Global Business Chapter 6

The economic and strategic advantages that accrue to early entrants in an industry are called a)first-mover advantages. b)comparative advantages. c)absolute advantages. d) economies of scale. e)factor endowments.

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According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in a)labor productivity. b)diminishing returns. c)factor endowments. d)management practices. e)trade barriers.

c)factor endowments.

According to Porter, which factor endowment would be classified as an advanced factor? a)location b)natural resources c)climate d)demographics e)communication infrastructure

e)communication infrastructure

One of the central beliefs of mercantilism is that a) a country's government should intervene to achieve a surplus in the balance of trade. b)a large volume of trade is essential regardless of whether it comes from imports or exports. c)trade is a positive-sum game in which all countries benefit from trading with each other. d) a country that has an absolute advantage in the production of all goods derives no benefits from international trade. e)potential world production is greater with unrestricted free trade than it is with restricted trade.

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Karvel lives in northern California where there is sufficient land and labor to successfully grow grapes for wine. Heckscher-Ohlin would consider the land and labor to be a. location economics. b. resource allocations. c. factor endowments. d. innovative technologies. e. economies of scale.

c. factor endowments.

The theory of _____ was the first to explain why unrestricted free trade benefits a country. a)Heckscher-Ohlin b) national competitive advantage c) free trade d) absolute advantage e) zero-sum game

d) absolute advantage

What do new trade theorists point to as the reason for gaining a first-mover advantage? a)conditions b)government policy c)factor endowments d)innovation and luck e)tariff and nontariff barriers

d)innovation and luck

A situation in which an economic gain by one country results in an economic loss by another is called a a. positive-sum game. b. diminishing return. c. first-mover advantage. d. zero-sum game. e. dynamic effect.

d. zero-sum game.

For years, many U.S. corporations made cameras. Today; however, most cameras sold in the United States are imported from Japan and few are manufactured in the United States. Which trade theory does this demonstrate? a)product life cycle b)Heckscher-Ohlin c)absolute advantage d)comparative advantage e)mercantilism

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New trade theory dictates that trade offers an opportunity for mutual gain when countries do not differ in their resource endowments or technology because trade a)results in a contraction of the size of the markets of individual firms. b)allows for production of products at higher prices. c)increases the variety of goods available to consumers and lowers the costs of those goods. d)allows countries to attain self-sufficiency in the production of all goods. e)guarantees first-mover advantages to all the countries that engage in trade

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The basic message of ________ is that potential world production is greater with unrestricted free trade than it is with restricted trade. a)zero-sum game theory b)theory of comparative advantage c)mercantilist theory d)absolute advantage theory e)Heckscher-Ohlin theory

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The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory a)makes more simplifying assumptions. b)cannot be subjected to empirical tests. c)actually predicts trade patterns with greater accuracy. d)argues that the pattern of international trade is determined by differences in national factor endowments. e)suggests that trade is a positive-sum game in which all countries that participate realize economic gains.

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Factor endowments, demand conditions, related and supporting industries, and _____ are the four broad attributes that make up Porter's Diamond Model a)firm strategy, structure, and rivalry b)diminishing returns c)government intervention policies d)first-mover advantages e)staff hierarchy and training

a)firm strategy, structure, and rivalry

The new trade theory is at variance with which theory, which suggests that a country will predominate in the export of a product when it is particularly well endowed with those factors used intensively in its manufacture? a. Heckscher-Ohlin b. product life-cycle c. comparative advantage d. absolute advantage e. national competitive advantage

a. Heckscher-Ohlin New trade theory is at variance with the Heckscher-Ohlin theory, which suggests that a country will predominate in the export of a product when it is particularly well endowed with those factors used intensively in its manufacture. The new trade theory suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good.

Which approach suggests that nations may benefit from trade even when they do not differ in resource endowments or technology? a. new trade theory b. mercantilism c. theory of comparative advantage d. theory of absolute advantage e. Heckscher-Ohlin theory

a. new trade theory New trade theory has important implications. The theory suggests that nations may benefit from trade even when they do not differ in resource endowments or technology.

According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to a)lower costs of services to offset a fall in demand. b)develop cost-saving process innovations. c)invite foreign direct investment in domestic industries. d)embrace and promote open market capitalism. e) import new consumer products and export agricultural products.

b)develop cost-saving process innovations.

Software development is an expensive process, but manufacturers are able to spread out the costs of the development over the hundreds of thousands of software packages sold to consumers. What is helping to drive down costs per unit in this situation? a)antidumping measures b)economies of scale c)diminishing returns d)labor productivity e)first-mover advantages

b)economies of scale Microsoft realizes economies of scale by spreading the fixed costs of developing new versions of its Windows operating system, which runs to about $10 billion, over the 2 billion or so personal computers on which each new system is ultimately installed. Similarly, automobile companies realize economies of scale by producing a high volume of automobiles from an assembly line where each employee has a specialized task.

One reason used to explain the Leontief paradox observed in the case of the United States is that the United States a)imports goods that heavily use skilled labor and innovative entrepreneurship. b)has a special advantage in producing new products made with innovative technologies. c)exports heavy manufacturing products that use large amounts of capital. d)has a strong absolute advantage over other nations because of its advantageous factor endowments. e)imports goods that make intensive use of factors that are locally abundant.

b)has a special advantage in producing new products made with innovative technologies.

Kevin lives in a nation that encourages the production of goods for exporting and to satisfy the needs of the nation's citizens so fewer imports are needed. Which trade theory does this reflect? a)new trade theory b)mercantilism c)theory of comparative advantage d)theory of absolute advantage e)Heckscher-Ohlin theory

b)mercantilism

In his theory of absolute advantage, Adam Smith advocated that ________ should determine what a country imports and what it exports. a)government policy b)the market mechanism c)social mores d)political parties e)foreign entities

b)the market mechanism

Porter, in his diamond model, suggested that there is a strong association between _____ and the creation and persistence of competitive advantage in an industry. a)trade barriers b)vigorous domestic rivalry c)purchasing power parity d)the availability of a captive market e) first-mover advantages

b)vigorous domestic rivalry

U.S. exports are less capital-intensive than U.S. imports, despite the relative abundance of capital in the country. This is in opposition to the Heckscher-Ohlin theory and has been labelled a. a zero-sum game. b. Leontief's paradox. c. a positive-sum game. d. Samuelson's critique. e. a first-mover advantage.

b. Leontief's paradox. Using the Heckscher-Ohlin theory, Wassily Leontief postulated that since the United States was relatively abundant in capital compared to other nations, the United States would be an exporter of capital-intensive goods and an importer of labor-intensive goods. However, he found that U.S. exports were less capital-intensive than U.S. imports and this has become known as the Leontief paradox.

What might result in the absence of trade, if certain products have small national markets? a. The variety of products available to consumers increases. b. Limited demand for such products leads to non-realization of economies of scale. c. Each nation will specialize in producing a narrower range of products than it would in the presence of trade. d. At low volumes of production, unit costs and prices would be lowered. e.The first movers in an industry may get a lock on the world market that discourages subsequent entry.

b. Limited demand for such products leads to non-realization of economies of scale.

Neo-mercantilists equate political power with economic power and economic power with a. corruption b. a balance-of-trade surplus. c.dominance. d. a trade monopoly. e. capitalism

b. a balance-of-trade surplus.

The purpose of Porter's study of national competitive advantage was to a. identify the various stages of the life cycle of a product. b. determine why a country achieves international success in a particular industry. c. determine how trade barriers affect the prices of products in the international market. d. determine how pre-industrialization theories predict international trade patterns. e. organize the relationship between factor endowments and economies of scale.

b. determine why a country achieves international success in a particular industry.

Based on the last quarterly report, Jason realizes that it is now taking more resources to produce each of the laptop computers his company makes. What aspect of comparative advantage is Jason noticing? a. increasing tariffs b. diminishing returns c. JIT inventory d. economies of scale e. constant returns

b. diminishing returns

What was the principle currency of trade in the mid-sixteenth century when mercantilism came into favor in England? a. the pound b. gold and silver c. the U.S. dollar d. salt and spices e. human labor

b. gold and silver

According to the Smith, Ricardo, and Heckscher-Ohlin theories, a country's economy may gain if its citizens buy some products from other nations that could be produced in their home nation. What is the reasoning behind this idea? a)The natural resources of a country limit the types and quantities of items that can be produced. b)International trade is typically regulated by government forces that prevent a business from exporting. c) International trade allows a country to specialize in items that can be produced most efficiently in that country. d)First-mover advantages limit a country from producing every product that citizens need or want. e)Innovative products are typically produced in the home country, but high-demand products should be imported.

c) International trade allows a country to specialize in items that can be produced most efficiently in that country.

Which theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce? a)mercantilism b)theory of absolute advantage c)Heckscher-Ohlin theory d)theory of comparative advantage e) Samuelson's critique

c)Heckscher-Ohlin theory

Raymond Vernon's product life cycle theory stemmed from the idea that for most of the twentieth century, a)European industries guided the rest of the world in new products. b)cost-saving processes were not as important as the development of new products. c)many of the world's new products were developed and first sold in the United States. d)most new products were developed for the manufacturing and agricultural industries. e)the United States had lower technology-driven innovations than other developed nations.

c)many of the world's new products were developed and first sold in the United States.

New trade theory argues that, through its impact on economies of scale, trade can a. increase the average costs of goods. b. enable the global market to support a wide range of enterprises. c.negatively affect the first-mover advantage for all products d. increase the variety of goods available to consumers. e.prevent diminishing of returns and promote constant returns to specialization.

d. increase the variety of goods available to consumers.

If a company were to draw from the ideas proposed in the various theories of international trade, from a profit perspective, how would it go about selecting locations for its businesses? a. It would concentrate its productive activities mostly in developing countries. b. It would concentrate its productive activities in its home country. c. It would disperse its productive activities to those countries where they can be performed most efficiently. d. It would disperse its productive activities across all countries that serve as its market. e. It would concentrate its productive activities mostly in developed countries.

c. It would disperse its productive activities to those countries where they can be performed most efficiently

What is an advantage that is realized by a company as a part of first-mover advantages? a. increasing returns to specialization b. positive-sum game due to lack of competition c. ability to capture scale economies ahead of later entrants d. absolute advantage and higher efficiency e. ability to specialize in the production of a particular product

c. ability to capture scale economies ahead of later entrants

A neo-mercantilist strategy would promote a. the equal distribution of exports and imports. b. boosting exports and limiting imports. c. boosting both imports and exports. d. limiting both imports and exports. e. boosting imports and limiting exports.

c. boosting both imports and exports.

Which trade theory suggests that trade is a positive-sum game in which all participating countries fetch economic gains? a. Heckscher-Ohlin theory b. mercantilism c. comparative advantage d. Leontief's paradox e. Samuelson critique

c. comparative advantage

Bethany works for a company that makes sports socks. Unlike many smaller companies, Bethany's company ships out such large quantities of sports socks that their unit cost is less than half of the competition. What does this company benefit from? a. mercantilism b. diminishing returns c. economies of scale d. product life-cycle e. JIT inventory

c. economies of scale Economies of scale are unit cost reductions associated with a large scale of output. Economies of scale have a number of sources, including the ability to spread fixed costs over a large volume and the ability of large-volume producers to utilize specialized employees and equipment that are more productive than less specialized employees and equipment.

When the country of Matu trades with the country of Balor, Matu experiences a gain because of the high costs of its products while Balor experiences a loss because it is trading small amounts of products that cost very little. Which characteristic of the mercantilist theory does this reflect? a. factor endowments b. first-mover advantage c. zero-sum game d. late-mover advantage e. comparative advantage

c. zero-sum game

According to Vernon, what influences the movement of the locus of global production from advanced countries to developing countries? a. cost considerations b. factor endowments c. domestic competition d. supporting industries e. firm structure

cost considerations

Paul Samuelson's critique of free trade is based on the idea that the wealthier nation in the trade agreement might not recognize a net gain if the trade creates a)the development of a monopoly. b)a barrier from trading with other nations. c)more job opportunities in the wealthier nation. d) lower real wage rates in the wealthier nation. e)an economic downturn in the poorer nation.

d) lower real wage rates in the wealthier nation. Paul Samuelson's model suggests that in certain cases, the lower prices that consumers in rich countries pay for goods imported from poor countries following the introduction of a free trade regime may not be enough to produce a net gain for the richer economy if the dynamic effect of free trade is to lower real wage rates in the rich country.

Which of the following helps a firm to preempt available demand, gain cost advantages related to volume, and build an enduring brand ahead of later competitors? a)monopolistic practices b)comparative advantages c)absolute advantages d)first-mover advantages e) mercantilism

d)first-mover advantages the individual firm, the clear message is that it pays to invest substantial financial resources in trying to build a first-mover or early-mover advantage even if that means several years of losses before a new venture becomes profitable. The idea is to preempt the available demand, gain cost advantages related to volume, build an enduring brand ahead of later competitors, and, consequently, establish a long-term sustainable competitive advantage.

One of the most controversial aspects of _____ is that it supports government intervention and strategic trade policy. a)the theory of absolute advantage b)the theory of comparative advantage c)Heckscher-Ohlin theory d)new trade theory e) product life-cycle theory

d)new trade theory

Raymond Vernon noticed that in the 1960s, the wealth and size of the U.S. market was a natural incentive to develop new consumer products. What theory did he propose based on this fact? a)new trade b)absolute advantage c)mercantilism d)product life-cycle e)comparative advantage

d)product life-cycle

According to the product life-cycle theory, once a new product becomes widely accepted internationally then production for that product a)will be consistently done in the country where the product originated. b)is minimized in order to escalate the price. c)becomes even more costly. d)will start to take place in other countries. e)is outsourced to a third-party in the home country.

d)will start to take place in other countries.

Porter believed that two additional variables can influence the national diamond along with the four original attributes. What are those two additional variables? a. education and geography b. nature and nurture c. competition and globalization d. chance and government e. geography and history

d. chance and government

Which term indicates that the units of resources required to produce a good are assumed to remain fixed no matter where one is on a country's production possibility frontier? a.experience curve b. economies of scope c. diseconomies of scale d. constant returns to specialization e. economies of scale I

d. constant returns to specialization

Which component of Porter's diamond is particularly important in shaping the attributes of domestically made products and in creating pressures for innovation and quality? a. basic factor endowments b. advanced factor endowments c. firm strategy d. demand conditions e. supporting industries

d. demand conditions

Which of the following theories states that in those industries where the output required to attain economies of scale represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises? a. Heckscher-Ohlin b. comparative advantage c. product life-cycle d. new trade e. absolute advantage

d. new trade

One barrier to subsequent entries in an industry dominated by first movers is a. a laissez-faire stance toward trade adopted by first movers. b. implementation of policies to maximize imports and minimize exports c. specializing in the production of goods for which firms have a comparative advantage d. the ability of first movers to benefit from increasing returns e. a decrease in the variety of goods available to consumers and increase in the cost of existing goods

d. the ability of first movers to benefit from increasing returns

Which strategy is in a country's best interests, according to the main tenet of mercantilism? a. importing products from developing rather than developed countries b. importing products even if they are efficiently produced at home c. importing less specialized goods rather than attempting to make them at home d. minimizing exports and maximizing imports e. maintaining a trade surplus

e. maintaining a trade surplus