MKT 310 Ch 6. LS

The trade theories associated with Smith and Ricardo advocate for _____ free trade.

unrestricted

The proponents of mercantilism see trade as a ______ -sum game.

zero

Porter developed ______ broad attributes of a nation that shape the environment in which local firms compete.

4

______ 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

Based on the theories of Smith, Ricardo, and Heckscher-Ohlin, in a country with access to cheap labor, productive land, and diverse plant life, it makes sense to _____ agricultural goods.

export

Generally, an open economy can increase/decrease a country's stock of

increase

When a country decides to specialize in the production of one item, it is most likely to ___ the level of production of that item. (Choose increase or decrease.)

increase

The ______ theory predicts that mature industries tend to shift production out of advanced nations and into low-cost assembly locations.

product life-cycle

When discussing constant returns to specialization, it is realistic to assume that the units of resources required to produce one unit will _____ no matter where a country is on the production possibilities frontier.

remain the same

What are two reasons diminishing returns to specialization occur?

-Not all resources are of the same quality. -Different goods use resources in different proportions.

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

Climate Natural resources

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 possibilities frontier?

Constant

What concept negates the idea that a country can specialize to the degree suggested by the Ricardian model?

Diminishing returns

Which of the following statements regarding openness of an economy and growth is TRUE?

Economies that are open to trade grow at a faster rate economically than those that are closed.

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

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.

Besides the four broad attributes of a nation that shape the environment in which local firms compete, what two additional variables did Porter discuss that can influence the national diamond?

Government Chance events

The Middle East has an abundance of oil reserves; therefore, exporting oil supports the ______ theory which is based on creating an advantage based on factor endowments.

Heckscher-Ohlin

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

Heckscher-Ohlin

What assumption does the Ricardian model of comparative advantage make in terms of converting resources?

It assumes that all resources can easily shift from one thing to another.

______ raised questions about the Heckscher-Ohlin theory.

Leonteif

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 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.

______ is the first theory of trade that advocated that a country should export more than it imports and should accumulate gold and silver to make up the difference and maintain a trade surplus.

Mercantilism

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

New trade

What theory implies that the global market may only be able to support a limited number of firms in industries when the output required to attain economies of scale represents a significant amount of total world demand?

New trade theory

Which theory was based on the observation that early in the development of a commodity, all the parts and labor come from the area in which it was invented?

Product life-cycle

Choose three advanced factors that Porter believes are MOST significant for competitive advantage.

Research facilities Technology know-how Skilled labor

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.

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

United States

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.

The theory of ______ advantage was the first to attack the tenet of mercantilism which implied that trade is a zero-sum game.

absolute

When a country is more efficient at producing a product than any other country, the country has a(n) ______ advantage in the production of that product. political

absolute

According to Adam Smith's theory of absolute advantage, who benefits from engaging in trade?

both countries engaging in a trade process

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

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 possibilities frontier?

constant

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

According to product life-cycle theory, as products mature, ______ considerations become far more important in the competitive process.

cost

What did Porter call the concept where firms are typically most sensitive to the needs of their closest customers?

demand conditions

It takes 12 units of resources to produce 100 pounds of silk. It takes 13 units to produce 115 pounds of silk and 15 units to produce120 pounds of silk. This is an example of ______ returns to specialization.

diminishing

Based on new trade theory, as the size of markets increases, companies may be able to attain better ______.

economies of scale

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

economies of scale.

Portugal can produce wine and cloth with less labor than England. But, given all factors of production, England can produce cloth relatively better than Portugal. According to Ricardo's theory of comparative advantage, it make sense for England to

export cloth and import wine from Portugal.

According to Heckscher and Ohlin, each country has certain ______, such as land, labor, and capital.

factor endowments

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

factors of production

Manatee Mfg. is able to source parts for its refrigeration products from anywhere in the world because the United States does not place any quotas or limitations on the imports they need. This is a reflection of a _____ policy.

free trade

Ricardo's theory encourages ______ because it suggests that trade is a positive-sum game where all participating countries realize economic gains.

free trade

If a country has an open economy and embraces free trade, citizens, on average, will benefit from ______ income levels and living standards.

higher

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.

Generally, an open economy can ____ increase, Correct Unavailable a country's stock of resources

increase

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

innovative technologies.

A country is said to have an absolute advantage in the production of an item when the country

is more efficient than any other country at producing the item.

When a government intervenes to achieve a surplus in the nation's balance of trade, this action is consistent with the main tenet of ______.

mercantilism

Which theory does NOT support unrestricted free trade between countries?

mercantilism

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

Sachs and Warner found a strong correlation between a(n) ______ response to trade and economic growth.

open

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

Which aspect of Porter's Diamond is best evidenced by the US semiconductor industry providing the basis for US success in the production of personal computers?

related and supporting industries

The primary problem with mercantilism is that its supporters claimed that trade should

show a gain by one country that results in a loss by another.

Free trade can result in dynamic gains that ______ economic growth.

stimulate

According to the product life cycle theory, when a product is in the early stages of its life cycle, it is most likely to be produced and exported from

the country where it was developed.

The main criticism of mercantilism was that

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

In the real world, it costs money to move products from one country to another, but Ricardo's model does not address these ______ costs.

transportation

True or false: The US has an abundance of arable land and has long been an exporter of agricultural products. This is a good application of the Heckscher-Ohlin theory.

true

What three predictions of new trade theory regarding trade patterns are supported by studies?

-Trade increases the specialization of production within an industry. -Trade leads to lower average costs. -Trade increases the variety of products available.

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

A basic message of Ricardo's theory of comparative advantage is that: (Check the two that apply.)

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

To shift a country's production possibility frontier outward, it is necessary to

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

What are three sources of economies of scale?

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

A new trade theorist would say that a company should rely on which three things to gain first-mover advantages?

Entrepreneurship Luck Innovation

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

Heckscher-Ohlin

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

Location Demographics

What was the basic premise of mercantilism?

countries should encourage exports and discourage imports

A production possibilities frontier shows returns to specialization when more units of resources are required to produce each additional unit. (Choose diminishing or increasing.)

diminishing

Country A wants to produce more rice. Unfortunately, it will have to farm less productive land to produce this rice. This fact represents the idea of ______ returns to specialization

diminishing

Which type of returns to specialization happen when additional units of resources are required to produce each additional unit?

diminishing

True or False: According to Adam Smith, a country should produce all goods at home that it can, even if it could buy those goods at a lower cost from other countries.

false

The development of the superjumbo jet by Airbus, which basically shuts out other producers of this type of aircraft, demonstrates the idea of a(n) ______ based on scale economies because the global market can probably only support one producer of superjumbo aircraft.

first-mover advantage

______ 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

If a country decides to focus production on wheat because it has an absolute advantage in this crop and it trades with another country that has an absolute advantage in its corn crop, then the level of production of these crops for both countries is likely to

increase

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.

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.

It has been argued that Donald Trump favors _____ views because he wants the country to export products but does not favor importing products.

mercantilism

Free trade _____ the efficient use of resources within a country.

might increase

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

production possibilities frontier

Reflecting the theories of Smith, Ricardo, and Heckscher-Ohlin, free trade permits ______, which allows a country to manufacture and export in those areas where they have a comparative advantage.

specialization

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

true

A criticism of Ricardo's theory of comparative advantage is that it is a simple model that includes many

unrealistic assumptions.