did Porter believe are MOST significant for competitive advantage?

factor endowments and demand conditions

Which three factors did Michael Porter point to in his explanation of why some nations achieve international success in particular industries?

factor endowments, domestic demand, and domestic rivalry

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

factors of production

In Porter's model of the determinants of national competitive advantage, he noted many US firms were led by people with ______ backgrounds, likely leading to US firms' lack of attention to improving manufacturing process and product design.

finance

Carl's company was able to gain economic advantage over all of its competition when it premiered the digital camera into South America before them. This is an example of a _____.

first-mover advantage

A country that does not implement quotas on imported products and does not limit what its citizens can produce and sell to another country is practicing _____.

free trade

______ is the opposite of economic isolationism.

free trade

According to mercantilism, _____ were the mainstays of national wealth and were essential to business activity.

gold and silver

The most contentious implication behind new trade theory is the argument that it generates for ______.

government intervention

A new trade theorist would say that a company should rely on what three factors to gain first-mover advantages? (Check all that apply.)

innovation, luck and entrepreneurship

According to Adam Smith, a country has an absolute advantage in the production of a product when it _____.

is more efficient than any other country at producing it

When trying to understand 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

______ is a theory of trade which advocates that a country should export more than it imports which would result in the accumulation of gold and silver and increased national wealth and power.

mercantilism

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 reflects which theory of international trade?

new trade

A country which has related and supporting industries that spill over into other industries can have a _____ on that country's competitive advantage.

positive effect

What principle or theory argues that it is in a country's best interests to maintain a trade surplus?

principle of mercantilism

According to Porter, when _____ industries invest in advanced factors of production, it can help an industry achieve a global competitive advantage.

related and supporting

Which of the following is an example of an advanced factor, as proposed by Porter, that a nation will possess?

skilled labor

Free trade has the benefit of ______, which allows a country to manufacture and export in locations where they have a comparative advantage.

specialization

According to David Ricardo's theory of comparative advantage, a country should focus on _____.

the production of goods it produces most efficiently