CHP 6 BUS 250

Which of the following theories proposes that a country should specialize in producing those goods for which it has an absolute advantage?

Adam Smith's theory

What are first-mover advantages?

Economic and strategic advantages that accrue to early entrants into an industry.

What is the term for unit cost reductions associated with a large amount of output?

Economies of scale

New trade theorists argue that getting a first-mover advantage is not a significant determinant of international trade.

False

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

False

Which of the following argues that when a rich country enters into a free trade agreement with a poor country the poor country benefits more that the rich country?

Paul Samuelson critique

Which of the following argues that it is in a country's best interests to maintain a trade surplus?

Principle of mercantilism

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

Ricardo's theory of comparative advantage

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

Skilled labor

A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

True

In industries where economies of scale are important, both the variety of goods that a country can produce and the scale of production are limited by the size of the market.

True

Paul Samuelson's critique looks at what happens when a rich country enters into a free trade agreement with a poor country.

True

Theories of international trade claim that promoting free trade is generally in the best interests of a country, although it may not always be in the best interest of an individual firm.

True

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

True

Free trade refers to a situation where _____.

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

Porter argues that a nation's firms should

adopt policies that promote strong competition within domestic markets.

If Porter's theory is correct, we would expect his model to predict the pattern of international trade that we observe in the real world. For example,

countries should be exporting products from those industries where all four components of the diamond are favorable.

Factor endowments refer to the

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

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

Constant returns to specialization occurs when

units of resources remain stable for any number of goods produced.