Question 1

According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to:

Accepted Answer

A)  lower costs of services to offset a fall in demand.
B)  develop cost-saving process innovations.
C)  invite foreign direct investment in domestic industries.
D)  embrace and promote open market capitalism.
E)  import new consumer products and export agricultural products.F) A) and C)
G) All of the above

Question 2

Salcia is a country that depends heavily on domestic products. 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. A major part of Salcia's trade is concentrated on exporting agricultural produce and textiles. Which of the following influences Salcia's approach to international trade?

Accepted Answer

A)  Mercantilism
B)  Leontief's paradox
C)  Product life-cycle theory
D)  New trade theory
E)  Neo-Ricardian trade theoryF) A) and D)
G) All of the above

Question 3

The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory:

Accepted Answer

A)  makes more simplifying assumptions.
B)  cannot be subjected to empirical tests.
C)  actually predicts trade patterns with greater accuracy.
D)  argues that the pattern of international trade is determined by differences in national factor endowments.
E)  suggests that trade is a positive-sum game in which all countries that participate realize economic gains.F) B) and C)
G) B) and E) D

Question 4

Despite the short-term adjustment costs associated with adopting a free trade regime, trade would seem to produce greater economic growth and higher living standards in the long run.

Accepted Answer

A) True 
 B)False

Question 5

According to Michael Porter, government can influence each of the four components of Porter's diamond-either positively or negatively.

Accepted Answer

A) True 
 B)False

Question 6

Neo-mercantilists equate political power with economic power and economic power with:

Accepted Answer

A)  corruption.
B)  a balance-of-trade surplus.
C)  regional dominance.
D)  a trade monopoly.
E)  capitalism.F) C) and D)
G) A) and D)

Question 7

The major advantage of mercantilism was that it viewed trade as a zero-sum game.

Accepted Answer

A) True 
 B)False

Question 8

Raymond Vernon's product life-cycle theory was based on the observation that for most of the twentieth century a very large proportion of the world's new products were developed by the firms situated in Germany and sold first in the German market.

Accepted Answer

A) True 
 B)False

Question 9

New trade theory stresses that in some cases countries specialize in the production of particular products because of underlying differences in factor endowments.

Accepted Answer

A) True 
 B)False

Question 10

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?

Accepted Answer

A)  Monopolistic practices
B)  Comparative advantages
C)  Absolute advantages
D)  First-mover advantages
E)  MercantilismF) A) and C)
G) A) and D)

Question 11

Which of the following is consistent with the central beliefs of mercantilism?

Accepted Answer

A)  A country's government should intervene to achieve a surplus in the balance of trade.
B)  A large volume of trade is essential regardless of whether it comes from imports or exports.
C)  Trade is a positive-sum game in which all countries benefit from trading with each other.
D)  A country that has an absolute advantage in the production of all goods derives no benefits from international trade.
E)  Potential world production is greater with unrestricted free trade than it is with restricted trade.F) C) and D)
G) A) and B)

Question 12

Which of the following was a pervasive finding of Porter's study?

Accepted Answer

A)  Successful industries within a country tend to be grouped into clusters of related industries.
B)  Trade increases the specialization of production within an industry.
C)  The pattern of trade we observe in the world economy may be the result of first-mover advantages.
D)  Purchasing power parity of a country determines its demand conditions.
E)  Differences in technology may lead to differences in productivity, which in turn, drives international trade patterns.F) A) and D)
G) A) and C)

Question 13

New trade theory argues that, through its impact on economies of scale, trade can:

Accepted Answer

A)  increase the average costs of goods.
B)  enable the global market to support a wide range of enterprises.
C)  negatively affect the first-mover advantage for all products.
D)  increase the variety of goods available to consumers.
E)  prevent diminishing of returns and promote constant returns to specialization.F) C) and D)
G) C) and E)

Question 14

Which of the following is in a country's best interests, according to the main tenet of mercantilism?

Accepted Answer

A)  Importing products from developing rather than developed countries
B)  Importing products even if they are efficiently produced at home
C)  Importing less specialized goods rather than attempting to make them at home
D)  Minimizing exports and maximizing imports
E)  Maintaining a trade surplusF) A) and D)
G) B) and E)

Question 15

According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in:

Accepted Answer

A)  labor productivity.
B)  diminishing returns.
C)  factor endowments.
D)  management practices.
E)  trade barriers.F) A) and E)
G) C) and D)

Question 16

Factor endowments are unit cost reductions associated with a large scale of output.

Accepted Answer

A) True 
 B)False  False

Question 17

According to Adam Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries.

Accepted Answer

A) True 
 B)False

Question 18

Most economists prefer Ricardo's theory to the Heckscher-Ohlin theory because it makes fewer simplifying assumptions.

Accepted Answer

A) True 
 B)False

Question 19

How does the theory of comparative advantage suggest that trade is a positive-sum game to a greater degree than the theory of absolute advantage?

Accepted Answer

The basic message of the theory of comparative advantage is that potential world production is greater with unrestricted free trade than it is with restricted trade. Ricardo's theory suggests that consumers in all nations can consume more if there are no restrictions on trade. This occurs even in countries that lack an absolute advantage in the production of any good. In other words, to an even greater degree than the theory of absolute advantage, the theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains. As such, this theory provides a strong rationale for encouraging free trade. So powerful is Ricardo's theory that it remains a major intellectual weapon for those who argue for free trade.

Question 20

According to Ricardo's theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to import goods that it produces less efficiently.

Accepted Answer

A) True 
 B)False

Exam 6: International Trade Theory

According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to:

Correct Answer
verified

Correct Answer
verified

The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory:

Correct Answer
verified
D

Despite the short-term adjustment costs associated with adopting a free trade regime, trade would seem to produce greater economic growth and higher living standards in the long run.

Correct Answer
verified

According to Michael Porter, government can influence each of the four components of Porter's diamond-either positively or negatively.

Correct Answer
verified

Neo-mercantilists equate political power with economic power and economic power with:

Correct Answer
verified

The major advantage of mercantilism was that it viewed trade as a zero-sum game.

Correct Answer
verified

Raymond Vernon's product life-cycle theory was based on the observation that for most of the twentieth century a very large proportion of the world's new products were developed by the firms situated in Germany and sold first in the German market.

Correct Answer
verified

New trade theory stresses that in some cases countries specialize in the production of particular products because of underlying differences in factor endowments.

Correct Answer
verified

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?

Correct Answer
verified

Which of the following is consistent with the central beliefs of mercantilism?

Correct Answer
verified

Which of the following was a pervasive finding of Porter's study?

Correct Answer
verified

New trade theory argues that, through its impact on economies of scale, trade can:

Correct Answer
verified

Which of the following is in a country's best interests, according to the main tenet of mercantilism?

Correct Answer
verified

According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in:

Correct Answer
verified

Factor endowments are unit cost reductions associated with a large scale of output.

Correct Answer
verified
False

According to Adam Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries.

Correct Answer
verified

Most economists prefer Ricardo's theory to the Heckscher-Ohlin theory because it makes fewer simplifying assumptions.

Correct Answer
verified

How does the theory of comparative advantage suggest that trade is a positive-sum game to a greater degree than the theory of absolute advantage?

According to Ricardo's theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to import goods that it produces less efficiently.

Correct Answer
verified

Exam 6: International Trade Theory

According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory:

Correct AnswerverifiedD

Despite the short-term adjustment costs associated with adopting a free trade regime, trade would seem to produce greater economic growth and higher living standards in the long run.

Correct AnswerverifiedShow Answer

According to Michael Porter, government can influence each of the four components of Porter's diamond-either positively or negatively.

Correct AnswerverifiedShow Answer

Neo-mercantilists equate political power with economic power and economic power with:

Correct AnswerverifiedShow Answer

The major advantage of mercantilism was that it viewed trade as a zero-sum game.

Correct AnswerverifiedShow Answer

Raymond Vernon's product life-cycle theory was based on the observation that for most of the twentieth century a very large proportion of the world's new products were developed by the firms situated in Germany and sold first in the German market.

Correct AnswerverifiedShow Answer

New trade theory stresses that in some cases countries specialize in the production of particular products because of underlying differences in factor endowments.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Which of the following is consistent with the central beliefs of mercantilism?

Correct AnswerverifiedShow Answer

Which of the following was a pervasive finding of Porter's study?

Correct AnswerverifiedShow Answer

New trade theory argues that, through its impact on economies of scale, trade can:

Correct AnswerverifiedShow Answer

Which of the following is in a country's best interests, according to the main tenet of mercantilism?

Correct AnswerverifiedShow Answer

According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in:

Correct AnswerverifiedShow Answer

Factor endowments are unit cost reductions associated with a large scale of output.

Correct AnswerverifiedFalse

According to Adam Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries.

Correct AnswerverifiedShow Answer

Most economists prefer Ricardo's theory to the Heckscher-Ohlin theory because it makes fewer simplifying assumptions.

Correct AnswerverifiedShow Answer

How does the theory of comparative advantage suggest that trade is a positive-sum game to a greater degree than the theory of absolute advantage?

According to Ricardo's theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to import goods that it produces less efficiently.

Correct AnswerverifiedShow Answer

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D

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False

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