MGT 302: Chapter 7

what two situations are consistent with Ricardo's theory of comparative advantage?

- production is greater with unrestricted free trade than it is with restricted trade - even if a countries lack an absolute advantage in the production of any good, consumers can still consume more if there are no restrictions on trade

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

-demand conditions -factor endowments

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

-land -labor

An assembly line in a candy factory is an example of _____ because it allows the candy company to benefit from cost reductions based on the vast amounts of candy produced.

Economies of scale

The new trade theory stresses that countries should have favorable factor endowments to excel in the production of a good.

False

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

False

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

___ is the opposite of economic isolationism

Free trade

According to the Heckscher-Ohlin theory, it is expected that the US would export capital-intensive goods and import labor-intensive goods, but the opposite was found to be true. This became known as the

Leontief paradox

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

Mercantilism

Which two of the following does Porter label as basic factors of production?

Natural resources and climate

First mover advantages are especially important in industries where the global market can profitably support only a limited number of firms.

True

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

True

How would experts reply to the question, "Is Porter's theory correct?"

We do not know. It has not been subjected to empirical testing.

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

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

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

Which form of returns to specialization means that the units of resources required to produce one unit are assumed to remain the same no matter where a country is on the production possibility frontier?

constant

According to new trade theory, the first mover's ability to benefit from increasing returns ______ for other firms.

creates a barrier to entry

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

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

economies of scale

Under new trade theory, as the size of markets increase, companies may be able to develop better _____.

economies of scale

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

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

factors of production

According to new trade theory, the dominance of the United States in the commercial jet aircraft industry is related to _________- mover advantages. (Choose first or late.)

first

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

Preempting demand, gaining volume cost advantages, building the brand, and establishing a long-term competitive advantage are associated with

first-mover advantages

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

Ricardo's theory encourages ______ because it suggests that trade is a positive-sum game.

free trade

Porter states that _____ can influence each of the four components of the diamond through subsidies, education policies and policies towards capital markets.

government

It is realistic to assume that the units of resources required to produce one unit of a good will ____ no matter where a country is on the production possibilities frontier.

increase

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

Leontief questioned the validity of the Heckscher-Ohlin theory based on his assumption that the US would be an exporter of _____.

more capital-intensive goods

Which trade theory explains why countries are trade partners when they are trading similar goods and services?

new trade

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

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

positive affect

Photocopiers were initially exported from the United States. As more and more foreign competitors entered the market, the United States began to import photocopiers. This is an example of which theory?

product life-cycle

The _____ theory argues that such advanced nations as the United States have an incentive to develop consumer products and hence such nations tend to produce newer products.

product life-cycle

Which of the following theories was based on the belief that it was better to keep production facilities close to the market and to the firm's center of decision making, given the uncertainty and risks inherent in introducing new products?

product life-cycle

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

related and supporting

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

specialization

Raymond Vernon's product life-cycle theory was based on the observation that for most of the 1900s the majority of the world's new products were developed in

the United States

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

the production of goods it produces most efficiently

True or false: The product life-cycle theory suggests that mature industries tend to shift production out of the United States and into low-cost assembly locations.

true