GDB Midterm Exam Ch 6

What are two actions government might take to limit free trade and cause industries concern?

1. antidumping laws 2. voluntary import restrictions

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

1. labor 2. land

To shift a country's production possibility frontier outward, which two activities should take place?

An increase in the stock of the country's resources An increase in the efficiency with which resources are used

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.

Which nation became the leading exporter of very large jet aircraft as the result of Airbus?

European Union

According to economists, if we control the technological impact on productivity, then ______ theory has more predictive power.

Heckscher-Ohlin

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

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.

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

______ 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

Which trade theory predicts trade patterns more accurately?

Ricardo

The Leontief paradox would be used to explain which of these situations?

The US exports goods that rely on skilled labor.

Which example demonstrates the Heckscher-Ohlin theory?

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

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.

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

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'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.

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

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

The production possibility frontier shows ______ returns to specialization when more units of resources are required to produce each additional unit.

diminishing

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

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

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

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

gold and silver

Based on the production possibility frontier, when a country decides to specialize in the production of one item, it is most likely to ______ the level of production of that item.

increase

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

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.

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.

To achieve the highest efficiencies, a company decides to manufacture its products in Thailand, but does all final assembly of the products in China. The company is focusing on the ______ implication for international business.

location

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

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

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

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

After the company decided to shift production out of the United States and into an overseas operation, Micah lost her job and didn't know what she would do because her skills were limited to the textile industry. This is evidence of how _____ are not always mobile and allow individuals to find new work when their jobs are compromised.

resources

The employees were told that their jobs would no longer exist in June because the company was moving production to China. Julie didn't know what she was going to do because her skills as a seamstress were only in demand for certain types of companies and many of them were moving facilities overseas where labor was cheaper. This demonstrates how ____ do not easily move from one economic activity to another.

resources

Diminishing returns suggests that it is worthwhile for companies to _____.

specialize

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

stimulate

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

the country where they were developed.