International Business - Chapter 5

To complete his business bookkeeping work each month, a business owner spends about 20 hours and in the process, has to give up $900 in income. If he hired a bookkeeper to do the work, the job would be completed in 15 hours and would cost him $600. Should the owner hire the bookkeeper or continue to do the work himself? A) He should hire the bookkeeper because the bookkeeper has an absolute advantage in completing the books. B) He should do the bookkeeping himself because he has an absolute advantage in completing the books. C) He should hire the bookkeeper only if the bookkeeper agrees to give him a discount on the service price. D) He should hire the bookkeeper only if the bookkeeper is willing to complete the work in 12 hours.

A) He should hire the bookkeeper because the bookkeeper has an absolute advantage in completing the books.

Another term for neomercantilism is ________. A) economic nationalism B) political nationalism C) new trade D) free trade

A) economic nationalism

According to mercantilism, what should a country's primary goal be? A) promoting exports to enlarge gold and silver holdings B) protecting citizens from unfair labor practices C) encouraging imports to prevent resource depletion D) ensuring sufficient labor for low-wage jobs in the textile industry

A) promoting exports to enlarge gold and silver holdings

Country A produces a ton of coffee using one unit of resources. Country B produces two tons of coffee using one unit of resources. Which of the following is true regarding Country A and Country B? A) Country A has an absolute advantage in producing coffee. B) Country B has an absolute advantage in producing coffee. C) Neither Country A nor Country B has an absolute advantage in producing coffee. D) Both Country A and Country B have an absolute advantage in producing coffee.

B) Country B has an absolute advantage in producing coffee.

Scenario: Foodland and DrinklandTwo countries, Foodland and Drinkland, produce food and drinks. In Foodland, one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks. In Drinkland, one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks. Food Drinks Foodland 20 10 Drinkland 12 24 Based on the above scenario, which of the following statements is true? A) Drinkland has an absolute advantage in producing both food and drinks. B) Foodland has an absolute advantage in producing food. C) Foodland has an absolute advantage in producing drinks. D) Drinkland has an absolute advantage in producing food.

B) Foodland has an absolute advantage in producing food.

The new trade theory is mainly at odds with the ________ theory. A) international product life cycle B) factor proportions C) comparative advantage D) national competitive advantage

B) factor proportions

Factor proportions theory differs from the theory of comparative advantage in that the focus of factor proportions theory is on the ________. A) productivity of the production process, while the comparative advantage theory focuses on maximization of production and consumption B) usage of the most abundant factors of production, while the focus of the comparative advantage theory is on the productivity of the production process C) minimization of trade surpluses, whereas the comparative advantage theory focuses on the mercantilist idea that international trade is a zero-sum game D) accumulation of financial wealth in the form of gold by encouraging imports and discouraging exports, while the comparative advantage theory focuses on usage of the most abundant factors of production

B) usage of the most abundant factors of production, while the focus of the comparative advantage theory is on the productivity of the production process

Scenario: Chuck Praeger, Global EntrepreneurChuck Praeger has made a name for himself by selling high-quality golf equipment to customers in Europe. He would like to expand his business into the Pacific Rim countries and has therefore, begun making inquiries into potential distributors. Chuck is convinced that his golf equipment will sell itself. But he is preparing a special presentation for Asian customers because he wants to make a good first impression. As an expert in culture of the Pacific Rim countries, which of the following would be your most likely advice to Chuck? A) Avoid the confusion introduced by third-party contacts. B) Be sure to have a tight legal contract ready, to avoid product piracy problems. C) Aggressive salesmanship is unlikely to work in Pacific Rim Countries. D) Have plenty of English-language business cards to pass around because most Asians know English and like the language.

C) Aggressive salesmanship is unlikely to work in Pacific Rim Countries.

The international product life cycle theory was developed by ________. A) Karl Marx B) Michael Porter C) Raymond Vernon D) Milton Friedman

C) Raymond Vernon

In which stage of the international product life cycle does the innovating firm's country become a net importer of the product? A) new product stage B) maturing product stage C) standardized product stage D) never

C) standardized product stage

The ________ theory states that a country's export eventually becomes its import. A) new trade B) competitive advantage C) factor proportions D) international product life cycle

D) international product life cycle

The smallest portion of the total world trade comprises trade between ________. A) developed countries B) First World member countries C) high-income and middle-income nations D) low-income and middle-income nations

D) low-income and middle-income nations

According to the Porter diamond, which of the following is an example of an advanced factor? A) labor forces in the nation B) climate in the nation C) natural resources in the nation D) technological infrastructure in the nation

D) technological infrastructure in the nation

According to the international product life cycle theory, the innovating firm's country is primarily an exporter of the product in all three stages. TRUE FALSE

FALSE

Most of the world's merchandise trade is composed of trade in manufactured products. TRUE FALSE

FALSE

Mercantilism states that nations should only concern themselves with accumulating financial wealth. TRUE FALSE

TRUE

National competitive advantage theory states that a nation's competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. TRUE FALSE

TRUE

The theory of absolute advantage measures a nation's wealth by the standard of living of its people. TRUE FALSE

TRUE

Trade in services tends to be relatively more important for the world's richest countries. TRUE FALSE

TRUE

When a country's currency is stronger relative to other nations, domestic products are more expensive than imports. TRUE FALSE

TRUE