International Business Chapter 6

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

Basic and advanced

The Autor study noted in the text provides evidence of support of Samuelson's thesis. Which country did the study use to analyze its manufacturing exposure within the United States?

China

______ raised questions about the Heckscher-Ohlin theory.

Leontief

Which theory does NOT support unrestricted free trade between countries?

Mercantilism

______ 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

______ theory states that, because of economies of scale, trade can increase the variety of goods available and decrease the average cost of these goods.

New trade

What are two reasons diminishing returns to specialization occur? (Check both responses.)

Not all resources are of the same quality. Different goods use resources in different proportions.

Which theory is said to predict trade patterns more accurately?

Ricardo

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.

What three predictions of new trade theory regarding trade patterns are supported by studies? (Check all that apply.)

Trade increases the specialization of production within an industry. Trade increases the variety of products available. Trade leads to lower average costs.

Government can detract or improve a country's advantage by choice of policies.

True

True or false: The US has an abundance of arable land and has long been an exporter of agricultural products. This is a good application of the Heckscher-Ohlin theory.

True

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

both countries engaging in a trade process

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

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

economies of scale

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

free trade

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

government

A country is said to have an absolute advantage in the production of an item when the country

is more efficient than any other country at producing the item.

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.

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.

A basic message of Ricardo's theory of comparative advantage is that: (Check the two that apply.)

potential world 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.

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.

The main criticism of mercantilism was that

the goal of a constant positive balance of trade is impossible.

Which two factors does Porter label as basic factors of production? (Check all that apply.)

Climate Natural resources

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

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

Diminishing

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.

True or False: 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: Most economists prefer the Ricardian model when discussing trade even though it is a relatively poor predictor of real--world international trade.

False

______ 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

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

The Middle East has an abundance of oil reserves; therefore, exporting oil supports the ______ theory which is based on creating an advantage based on 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

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

Heckscher-Ohlin

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.

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.

A new trade theorist would say that a company should rely on which three things to gain first-mover advantages? (Check all that apply.)

Luck Innovation Entrepreneurship

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 theory implies that the global market may only be able to support a limited number of firms in industries when the output required to attain economies of scale represents a significant amount of total world demand?

New trade theory

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

Offshoring of service jobs such as call centers

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

Besides the four broad attributes of a nation that shape the environment in which local firms compete, what two additional variables did Porter discuss that can influence the national diamond? (Check all that apply.)

chance and government

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

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

comparative advantage

Porter states that a company can gain ______ advantage if their home customers are demanding and knowledgeable.

competitive

Ricardo's theory of comparative advantage assumes ______ returns to scale.

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

According to product life-cycle theory, as products mature, ______ considerations become far more important in the competitive process.

cost

What was the basic premise of mercantilism?

countries should encourage exports and discourage imports

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

creates a barrier to entry

In the study by MIT economist David Autor noted in the text, it was found that regions of the United States with greater exposure to competition from Chinese manufacturers saw _____ employment.

declining

A production possibilities frontier shows Input Field 1 of 1 increasing returns to specialization when more units of resources are required to produce each additional unit. (Choose diminishing or increasing.)

diminishing

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

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

economies of scale.

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

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

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.

Generally, an open economy can Input Field 1 of 1 increase a country's stock of resources. (Choose increase or decrease.)

increase

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

To shift a country's production possibility frontier outward, it is necessary to (Check the two that apply.)

increase the efficiency with which resources are used. increase the stock of the country's resources.

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

innovative technologies.

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

It has been argued that Donald Trump favors _____ views because he wants the country to export products but does not favor importing products.

mercantilism

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

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

might increase

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 ______ theory predicts that mature industries tend to shift production out of advanced nations and into low-cost assembly locations.

product life-cycle

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

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

production possibilities frontier

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

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

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

What are three sources of economies of scale?

spreading fixed costs over a larger volume the ability of large-volume producers to use more effective, specialized employees the ability of large-volume producers to use more specialized equipment

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

stimulate

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.

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

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

unrestricted

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

zero

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

True

What two simultaneous outcomes are implied by new trade theory?

a nation can increase the variety of goods available to consumers a nation can lower the cost of the goods being offered to consumers

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.

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

absolute

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

factors of production

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

first-mover advantage

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

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