HTM 2

The trade theories associated with Smith and Ricardo advocate for _____ free trade.

unrestricted

The proponents of mercantilism see trade as a ______ -sum game.

zero

Which theory was based on the observation that early in the development of a commodity, all the parts and labor come from the area in which it was invented?

Product life-cycle

According to Adam Smith's theory of absolute advantage, who benefits from engaging in trade?

both countries engaging in a trade process

According to new trade theory, the first mover's ability to benefit from increasing returns ______ for other firms.

creates a barrier to entry

Which type of returns to specialization happen when additional units of resources are required to produce each additional unit?

diminishing

One explanation for the Leontief paradox is that the US has an advantage and exports goods produced with

innovative technologies.

When applying reasoning for 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.

When discussing constant returns to specialization, it is realistic to assume that the units of resources required to produce one unit will _____ no matter where a country is on the production possibilities frontier.

remain the same

True or false: Successful industries within a country tend to group into clusters of related industries.

true

What did Porter call the concept where firms are typically most sensitive to the needs of their closest customers?

Demand conditions

What concept negates the idea that a country can specialize to the degree suggested by the Ricardian model?

Diminishing returns

Which of the following statements regarding openness of an economy and growth is TRUE?

Economies that are open to trade grow at a faster rate economically than those that are closed.

What is the likely result for the gains from specialization according to the concept of diminishing returns?

Gains are likely to be exhausted before specialization is complete

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

What is the theory that states that countries will export goods that make intensive use of the factors that are abundant in the economy?

Heckscher-Ohlin

______ raised questions about the Heckscher-Ohlin theory.

Leontief

According to the Heckscher-Ohlin theory, it is expected that the US would export capital-intensive goods and import labor-intensive goods, but the opposite was found to be true. This became known as the

Leontief paradox.

Which theory states that for products where economies of scale are significant and that control a substantial amount of world demand, the first movers in an industry can gain a scale-based cost advantage NOT available to late entrants?

New trade

Which trade theory has these implications: (1) nations may benefit from trade even when they do not differ in resource endowments or technology; and (2) specialization allows for scale economies and lower production costs?

New trade

What aspect of free trade does Samuelson see as a potential negative influence on international trade?

Offshoring of service jobs such as call centers

True or false: New trade theory is very useful in explaining trade patterns.

True

The theory of ______ advantage was the first to attack the tenet of mercantilism which implied that trade is a zero-sum game.

absolute

When a country is more efficient at producing a product than any other country, the country has a(n) ______ advantage in the production of that product.

absolute

What are the types of factors of production identified by Porter?

basic and advanced

A company _____ benefit from related industries that are internationally competitive and can spill over into the company.

can

Companies participating in international trade _____ exert strong influences on government trading policies.

can

Economic studies have suggested that according to the theory of ______ advantage, countries will experience higher growth rates if they follow a more open stance toward international growth.

comparative

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.

comparative

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 possibilities frontier?

constant

According to new trade theory, first movers in an industry can gain a scale-based _____ advantage that later entrants find almost impossible to match.

cost

Country A wants to produce more rice. Unfortunately, it will have to farm less productive land to produce this rice. This fact represents the idea of ______ returns to specialization.

diminishing

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 produce120 pounds of silk. This is an example of ______ returns to specialization.

diminishing

According to Michael Porter, there is a strong correlation between _____ and the creation and persistence of competitive advantage in an industry.

domestic rivalry

Porter argues that achieving international success in a certain industry is a function of factor endowments, domestic demand conditions, related and supported industries, and ______.

domestic rivalry

Based on new trade theory, as the size of markets increases, companies may be able to attain better ______.

economies of scale

The reductions in the cost of a single unit that result from large scale output of that product are called

economies of scale.

Portugal can produce wine and cloth with less labor than England. But, given all factors of production, England can produce cloth relatively better than Portugal. According to Ricardo's theory of comparative advantage, it make sense for England to

export cloth and import wine from Portugal.

According to Heckscher and Ohlin, each country has certain ______, such as land, labor, and capital.

factor endowments

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

factors of production

In Porter's model of the determinants of national competitive advantage, he noted many US firms were led by people with ______ backgrounds, likely leading to US firms' lack of attention to improving manufacturing process and product design.

finance

Preempting demand, gaining volume cost advantages, building the brand, and establishing a long-term competitive advantage are associated with

first mover advantages

Since the global market can only support one producer of superjumbo aircraft, Airbus had the benefit of a(n) _____.

first-mover advantage

Porter developed ______ broad attributes of a nation that shape the environment in which local firms compete.

four

Manatee Mfg. is able to source parts for its refrigeration products from anywhere in the world because the United States does not place any quotas or limitations on the imports they need. This is a reflection of a _____ policy.

free trade

Ricardo's theory encourages ______ because it suggests that trade is a positive-sum game where all participating countries realize economic gains.

free trade

_____ is reflected in a nation in which the government does not attempt to influence what its citizens can buy from another country by applying import duties or what citizens can produce and sell to another country.

free trade

Porter states that ______ can influence each of the four components of the diamond through subsidies, education policies and policies towards capital markets.

government

Porter's theory stresses the advantages of businesses working with ______ to promote strong competition within domestic markets.

government

The most contentious implication behind new trade theory is the argument that it generates for ______ intervention.

government

If a country has an open economy and embraces free trade, citizens, on average, will benefit from ______ income levels and living standards.

higher

New trade theory states that some countries specialize in the production and export of a particular product because

in certain industries the world can only support a limited number of firms.

If a country decides to focus production on wheat because it has an absolute advantage in this crop and it trades with another country that has an absolute advantage in its corn crop, then the level of production of these crops for both countries is likely to

increase

A company decides to outsource all product designs to Singapore because it has been found to have the most efficient design companies. In this situation, the ______ implication for international business is being considered.

location

The factor that impacts all the theories of trade because companies should produce where it is most efficient is

location

To achieve the highest efficiencies, a US 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

Wealthy country A enters into a free trade agreement with poor country B. Country B improves its productivity. Country A pays lower prices for goods imported from poor country B. However, Samuelson expresses concern that these lower prices may not offset possible ______ in wealthy country A.

lower real wage rates

The final conclusion of the product life-cycle theory is that ultimately a product

may be exported back to the country where it was originally invented.

When a government intervenes to achieve a surplus in the nation's balance of trade, this action is consistent with the main tenet of ______.

mercantilism

Which theory does NOT support unrestricted free trade between countries?

mercantilism

Because of economies of scale, 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 is a reflection of _____.

new trade theory

Samuelson is concerned that advances in communications technology will result in the

offshoring of service jobs.

Sachs and Warner found a strong correlation between a(n) ______ response to trade and economic growth.

open

The ethnocentric view that most new products are developed and introduced in the US is a key weakness in the ______ theory.

product life cycle

While not as relevant today, the trade theory that was useful in explaining the pattern of trade when the US dominated the global market is the ______ theory.

product life-cycle

Which aspect of Porter's Diamond is best evidenced by the US semiconductor industry providing the basis for US success in the production of personal computers?

related and supporting industries

The primary problem with mercantilism is that its supporters claimed that trade should

show a gain by one country that results in a loss by another.

Reflecting the theories of Smith, Ricardo, and Heckscher-Ohlin, free trade permits ______, which allows a country to manufacture and export in those areas where they have a comparative advantage.

specialization

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

stimulate

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

the US exports goods that require skilled labor and imports heavy manufacturing products that require large amounts of capital.

According to the product life cycle theory, when a product is in the early stages of its life cycle, it is most likely to be produced and exported from

the country where it was developed.

According to the theory of international trade, it makes sense for a company to disperse its production to those countries where

they can be performed most efficiently

In the real world, it costs money to move products from one country to another, but Ricardo's model does not address these ______ costs.

transportation

What theory argues that free trade is beneficial, but that differences in factor endowments, not productivity, determine the pattern of international trade?

Heckscher-Ohlin

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

Heckscher and Ohlin identified differences in national factor endowments as the root of ______.

comparative advantage

According to the Samuelson critique, middle class wages in the United States will be _____ as the result of the offshoring of service jobs and rapid advances in foreign labor productivity.

diminished

A production possibilities frontier shows ___ returns to specialization when more units of resources are required to produce each additional unit.

diminishing

Multiple Choice Question Based on the theories of Smith, Ricardo, and Heckscher-Ohlin, in a country with access to cheap labor, productive land, and diverse plant life, it makes sense to _____ agricultural goods.

export

According to Adam Smith, a country should produce all goods at home that it can, even if it could buy those goods at a lower cost from other countries.

false

True or false: Porter's theory of national competitive advantage stresses a decreased commitment by companies to research and development.

false

The development of the superjumbo jet by Airbus, which basically shuts out other producers of this type of aircraft, demonstrates the idea of a(n) ______ based on scale economies because the global market can probably only support one producer of superjumbo aircraft.

first-mover advantage

What assumption does the Ricardian model of comparative advantage make in terms of converting resources?

it assumes that all resources can easily shift from one thing to another

______ is the first theory of trade that advocated that a country should export more than it imports and should accumulate gold and silver to make up the difference and maintain a trade surplus.

mercantilism

Free trade _____ the efficient use of resources within a country.

might increase

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

production possibilities frontier

Raymond Vernon's product life-cycle theory was based on the observation that for most of the 1900s the majority of the world's new products were developed in

the United States.

True or false: First mover advantages are especially important in industries where the global market can profitably support only a limited number of firms.

true

True or false: The benefits from free trade are not evenly distributed throughout an economy.

true

A criticism of Ricardo's theory of comparative advantage is that it is a simple model that includes many

unrealistic assumptions.