Global Management Chapter 6
The theory of ________ was the first to explain why unrestricted free trade benefits a country.
Absolute Advantage
Intel spreads the huge fixed costs of developing new generation chips over the nearly 2 billion chips it sells to computer makers. Intel benefits from
C) economies of scale.
Why do diminishing rather than constant returns to specialization sometimes occur?
Different goods use different resources in different proportions.
According to new trade theory, what is most likely to be a result of market expansion due to trade?
Each nation may specialize in producing a narrower range of products, importing goods that it does not make.
According to Vernon, what eliminates the need for pioneering U.S. firms to look for low-cost production sites in other countries?
Firms can charge relatively high prices for new products.
Garrett works in a country where the government does not set quotas or duties on what its citizens can buy from another country, or what they can produce and sell to another country. In other words, Garrett's country practices
Free trade
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?
Heckscher-Ohlin theory
The country of Dalima has long been a substantial exporter of seafood, reflecting its unusual abundance of coastal waters; in contrast, its continental neighbor, Bundeeza, has excelled in the export of goods produced in labor-intensive manufacturing industries. Based on this information, the export policies of the two countries is best explained by
Heckscher-Ohlin theory.
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?
Heckscher-Ohline
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?
International trade allows a country to specialize in items that can be produced most efficiently in that country.
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?
It would disperse its productive activities to those countries where they can be performed most efficiently.
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
Leontief's paradox.
Which strategy is in a country's best interests, according to the main tenet of mercantilism
Maintaining a Trade Surplus
Garments are exported from China to the United States on a daily basis. In turn, the United States exports agricultural products like soybeans to China. Which statement best explains the trade equation between China and the United States?
Nations with an absolute advantage in producing certain goods trade them for goods produced by other countries.
Mallory works for a company that produces cell phone component parts. Her company developed a component that no competitor had and was soon enjoying economies of scale as the only producers of the part. Which trade theory is most reflected in the success of this company?
New trade theory
India specializes in business process outsourcing and does this more efficiently than any other country. It buys agricultural commodities, which it produces less efficiently than outsourcing activities, from the United States, even though it produces these agricultural commodities more efficiently than the United States Which international trade theory supports India's decision to buy agricultural commodities from the United States?
Ricardo's theory of comparative advantage
The country of Zeran specializes in the production of beef and produces beef more efficiently than any other country. It buys soybeans, which it produces less efficiently than beef, from Canta, even though it produces soybeans more efficiently than Canta. Which theory of international trade supports Zeran's decision to buy wheat from Canta?
Ricardo's theory of comparative advantage
Which statement reflects a pervasive finding of Porter's study?
Successful industries within a country tend to be grouped into clusters of related industries.
What most accurately describes the four attributes that make up Porter's diamond?
The effect of one attribute is contingent on the state of others.
Sentoria is an island nation in the Pacific Ocean. Its geographical location is advantageous since it has access to a variety of aquatic life forms and also a number of freshwater sources that provide for fisheries. The lack of arable land drives local demand for seafood, and Sentoria is one of the world's major exporters of this product. Which theory of international trade best explains Sentoria's dominance as an exporter of seafood?
Theory of National Competitive Advantage
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?
Zero Sum Game
Neo-mercantilists equate political power with economic power and economic power with
a balance-of-trade surplus.
A zero-sum game occurs when
an economic gain by one country results in an economic loss by another.
The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory
argues that the pattern of international trade is determined by differences in national factor endowments.
A neo-mercantilist strategy would promote
boosting exports and limiting imports.
Porter believed that two additional variables can influence the national diamond along with the four original attributes. What are those two additional variables?
chance and government
According to Vernon, what influences the movement of the locus of global production from advanced countries to developing countries?
cost considerations
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?
economies of scale
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?
economies of scale
According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in
factor endowments.
. Factor endowments, demand conditions, related and supporting industries, and ________ are the four broad attributes that make up Porter's Diamond Model
firm strategy, structure, and rivalry
Consideration of competitors is taken into account in which attribute of Porter's diamond?
firm strategy, structure, and rivalry
One reason used to explain the Leontief paradox observed in the case of the United States is that the United States
has a special advantage in producing new products made with innovative technologies.
An inconsistency in the mercantilist doctrine, as pointed out by David Hume, is that
in the long run, no country could sustain a surplus on the balance of trade.
New trade theory argues that, through its impact on economies of scale, trade can
increases the variety of goods available to consumers and lowers the costs of those goods.
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
increases the variety of goods available to consumers and lowers the costs of those goods.
Vernon predicts that as the demand for a new product starts to grow in other advanced countries, in the long run A) the cost of labor in these advanced countries begins to increase.
it begins to limit the potential for exports from the United States.
Economies of scale are achieved as the result of ________ that creates unit cost reductions.
large scale output
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
lower real wage rates in the wealthier nation.
New trade theory supports the ideas that trade increases specialization of production and it also
lowers average prices.
Raymond Vernon's product life cycle theory stemmed from the idea that for most of the twentieth century,
many of the world's new products were developed and first sold in the United States.
The Salcian government decides on the products that can be imported and ensures that any product that can be produced at home is not imported. Instead, the government wants to maximize exports to achieve a surplus in the balance of trade. Which perspective likely influences Salcia's approach to international trade?
mercantilism
One of the suggestions of new trade theory is that
nations may benefit from trade irrespective of resource endowments or technology.
Australia is a major producer of agricultural and dairy products and exports coffee, tea, spices, and milk products to the United States. The United States is the world's third largest supplier of machinery and exports heavy machinery to Australia. Adam Smith would say this exchange occurs because
nations with an absolute advantage in producing certain goods trade them for goods produced by other countries
Which factor endowment would be classified as a basic factor by Michael Porter?
natural resources
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?
new trade
One of the most controversial aspects of ________ is that it supports government intervention and strategic trade policy.
new trade theory
According to the theory of comparative advantage, consumers in all nations can consume more if there are
no restrictions on trade.
Vernon argues that pioneering firms in the United States kept production facilities closer to the market and centers of decision making because
of the uncertainty and risks inherent in introducing new products.
According to the product life-cycle theory, the locus of global production initially switches from the United States to other advanced nations and then from those nations to developing countries. As a result,
over time, the United States switches from being an exporter of a product to an importer of the product.
Vernon theorizes that as the market in the United States and other advanced nations matures, ________ becomes the main competitive weapon.
price
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?
product life cycle
Intricate Wiring Corp., based in Ohio, creates a brand new high-tech product. The demand for the product in the United States is high but very low or non-existent elsewhere. The company decides not to locate manufacturing facilities elsewhere and will simply meet the small foreign demand via exports. The theory that best explains the company's policy is
product life cycle theory.
According to the product life-cycle theory, while demand for new products is starting to grow rapidly in the United States, demand in other advanced countries
remains limited to high-income groups.
One barrier to subsequent entries in an industry dominated by first movers is
the ability of first movers to benefit from increasing returns.
The new trade theory diverts from its advocacy of free trade by suggesting that
there is an economic rationale for a proactive trade policy.
Porter, in his diamond model, suggested that there is a strong association between ________ and the creation and persistence of competitive advantage in an industry.
vigorous domestic rivalry
What is true of the relationship between trade and economic growth?
Countries open to international trade display higher growth rates than those that close their economies to trade.
What might result in the absence of trade, if certain products have small national markets?
Limited demand for such products leads to non-realization of economies of scale.
The nation of Tazia exports agricultural products and in turn imports products that it does not produce such as computers and electronic devices. As a result, it spends more on imports than it gains from exports. Which perspective would frown on this form of international trade?
Merchantalism
Many years ago, the Republic of Janua believed that it was in its best interests to maintain a trade surplus, to export more than it imports. In so doing, the Republic of Janua hoped to accumulate gold and silver, and consequently, increase its national wealth, prestige, and power. What influenced the Republic of Marunia's approach to international trade?
Merchantilism
Which theory asserts that countries should simultaneously encourage exports and discourage imports
Merchantilism
One of the central beliefs of mercantilism is that
a country's government should intervene to achieve a surplus in the balance of trade.
Argonia and Selenia specialize in the production of medical equipment and rice respectively. Argonia exports medical equipment to Selenia, which in turn exports rice to Argonia. According to the theory of comparative advantage, this mutually beneficial trade relationship is an example of
a positive-sum game.
Nikoli lives in New Salom which specializes in component parts, while its geographical neighbor, Durma specializes in heavy machinery. New Salom exports component parts to Durma, which in turn exports heavy machinery to New Salom. According to the theory of comparative advantage, this mutually beneficial trade relationship best illustrates
a positive-sum game.
Porter noted a lack of attention to improving manufacturing processes and product design in the United States He pointed to ________ as the reason for this.
a predominance of company leaders having finance backgrounds
What is an advantage that is realized by a company as a part of first-mover advantages?
ability to capture scale economies ahead of later entrants
Cadmia and Rhodia specialize in the production of electronics and pharmaceutical products respectively. They are considered the best at their specializations. Cadmia trades electronics with Rhodia in exchange for pharmaceutical products. Which perspective is illustrated by this form of trade between Cadmia and Rhodia?
absolute advantage
India is the largest exporter of information technology services to the United States In turn, the United States exported $3 billion worth of aircraft to India. What theory is illustrated by this form of trade between India and the United States?
absolute advantage
Which trade theory suggests that trade is a positive-sum game in which all participating countries fetch economic gains?
comparative advantage
According to new trade theory, trade, through its impact on economies of scale, is most likely to
decrease the average costs of goods.
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?
demand conditions
The purpose of Porter's study of national competitive advantage was to
determine why a country achieves international success in a particular industry.
According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to
develop cost-saving process innovations.
One of the rebuttals to Samuelson's critique of the free trade model is that
developing nations are unlikely to upgrade the skill level of their workforce rapidly enough.
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?
diminishing returns
In Appellia, it takes 10 units of resources to increase its output of sugar from 12 tons to 13 tons, but 11 units of resources to increase output from 13 tons to 14 tons, and 12 units of resources to increase output from 14 tons and 15 tons, and so on. The need for increasing resources is an example of
diminishing returns to specialization.
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?
first-mover advantages
Airbus pioneered the development of the new superjumbo jet at a cost of $15 billion. It quickly obtained contracts for much of the 400 units that are expected to be ordered in the next 20 years, thereby effectively shutting out its competitor, Boeing. Airbus benefits from
first-mover advantages.
The economic and strategic advantages that accrue to early entrants in an industry are called
first-mover advantages.
