BUS5 187: Smartbook Chp 6

_____ is the opposite of economic isolationism

free trade

Porter's theory stresses the advantages of businesses working with ____ to promote strong competition within domestic markets.

government

One thing a business can do when faced with increased risk from cross-border investments is

lobby government to resolve disputes.

Select all that apply: Which two actions might government take to limit free trade and cause industries concern?

1. antidumping laws 2. voluntary import restrictions

Select all that apply: Which two of these attributes did Porter believe are MOST significant for competitive advantage?

1. factor endowments 2. demand conditions

Select al that apply: 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?

1. government 2. chance events

Select all that apply: What three things do businesses typically do when faced with increased risk from cross-border investments?

1. hedge their bets 2. lobby government to create a move stable environment 3. reduce investments in risky projects

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

1. innovation 2. luck 3. entrepreneurship

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

1. labor 2. land

Select all that apply: What are two basic factors of production as labeled by Porter?

1. natural resources 2. climate

Select all that apply: What two situations are consistent with Ricardo's theory of comparative advantage?

1. production is greater with unrestricted free trade than it is with restricted trade 2. 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

What are two reasons for assuming diminishing return to specialization?

1. production might draw on marginal resources whose productivity is less than resources initially used 2. different goods use resources in different proportions

If we make allowances for the dynamic changes that might result from trade, which statement regarding openness of an economy and growth might be TRUE?

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

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

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.

_____ 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 theory states 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 of the following is likely to become the leading exporter of very large jet aircraft as a result of Airbus?

The European Union

Which example demonstrates the Heckscher-Ohlin theory?

The US has an abundance of arable land and has long been an exporter of agricultural products.

Which example can be explained by the Leontief paradox?

The United States may be exporting goods that heavily use skilled labor and innovative entrepreneurship.

How did the U.S. machine tool industry respond to the government's voluntary restrictions placed on machine tool imports in 1985?

The industry had no incentive to increase its efficiency and eventually lost most of its export markets.

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

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

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

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 ______ 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 _____ 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 positive-sum game which means that ______.

all countries benefit

The eventual consequence of the product life cycle theory is that the country where production of an item begins _____.

becomes an importer of the product

According to the theory of ______ advantage, countries will experience higher growth rates if they follow a more open stance toward international growth. Economic studies have verified this.

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 it 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

New trade theory implies that 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

What would be a logical response of domestic producers to a nation opening its economy to foreign competition?

domestic producers would look for ways to increase their efficiency

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 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

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

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

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

first-mover

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 toward capital markets.

government

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

government intervention

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

heckscher-ohlin

The Middle East has an abundance of oil reserves. These oil reserves are an example of a factor endowment; therefore, exporting oil supports the _____ theory.

heckshar-ohlin

One explanation for the Leontief paradox is that the US has an advantage in exporting goods made with

innovative technologies.

Porter's theory of national competitive advantage suggests that businesses should

invest in better training for employees.

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

Rich country A enters into a free trade agreement with poor country B. Poor country B improves its productivity. Rich 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 rich country A.

lower real wage rates

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 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

What did Paul Samuelson point to as his biggest concern with free trade and its possible affects on middle-class wages in the United States?

offshoring of jobs as the result of communication technology

Sachs and Warner found a strong correlation between how______ and the resulting economic growth.

open a country is to international 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

According to the product life cycle theory, once a product becomes more standardized, the main competitive weapon a company has is

price

Which theory suggests that a product that was originally exported from one country might eventually be produced in another country and eventually the original-exporting country finds itself importing that product from another country?

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

According to the product life-cycle, most new products are produced in

the country where they were developed

The main criticism of mercantilism was that

the goal of a constant positive balance of trade is impossible

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: According to Porter, government can detract or improve a country's advantage by choice of policies.

true

True or false: Diminishing returns sets in when a country that has produced rice for 10 years now has to use increasingly more land to produce 1 ton of rice.

true

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

true

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