Global Dim Ch. 6

______ is a theory of trade which advocates that a country should export more than it imports which would result in the accumulation of gold and silver and increased national wealth and power.`

Mercantilism

The theory of ______ proposed by Adam Smith was the first to attack the tenet of mercantilism that trade is a zero-sum game.

Absolute Adv

Adam Smith and David Ricardo pointed out limitations in mercantilism when they advocated that trade was a positive-sum game which means that _____.

All countries benefit

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

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.

Comparitive

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

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

Country they were developed

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 produce 120 pounds of silk. This is an example 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

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

Factors of Production

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

Factors of production

______ is the opposite of economic isolationism.

Free Trade

Ricardo's theory encourages ______ because it suggests that trade is a positive-sum game.

Free trade

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

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

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

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

Production Probablility frontier

Free trade has the benefit of ______, which allows a country to manufacture and export in locations where they have a comparative advantage.

Specialization

True or false: The concept of diminishing returns is proven when a country that has produced rice for five years now has to farm less productive land to produce the same amount of rice it did when it began.

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

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.

Which three factors did Michael Porter point to in his explanation of why some nations achieve international success in particular industries?

factor endowments domestic demand domestic rivalry

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

What two situations are consistent with Ricardo's theory of comparative advantage?

production is greater with unrestricted free trade than it is with restricted trade 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

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

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