ch5

ch5Student: ___________________________________________________________________________

1. Mercantilism advocated that countries should encourage exports and imports. True False

2. A situation where a government does not attempt to influence, through quotas or duties, what its citizens

can buy from another country or what they can produce and sell to another country is known as free trade. True False

3. According to the theories of Smith, Ricardo, and Heckscher-Ohlin, if a country can produce a product by

itself, it should not import that product. True False

4. Limits on imports are often in the interests of domestic consumers, but not domestic producers.

True False

5. The Heckscher-Ohlin theory emphasizes the interplay between the proportions in which the factors of

production are available in different countries and the proportions in which they are needed for producing particular goods. True False

6. The Heckscher-Ohlin theory has proven to be a powerful explanation of world trade patterns.

True False

7. New trade theory stresses that in some cases countries specialize in the production and export of particular

products not because of underlying differences in factor endowments, but because in certain industries the world market can only support a limited number of firms. True False

8. Ricardo noted the importance of country factors such as domestic demand and domestic rivalry in

explaining a nation's dominance in the production and export of particular products. True False

9. Adam Smith's basic argument is that a country should produce goods at home even if it can buy at a lower

cost from other countries. True False

10. When a gain by one country results in a loss by another, there is a positive-sum game.

True False

11. According to the theory of comparative advantage, it is in a country's best interest to maintain a trade surplus and to export more than it imports. True False

12. Smith's theory of international trade suggests that when one country has an absolute advantage in the

production of all goods, the country might not derive any benefit from international trade. True False

13. According to Ricardo, there may be cases when it makes sense for a country to buy goods from another

country that it can make more efficiently itself. True False

14. While popular in its time, Ricardo's theory is no longer a major intellectual weapon for those who argue for

free trade. True False

15. The theory of comparative advantage suggests that trade is a zero-sum game in which all countries that

participate realize economic gains. True False

16. Diminishing returns to specialization occurs when lesser units of resources are required to produce each

additional unit. True False

17. Political opposition to the adoption of a free trade regime typically comes from those whose jobs are most

at risk. True False

18. Because of diminishing returns, it is not feasible for a country to specialize to the degree suggested by the

simple Ricardian model. True False

19. In general, economic studies suggest that countries that adopt a more open stance toward international trade

enjoy higher growth rates than those who keep their economies closed to trade. True False

20. The Heckscher-Ohlin theory argues that free trade is not beneficial to most nations.

True False

21. The Heckscher-Ohlin theory gains predictive power once the impact of differences of technology on

productivity is controlled for. True False

22. Raymond Vernon suggested that the wealth and size of the U.S. market gave U.S. firms a strong incentive to develop new consumer products. True False

23. A central point in Vernon's product life-cycle was that demand for new products tends to be solely based on

price factors. True False

24. Historically, the product life-cycle theory seems to be an inaccurate explanation of international trade

patterns. True False

25. Because a growing number of new products are now introduced simultaneously in the United States,

Japan, and the advanced European nations, Vernon's product life-cycle is limited in explaining world trade patterns. True False

26. Economies of scale are unit cost reductions associated with a large-scale output.

True False

27. Trade is mutually beneficial, according to new trade theory, because it allows for the specialization of

production, the realization of scale economies, and the production of a greater variety of products at lower prices. True False

28. New trade theory suggests that nations may benefit from trade even when they do not differ in resource

endowments or technology. True False

29. New trade theory and the Heckscher-Ohlin theory are in complete agreement with regard to world trade

patterns. True False

30. According to Porter, four broad attributes of a nation shape the environment in which local firms compete

including supply conditions, factor endowments, regulation, and advanced factors. True False

31. Porter argues that favorable demand conditions will result in competitive advantage unless the state of

rivalry is sufficient to cause firms to respond to them. True False

32. Factor endowments lie at the center of the Heckscher-Ohlin theory.

True False

33. According to Porter, the characteristics of home demand are particularly important in shaping the attributes of domestically made products and in creating pressures for innovation and quality. True False

34. Porter suggests that different nations are characterized by different management ideologies, which either

help them or do not help them to build national competitive advantage. True False

35. Porter's diamond of competitive advantage has proven to be a powerful predictor of world trade patterns.

True False

36. From a profit perspective, it makes sense for a firm to disperse its productive activities to those countries

where, according to the theory of international trade, they can be performed most efficiently. True False

37. Assembly of electronic components is a relatively labor-intensive process requiring only low-skilled labor,

and cost pressures are intense. As a result, final assembly may be carried out in a country such as the United States. True False

38. According to the new trade theory, firms that establish a first-mover advantage with regard to the

production of a particular new product may subsequently dominate global trade in that product. True False

39. The theories of international trade claim that promoting free trade is generally in the best interest of an

individual firm, although it may not always be in the best interests of a country. True False

40. Porter's theory of national competitive advantage suggests that it is in the best interest of business for a firm

to invest in upgrading advanced factors of production. True False

41. Propagated in the 16th and 17th centuries, _____ advocated that countries should simultaneously encourage

exports and discourage imports. A. ethnocentrismB. capitalismC. collectivismD. mercantilism

42. Free trade:

A. formed the basis for the mercantilist philosophy.B. is in direct contrast to the notion of the invisible hand as advocated by Smith.C.

refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country.

D. rejects the laissez-faire stance toward trade and maintains that it is not in the best interests of a country.

43. This theory, advanced by the 19th-century English economist David Ricardo, forms the intellectual basis of the modern argument for unrestricted free trade. A. Heckscher-OhlinB. MercantilismC. Comparative advantageD. Absolute advantage

44. All of the following theories show why it is beneficial for a country to engage in international trade even

for products it is able to produce for itself except: A. mercantilism.B. Heckscher-Ohlin.C. comparative advantage.D. absolute advantage.

45. This theory explains the observed patterns of international trade by emphasizing the interplay between the

proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods. A. MercantilismB. Absolute advantageC. Heckscher-OhlinD. Comparative advantage

46. Which of the following is an assumption of the Heckscher-Ohlin theory?

A. Countries have varying endowments of the various factors of productionB. Gold and silver were the mainstays of national wealth and essential to vigorous commerceC. It is in a country's best interests to maintain a trade surplusD. Trade is a zero-sum game

47. Identify the incorrect statement pertaining to Raymond Vernon's product life-cycle theory.

A. Early in their life cycle, most new products are produced in and exported from the country in which they

were developed.B. As a new product becomes widely accepted internationally, production starts in other countries.C. A product in the early stage of the product life-cycle is imported by the country where it was innovated.D. A product may ultimately be exported back to the country of its original innovation.

48. Which theory stresses that in some cases countries specialize in the production and export of particular

products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms? A. Balanced tradeB. Heckscher-OhlinC. New tradeD. Product life-cycle

49. The theory of _____, developed by Michael Porter, focuses on the importance of country factors, in addition to factor endowments, such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products. A. new tradeB. absolute advantageC. comparative advantageD. national competitive advantage

50. The theory of _____ makes a crude case for government involvement in promoting exports and limiting

imports. A. mercantilismB. free tradeC. absolute advantageD. comparative advantage

51. Identify the theory that can be interpreted as justifying some limited government intervention to support the

development of certain export-oriented industries. A. Theory of national competitive advantageB. Heckscher-Ohlin theoryC. Theory of comparative advantageD. Theory of absolute advantage

52. According to the _____, the United States is a major player in the commercial jet aircraft industry because

American firms were first movers in the world market. A. product life-cycle theoryB. theory of mercantilismC. new trade theoryD. theory of absolute advantage

53. The main tenet of mercantilism was that it was in a country's best interest to maintain a trade:

A. balance.B. embargo.C. surplus.D. deficit.

54. When a government limits imports via tariffs and quotas, and subsidizes exports in order to maximize

exports and minimize imports, the country is following: A. a mercantilist philosophy.B. the theory of absolute advantage.C. the theory of comparative advantage.D. the Heckscher-Ohlin theory.

55. Mercantilism viewed trade as a(n):

A. zero-sum game.B. economic evil.C. nonessential economic activity.D. threat to a government's independence.

56. China, deliberately keeping its currency value low against the U.S. dollar in order to sell more goods to the United States, and thus amass a trade surplus and foreign exchange reserves, is viewed by critics as following a: A. zero-sum game.B. neo-mercantilist policy.C. positive-sum game.D. free trade policy.

57. According to Smith, countries should specialize in the production of goods for which they have an absolute

advantage and then: A. retain these goods for strictly domestic sales.B. trade these goods for the goods produced by other countries.C. sell these goods to the highest domestic or international bidder.D. prohibit the import of these goods from other countries.

58. The different combinations of two goods that an economy could efficiently produce with limited productive

resources can be referred to as a country's: A. economic output.B. efficiency graph.C. productivity curve.D. production possibility frontier.

59. Trade produces net gains for all involved and hence is a:

A. zero-sum game.B. balance-of-trade game.C. positive-sum game.D. equilibrium-gain game.

60. According to the theory of _____, it makes sense for a country to specialize in producing the goods it

produces most efficiently and buy the products it produces less efficiently from other countries, even if it could produce the good more efficiently itself. A. strategic tradeB. pertinent advantageC. comparative advantageD. absolute advantage

61. What is the basic message of the theory of comparative advantage?

A. Countries are similar in their ability to produce goods efficientlyB. International trade is rarely beneficial to a countryC. Potential world production is greater with unrestricted free trade than it is with restricted tradeD. Trade is a zero-sum game

62. A basic tenet of Ricardo's theory is that: A.

consumers in those countries with an absolute advantage in the production of all goods might derive no benefits from international trade.

B. consumers in all nations can consume more if there are no restrictions on trade.C. restrictions on trade help consumers in countries that lack an absolute advantage in the production of a

particular good.D. trade is a zero-sum game.

63. _____ means that the units of resources required to produce a good are assumed to remain unvarying no

matter where one is on a country's production possibility frontier. A. Economies of scaleB. Law of diminishing returnsC. Constant returns to specializationD. Zero-sum game

64. _____ occur(s) when more units of resources are required to produce each additional unit.

A. Economies of scaleB. Diminishing returns to specializationC. A positive-sum gameD. Constant returns to specialization

65. The simple comparative advantage model assumes constant returns to specialization. However, it is more

realistic to assume diminishing returns to specialization because of all of the following reasons except: A. all resources are of the same quality.B. different goods use resources in different proportions.C.

as a country tries to increase its output of a certain good, it is more likely to draw on more marginal resources whose productivity is not as great as those initially employed.

D.

if a country specializes to the degree suggested by the simple Ricardian model, the gains from specialization are likely to be exhausted before specialization is complete.

66. Even if we relax the assumptions of the simple Ricardian model that there are constant returns to scale and

realistically assume diminishing returns to specialization, it can still be concluded that: A. the benefits of unrestricted trade do not hold.B. free trade is beneficial but the gains may not be as great as in a constant returns case.C. governments should intervene in the market to bring about a zero-sum game.D. the benefits of free trade are comparatively much less than government-regulated trade.

67. The simple comparative advantage model assumes that trade does not change a country's stock of resources

or their utilization efficiency. If we relax this assumption to make allowances for dynamic changes, all of the following become apparent except: A. opening the economy to trade would be likely to generate dynamic gains.B. free trade may increase the country's stock of resources.C. free trade might increase the efficiency with which the country uses its resources.D. dynamic gains will cause the country's PPF to shift inward.

68. According to the _____ model, when a rich country enters into a free trade agreement with a poor country that rapidly experiences dynamic gains, the rich country is likely to not have net gains. A. absolute advantageB. mercantilistC. Heckscher-OhlinD. Samuelson

69. According to Heckscher and Ohlin, _____ meant the extent to which a country is provided with such

resources as land, labor, and capital. A. factors of productionB. economic facilitatorsC. factor endowmentsD. manufacturing factors

70. 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? A. Comparative advantageB. Absolute advantageC. Heckscher-OhlinD. Samuelson

71. Contrary to what the Heckscher-Ohlin theory would predict, the United States has been a primary importer

rather than an exporter of capital goods. This phenomenon is referred to as the _____ paradox. A. zero-sumB. LeontiefC. empiricalD. Ricardo

72. Raymond Vernon argued that new products were developed by U.S. firms and first sold in the U.S. market

because: A. European competitors were not active in product R&D.B. American firms were able to take advantage of tax credits for product R&D.C. the wealth and size of the U.S. market gave the firms an incentive to develop new products.D. the low cost of U.S. labor gave U.S. firms an incentive to develop costly process innovations.

73. According to the product life-cycle theory, the locus of global production initially switches from the U.S. to

other advanced nations and then from those nations to developing countries. The consequence of this trend for the pattern of world trade is that over time the U.S.: A. becomes the sole producer of the product.B. switches from being an exporter of the product to being an importer of the product.C. switches from being an importer of the product to being an exporter of the product.D. becomes the sole consumer of the product.

74. The product life-cycle theory: A. remains a relevant theory of explaining international trade in the modern world.B. was useful for explaining the pattern of trade during the brief period of American global dominance.C. proved to be a poor explanation of world trade patterns during the 1960s and 1970s.D. was a strong predictor of trade patterns during the 1800s.

75. _____ suggests that when nations trade, each nation may be able to specialize in producing a narrower

range of products than it would in the absence of trade, and through trade, each nation can simultaneously increase the variety of goods available to its consumers and lower the costs of those goods. A. The product life-cycle theoryB. Porter's diamond of competitive advantageC. New trade theoryD. The theory of comparative advantage

76. According to the new trade theorists, because early entrants are able to gain _____, the early entrants into

an industry may get a lock on the world market that discourages subsequent entry. A. zero-sum advantagesB. highly skilled employeesC. process expertiseD. economies of scale

77. According to Porter, all of the following are broad attributes of a nation that shape the environment in

which local firms compete except: A. factor endowments.B. supply fluctuations.C. relating and supporting industries.D. firm strategy, structure, and rivalry.

78. According to Porter, advanced factors:

A. include natural resources, climate, location, and demographics.B. are the least significant for competitive advantage.C. are naturally endowed.D. are a product of investment by individuals, companies, and governments.

79. Porter explains the United States' loss of competitiveness in engineering-based industries where

manufacturing processes and product design issues are critical as a consequence of: A. differing management ideologies.B. differing factor endowments.C. differing demand conditions.D. chance.

80. Identify the theory that suggests that it is in the best interest of business for a firm to invest in upgrading

advanced factors of production. A. Theory of competitive advantageB. Product life-cycle theoryC. New trade theoryD. National competitive advantage theory

81. What are the benefits of free trade?

82. Discuss the mercantilist philosophy. What was the theory's main flaw?

83. What was Adams Smith's contribution to the theory of why nations trade? What is the theory of absolute

advantage?

84. How did David Ricardo extend Adam Smith's work? Explain the theory of comparative advantage.

85. Discuss the link between trade and economic growth.

86. Explain the Heckscher-Ohlin theory. What is the relationship between Heckscher-Ohlin's work and the theory of comparative advantage?

87. What is the Leontief paradox?

88. Explain the product life-cycle theory.

89. Evaluate the product life cycle. How well does the theory hold up? What are the theory's weaknesses?

90. What are economies of scale? Why are they important in understanding trade patterns?

91. Explain the new trade theory. What is the role of economies of scale in this theory?

92. Explain the connections between economies of scale, first-mover advantages, and trade patterns.

93. Discuss the implications of the new trade theory.

94. Does new trade theory support the work of Heckscher and Ohlin? Is the theory at variance with the theory

of comparative advantage?

95. Does new trade theory support government intervention and strategic trade policy? Explain.

96. What are the four attributes identified by Porter as being important in determining why a nation achieves success in a particular industry?

97. What is the difference between basic factors and advanced factors in Porter's diamond?

98. Porter has stated that a nation's firms gain competitive advantage if their domestic consumers are

sophisticated and demanding. Explain this statement.

99. What is the role of government in Porter's theory?

100.Discuss the implications of international trade theory for a firm.

ch5 Key

1.(p. 160)

Mercantilism advocated that countries should encourage exports and imports. FALSE

AACSB: Analytic Skills

Bloom's: KnowledgeDifficulty: Medium

Hill - Chapter 05 #1Learning Objective: 05-2

2.(p. 160)

A situation where a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to another country is known as free trade. TRUE


Bloom's: KnowledgeDifficulty: Easy


3.(p. 161)

According to the theories of Smith, Ricardo, and Heckscher-Ohlin, if a country can produce a product by itself, it should not import that product. FALSE

AACSB: Reflective Thinking Skills



4.(p. 161)

Limits on imports are often in the interests of domestic consumers, but not domestic producers. FALSE




5.(p. 161)

The Heckscher-Ohlin theory emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods. TRUE




6.(p. 161)

The Heckscher-Ohlin theory has proven to be a powerful explanation of world trade patterns. FALSE




7.(p. 162)

New trade theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can only support a limited number of firms. TRUE




8.(p. 162)

Ricardo noted the importance of country factors such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products. FALSE




9.(p. 163)

Adam Smith's basic argument is that a country should produce goods at home even if it can buy at a lower cost from other countries. FALSE




10.(p. 163)

When a gain by one country results in a loss by another, there is a positive-sum game. FALSE




11.(p. 166)

According to the theory of comparative advantage, it is in a country's best interest to maintain a trade surplus and to export more than it imports. FALSE




12.(p. 166)

Smith's theory of international trade suggests that when one country has an absolute advantage in the production of all goods, the country might not derive any benefit from international trade. TRUE




13.(p. 166)

According to Ricardo, there may be cases when it makes sense for a country to buy goods from another country that it can make more efficiently itself. TRUE




14.(p. 168)

While popular in its time, Ricardo's theory is no longer a major intellectual weapon for those who argue for free trade. FALSE




15.(p. 168)

The theory of comparative advantage suggests that trade is a zero-sum game in which all countries that participate realize economic gains. FALSE




16.(p. 169)

Diminishing returns to specialization occurs when lesser units of resources are required to produce each additional unit. FALSE




17.(p. 169)

Political opposition to the adoption of a free trade regime typically comes from those whose jobs are most at risk. TRUE


Bloom's: ComprehensionDifficulty: Medium


18.(p. 170)

Because of diminishing returns, it is not feasible for a country to specialize to the degree suggested by the simple Ricardian model. TRUE




19.(p. 172)

In general, economic studies suggest that countries that adopt a more open stance toward international trade enjoy higher growth rates than those who keep their economies closed to trade. TRUE




20.(p. 174)

The Heckscher-Ohlin theory argues that free trade is not beneficial to most nations. FALSE




21.(p. 175)

The Heckscher-Ohlin theory gains predictive power once the impact of differences of technology on productivity is controlled for. TRUE




22.(p. 175)

Raymond Vernon suggested that the wealth and size of the U.S. market gave U.S. firms a strong incentive to develop new consumer products. TRUE




23.(p. 175)

A central point in Vernon's product life-cycle was that demand for new products tends to be solely based on price factors. FALSE




24.(p. 176)

Historically, the product life-cycle theory seems to be an inaccurate explanation of international trade patterns. FALSE




25.(p. 176-177)

Because a growing number of new products are now introduced simultaneously in the United States, Japan, and the advanced European nations, Vernon's product life-cycle is limited in explaining world trade patterns. TRUE

AACSB: Domestic and Global Economic Environments



26.(p. 178)

Economies of scale are unit cost reductions associated with a large-scale output. TRUE




27.(p. 179)

Trade is mutually beneficial, according to new trade theory, because it allows for the specialization of production, the realization of scale economies, and the production of a greater variety of products at lower prices. TRUE

AACSB: Value Creation



28.(p. 179)

New trade theory suggests that nations may benefit from trade even when they do not differ in resource endowments or technology. TRUE




29.(p. 180)

New trade theory and the Heckscher-Ohlin theory are in complete agreement with regard to world trade patterns. FALSE




30.(p. 181)

According to Porter, four broad attributes of a nation shape the environment in which local firms compete including supply conditions, factor endowments, regulation, and advanced factors. FALSE




31.(p. 181)

Porter argues that favorable demand conditions will result in competitive advantage unless the state of rivalry is sufficient to cause firms to respond to them. FALSE




32.(p. 182)

Factor endowments lie at the center of the Heckscher-Ohlin theory. TRUE




33.(p. 182)

According to Porter, the characteristics of home demand are particularly important in shaping the attributes of domestically made products and in creating pressures for innovation and quality. TRUE




34.(p. 183)

Porter suggests that different nations are characterized by different management ideologies, which either help them or do not help them to build national competitive advantage. TRUE




35.(p. 185)

Porter's diamond of competitive advantage has proven to be a powerful predictor of world trade patterns. FALSE




36.(p. 185)

From a profit perspective, it makes sense for a firm to disperse its productive activities to those countries where, according to the theory of international trade, they can be performed most efficiently. TRUE




37.(p. 186)

Assembly of electronic components is a relatively labor-intensive process requiring only low-skilled labor, and cost pressures are intense. As a result, final assembly may be carried out in a country such as the United States. FALSE


Bloom's: ComprehensionDifficulty: Easy


38.(p. 186)

According to the new trade theory, firms that establish a first-mover advantage with regard to the production of a particular new product may subsequently dominate global trade in that product. TRUE




39.(p. 186)

The theories of international trade claim that promoting free trade is generally in the best interest of an individual firm, although it may not always be in the best interests of a country. FALSE




40.(p. 187)

Porter's theory of national competitive advantage suggests that it is in the best interest of business for a firm to invest in upgrading advanced factors of production. TRUE




41.(p. 160)

Propagated in the 16th and 17th centuries, _____ advocated that countries should simultaneously encourage exports and discourage imports. A. ethnocentrismB. capitalismC. collectivismD. mercantilism

Although mercantilism is an old and largely discredited doctrine, its echoes remain in modern political debate and in the trade policies of many countries.




42.(p. 160)

Free trade: A. formed the basis for the mercantilist philosophy.B. is in direct contrast to the notion of the invisible hand as advocated by Smith.C.

refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country.

D. rejects the laissez-faire stance toward trade and maintains that it is not in the best interests of a country.

Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country.




43.(p. 160)

This theory, advanced by the 19th-century English economist David Ricardo, forms the intellectual basis of the modern argument for unrestricted free trade. A. Heckscher-OhlinB. MercantilismC. Comparative advantageD. Absolute advantage

David Ricardo's theory of comparative advantage offers an explanation in terms of international differences in labor productivity.




44.(p. 162)

All of the following theories show why it is beneficial for a country to engage in international trade even for products it is able to produce for itself except: A. mercantilism.B. Heckscher-Ohlin.C. comparative advantage.D. absolute advantage.

Mercantilism makes a crude case for government involvement in promoting exports and limiting imports. The theories of Smith, Ricardo, and Heckscher-Ohlin form part of the case for unrestricted free trade.


Bloom's: KnowledgeDifficulty: Hard


45.(p. 161)

This theory explains the observed patterns of international trade by emphasizing the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods. A. MercantilismB. Absolute advantageC. Heckscher-OhlinD. Comparative advantage

This theory rests on the assumption that countries have varying endowments of the various factors of production.




46.(p. 161)

Which of the following is an assumption of the Heckscher-Ohlin theory? A. Countries have varying endowments of the various factors of productionB. Gold and silver were the mainstays of national wealth and essential to vigorous commerceC. It is in a country's best interests to maintain a trade surplusD. Trade is a zero-sum game

The Heckscher-Ohlin theory emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods. This explanation rests on the assumption that countries have varying endowments of the various factors of production.




47.(p. 161-162)

Identify the incorrect statement pertaining to Raymond Vernon's product life-cycle theory. A. Early in their life cycle, most new products are produced in and exported from the country in which

they were developed.B. As a new product becomes widely accepted internationally, production starts in other countries.C. A product in the early stage of the product life-cycle is imported by the country where it was

innovated.D. A product may ultimately be exported back to the country of its original innovation.

Pioneering firms believed it was better to keep production facilities close to the market and to the firm's center of decision making, given the uncertainty and risks inherent in introducing new products. Also, the demand for most new products tends to be based on nonprice factors. Consequently, firms can charge relatively high prices for new products, which obviates the need to look for low-cost production sites in other countries.


Bloom's: KnowledgeDifficulty: Hard


48.(p. 162)

Which theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms? A. Balanced tradeB. Heckscher-OhlinC. New tradeD. Product life-cycle

In those industries when the output required to attain economies of scale represents a significant proportion of total world demand, the global market may only be able to support a small number of enterprises.




49.(p. 162)

The theory of _____, developed by Michael Porter, focuses on the importance of country factors, in addition to factor endowments, such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products. A. new tradeB. absolute advantageC. comparative advantageD. national competitive advantage

Porter theorizes that four broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage. These attributes are factor endowments, demand conditions, relating and supporting industries, and firm strategy, structure, and rivalry.




50.(p. 162)

The theory of _____ makes a crude case for government involvement in promoting exports and limiting imports. A. mercantilismB. free tradeC. absolute advantageD. comparative advantage

The mercantilist doctrine advocated government intervention to achieve a surplus in the balance of trade.




51.(p. 162)

Identify the theory that can be interpreted as justifying some limited government intervention to support the development of certain export-oriented industries. A. Theory of national competitive advantageB. Heckscher-Ohlin theoryC. Theory of comparative advantageD. Theory of absolute advantage

Government, by its choice of policies, can detract from or improve national advantage. For example, regulation can alter home demand conditions, antitrust policies can influence the intensity of rivalry within an industry, and government investments in education can change factor endowments.




52.(p. 162)

According to the _____, the United States is a major player in the commercial jet aircraft industry because American firms were first movers in the world market. A. product life-cycle theoryB. theory of mercantilismC. new trade theoryD. theory of absolute advantage

New trade theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms.


Bloom's: ComprehensionDifficulty: Hard


53.(p. 162)

The main tenet of mercantilism was that it was in a country's best interest to maintain a trade: A. balance.B. embargo.C. surplus.D. deficit.

The main tenet of mercantilism was that it was in a country's best interests to maintain a trade surplus, to export more than it imported. By doing so, a country would accumulate gold and silver and, consequently, increase its national wealth, prestige and power.




54.(p. 163)

When a government limits imports via tariffs and quotas, and subsidizes exports in order to maximize exports and minimize imports, the country is following: A. a mercantilist philosophy.B. the theory of absolute advantage.C. the theory of comparative advantage.D. the Heckscher-Ohlin theory.

The mercantilist doctrine advocated government intervention to achieve a surplus in the balance of trade. The mercantilists saw no virtue in a large volume of trade. Rather, they recommended policies to maximize exports and minimize imports.




55.(p. 163)

Mercantilism viewed trade as a(n): A. zero-sum game.B. economic evil.C. nonessential economic activity.D. threat to a government's independence.

The flaw with mercantilism was that it viewed trade as a zero-sum game, in which a gain by one country results in a loss by another.




56.(p. 163)

China, deliberately keeping its currency value low against the U.S. dollar in order to sell more goods to the United States, and thus amass a trade surplus and foreign exchange reserves, is viewed by critics as following a: A. zero-sum game.B. neo-mercantilist policy.C. positive-sum game.D. free trade policy.

Neo-mercantilists equate political power with economic power and economic power with a balance-of-trade surplus.




57.(p. 163)

According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then: A. retain these goods for strictly domestic sales.B. trade these goods for the goods produced by other countries.C. sell these goods to the highest domestic or international bidder.D. prohibit the import of these goods from other countries.

Smith's basic argument is that a country should never produce goods at home that it can buy at a lower cost from other countries. Smith demonstrates that, by specializing in the production of goods in which each has an absolute advantage, both countries benefit by engaging in trade.




58.(p. 163-164)

The different combinations of two goods that an economy could efficiently produce with limited productive resources can be referred to as a country's: A. economic output.B. efficiency graph.C. productivity curve.D. production possibility frontier.

In considering the effects of trade between Ghana and South Korea, assume that both countries have the same amount of resources that can be used to produce either rice or cocoa. Assume that 200 units of resources are available in each country. Imagine that in Ghana it takes 10 resources to produce one ton of cocoa and 20 resources to produce one ton of rice. Thus, Ghana could produce 20 tons of cocoa and no rice, 10 tons of rice and no cocoa, or some combination of rice and cocoa between these two extremes. The different combinations that Ghana could produce are referred to as Ghana's production possibility frontier.




59.(p. 166)

Trade produces net gains for all involved and hence is a: A. zero-sum game.B. balance-of-trade game.C. positive-sum game.D. equilibrium-gain game.

As a result of specialization and trade, output would be increased and consumers in both the concerned nations would be able to consume more. Thus, trade is a positive-sum game; it produces net gains for all involved.




60.(p. 166)

According to the theory of _____, it makes sense for a country to specialize in producing the goods it produces most efficiently and buy the products it produces less efficiently from other countries, even if it could produce the good more efficiently itself. A. strategic tradeB. pertinent advantageC. comparative advantageD. absolute advantage

Without trade each country must consume what it produces. By engaging in trade, the two countries can increase their combined production of those goods that it produces most efficiently to buy the goods that it produces less efficiently from other countries, and consumers in both nations can consume more of both goods.




61.(p. 168)

What is the basic message of the theory of comparative advantage? A. Countries are similar in their ability to produce goods efficientlyB. International trade is rarely beneficial to a countryC. Potential world production is greater with unrestricted free trade than it is with restricted tradeD. Trade is a zero-sum game

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. 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.




62.(p. 168)

A basic tenet of Ricardo's theory is that: A.

consumers in those countries with an absolute advantage in the production of all goods might derive no benefits from international trade.

B. consumers in all nations can consume more if there are no restrictions on trade.C. restrictions on trade help consumers in countries that lack an absolute advantage in the production of

a particular good.D. trade is a zero-sum game.

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.




63.(p. 169)

_____ means that the units of resources required to produce a good are assumed to remain unvarying no matter where one is on a country's production possibility frontier. A. Economies of scaleB. Law of diminishing returnsC. Constant returns to specializationD. Zero-sum game

The simple comparative advantage model assumes constant returns to specialization. Constant returns to specialization means the units of resources required to produce a good are assumed to remain constant no matter where one is on a country's PPF. However, it is more realistic to assume diminishing returns to specialization which occurs when more units of resources are required to produce each additional unit.




64.(p. 169)

_____ occur(s) when more units of resources are required to produce each additional unit. A. Economies of scaleB. Diminishing returns to specializationC. A positive-sum gameD. Constant returns to specialization

It is more realistic to assume diminishing returns for two reasons. First, not all resources are of the same quality. A second reason for diminishing returns is that different goods use resources in different proportions.




65.(p. 170)

The simple comparative advantage model assumes constant returns to specialization. However, it is more realistic to assume diminishing returns to specialization because of all of the following reasons except: A. all resources are of the same quality.B. different goods use resources in different proportions.C.

as a country tries to increase its output of a certain good, it is more likely to draw on more marginal resources whose productivity is not as great as those initially employed.

D.

if a country specializes to the degree suggested by the simple Ricardian model, the gains from specialization are likely to be exhausted before specialization is complete.

Not all resources are of the same quality. As a country tries to increase its output of a certain good, it is increasingly likely to draw on more marginal resources whose productivity is not as great as those initially employed.




66.(p. 170)

Even if we relax the assumptions of the simple Ricardian model that there are constant returns to scale and realistically assume diminishing returns to specialization, it can still be concluded that: A. the benefits of unrestricted trade do not hold.B. free trade is beneficial but the gains may not be as great as in a constant returns case.C. governments should intervene in the market to bring about a zero-sum game.D. the benefits of free trade are comparatively much less than government-regulated trade.

The theory predicts that it is worthwhile to specialize until that point where the resulting gains from trade are outweighed by diminishing returns. Thus, the basic conclusion that unrestricted free trade is beneficial still holds, although because of diminishing returns, the gains may not be as great as suggested in the constant returns case.




67.(p. 171)

The simple comparative advantage model assumes that trade does not change a country's stock of resources or their utilization efficiency. If we relax this assumption to make allowances for dynamic changes, all of the following become apparent except: A. opening the economy to trade would be likely to generate dynamic gains.B. free trade may increase the country's stock of resources.C. free trade might increase the efficiency with which the country uses its resources.D. dynamic gains will cause the country's PPF to shift inward.

Dynamic gains in both the stock of a country's resources and the efficiency with which resources are utilized will cause a country's PPF to shift outward.




68.(p. 171)

According to the _____ model, when a rich country enters into a free trade agreement with a poor country that rapidly experiences dynamic gains, the rich country is likely to not have net gains. A. absolute advantageB. mercantilistC. Heckscher-OhlinD. Samuelson

Paul Samuelson's critique looks at what happens when a rich country—the United States—enters into a free trade agreement with a poor country—China—that rapidly improves its productivity after the introduction of a free trade regime. Samuelson model suggests that in such cases, the lower prices that U.S. consumers pay for goods imported from China following the introduction of a free trade regime may not be enough to produce a net gain to for the U.S. economy if the dynamic effect of free trade is to lower real wage rates in the United States.




69.(p. 174)

According to Heckscher and Ohlin, _____ meant the extent to which a country is provided with such resources as land, labor, and capital. A. factors of productionB. economic facilitatorsC. factor endowmentsD. manufacturing factors

Nations have varying factor endowments, and different factor endowments explain differences in factor costs; specifically, the more abundant a factor, the lower its cost.




70.(p. 174)

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? A. Comparative advantageB. Absolute advantageC. Heckscher-OhlinD. Samuelson

Nations have varying factor endowments, and different factor endowments explain differences in factor costs; specifically, the more abundant a factor, the lower its cost. It is relative, not absolute, endowments that are important; a country may have larger absolute amounts of land and labor than another country, but be relatively abundant in one of them.


Bloom's: ComprehensionDifficulty: Easy


71.(p. 174)

Contrary to what the Heckscher-Ohlin theory would predict, the United States has been a primary importer rather than an exporter of capital goods. This phenomenon is referred to as the _____ paradox. A. zero-sumB. LeontiefC. empiricalD. Ricardo

Using the Heckscher-Ohlin theory, Leontief postulated that since the United States has relatively abundant capital compared to other nations, it would be an exporter of capital-intensive goods and an importer of labor-intensive goods. However, he found that U.S. exports were less capital intensive than U.S. imports. Since this result was at variance with the predictions of the theory, it has become known as the Leontief paradox.




72.(p. 175)

Raymond Vernon argued that new products were developed by U.S. firms and first sold in the U.S. market because: A. European competitors were not active in product R&D.B. American firms were able to take advantage of tax credits for product R&D.C. the wealth and size of the U.S. market gave the firms an incentive to develop new products.D. the low cost of U.S. labor gave U.S. firms an incentive to develop costly process innovations.

Vernon's theory was based on the observation that for most of the 20th century a very large proportion of the world's new products had been developed by U.S. firms and sold first in the U.S. market. The high cost of U.S. labor gives U.S. firms an incentive to develop cost-saving process innovations.




73.(p. 176)

According to the product life-cycle theory, the locus of global production initially switches from the U.S. to other advanced nations and then from those nations to developing countries. The consequence of this trend for the pattern of world trade is that over time the U.S.: A. becomes the sole producer of the product.B. switches from being an exporter of the product to being an importer of the product.C. switches from being an importer of the product to being an exporter of the product.D. becomes the sole consumer of the product.

As the market in the United States and other advanced nations matures, the product becomes more standardized, and price becomes the main competitive weapon. As this occurs, cost considerations start to play a greater role in the competitive process. Producers based in advanced countries where labor costs are lower than in the U.S. might now be able to export to the U.S. If cost pressures become intense, the process might not stop there. The cycle by which the U.S. lost its advantage to other advanced countries might be repeated once more, as developing countries begin to acquire a production advantage over advanced countries.




74.(p. 177)

The product life-cycle theory: A. remains a relevant theory of explaining international trade in the modern world.B. was useful for explaining the pattern of trade during the brief period of American global dominance.C. proved to be a poor explanation of world trade patterns during the 1960s and 1970s.D. was a strong predictor of trade patterns during the 1800s.

Although Vernon's theory may be useful for explaining the pattern of international trade during the brief period of American global dominance, its relevance in the modern world seems more limited.




75.(p. 178)

_____ suggests that when nations trade, each nation may be able to specialize in producing a narrower range of products than it would in the absence of trade, and through trade, each nation can simultaneously increase the variety of goods available to its consumers and lower the costs of those goods. A. The product life-cycle theoryB. Porter's diamond of competitive advantageC. New trade theoryD. The theory of comparative advantage

When nations trade with each other, individual national markets are combined into a larger world market. As the size of the market expands due to trade, individual firms may be able to better attain economies of scale. Thus, trade offers an opportunity for mutual gain even when countries do not differ in their resource endowments or technology.




76.(p. 180)

According to the new trade theorists, because early entrants are able to gain _____, the early entrants into an industry may get a lock on the world market that discourages subsequent entry. A. zero-sum advantagesB. highly skilled employeesC. process expertiseD. economies of scale

Economies of scale are unit cost reductions associated with large-scale output. The new trade theory suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good. First movers' ability to benefit from increasing returns creates a barrier to entry.




77.(p. 181)

According to Porter, all of the following are broad attributes of a nation that shape the environment in which local firms compete except: A. factor endowments.B. supply fluctuations.C. relating and supporting industries.D. firm strategy, structure, and rivalry.

Porter theorizes that four broad attributes of a nation including factor endowments, demand conditions, relating and supporting industries, and firm strategy, structure, and rivalry shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage.




78.(p. 182)

According to Porter, advanced factors: A. include natural resources, climate, location, and demographics.B. are the least significant for competitive advantage.C. are naturally endowed.D. are a product of investment by individuals, companies, and governments.

Advanced factors include communication infrastructure, sophisticated and skilled labor, research facilities, and technological know-how. Advanced factors are the most significant for competitive advantage.




79.(p. 183)

Porter explains the United States' loss of competitiveness in engineering-based industries where manufacturing processes and product design issues are critical as a consequence of: A. differing management ideologies.B. differing factor endowments.C. differing demand conditions.D. chance.

Porter noted a predominance of people with finance backgrounds leading many U.S. firms. He linked this to U.S. firms' lack of attention to improving manufacturing processes and product design. He argued that the dominance of finance led to an overemphasis on maximizing short-term financial returns. One consequence of these different management ideologies was a relative loss of U.S. competitiveness in those engineering-based industries where manufacturing processes and product design issues are all-important.




80.(p. 187)

Identify the theory that suggests that it is in the best interest of business for a firm to invest in upgrading advanced factors of production. A. Theory of competitive advantageB. Product life-cycle theoryC. New trade theoryD. National competitive advantage theory

According to Porter, there is a strong association between vigorous domestic rivalry and the creation and persistence of competitive advantage in an industry. Vigorous domestic rivalry induces firms to look for ways to improve efficiency, which makes them better international competitors. Domestic rivalry creates pressures to innovate, to improve quality, to reduce costs, and to invest in upgrading advanced factors.




81.(p. 160-161)

What are the benefits of free trade? Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country. Common sense suggests that some international trade is beneficial. Theories by Smith, Ricardo, and Heckscher-Ohlin suggest that a country's economy may gain if its citizens buy certain products from other nations that could be produced at home. The gains arise because international trade allows a country to specialize in the manufacture and export of products that can be produced most efficiently in that country, while importing products that can be produced more efficiently in other countries.




82.(p. 162-163)

Discuss the mercantilist philosophy. What was the theory's main flaw? Mercantilism was the first theory of international trade. The main tenet of mercantilism is that it is in a country's best interests to maintain a trade surplus by exporting more than it imports. By doing so, a country would accumulate gold and silver and, consequently, increase its national wealth, prestige and power. Consistent with this belief, the mercantilist doctrine advocated government intervention to achieve a surplus in the balance of trade. The flaw with mercantilism was that it viewed trade as a zero-sum game in which a gain by one country resulted in a loss by another country.




83.(p. 163)

What was Adams Smith's contribution to the theory of why nations trade? What is the theory of absolute advantage? Adam Smith attacked the mercantilist philosophy in his 1776 landmark book, The Wealth of Nations. Smith argued that countries differ in their ability to produce good efficiently. Smith suggested that when a country was more efficient at producing a particular good than any other country, the country had an absolute advantage in the production of that good. According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade those goods for the goods produced by other countries.Smith's basic argument was that a country should never produce goods at home that it can buy at a lower cost from other countries. Moreover, Smith argued that by specializing in the production of goods in which each has an absolute advantage, both countries benefit by engaging in trade.




84.(p. 166-168)

How did David Ricardo extend Adam Smith's work? Explain the theory of comparative advantage. David Ricardo took Adam Smith's theory of absolute advantage one step further by exploring what might happen when one country has an absolute advantage in the production of all goods. Smith's theory suggests that such a country might not benefit from trade. However, Ricardo suggested that it makes sense for a country to specialize in the production of those goods that it produces most efficiently, or has a comparative advantage in, and to buy the goods that it produces less efficiently from other countries. According to Ricardo, potential world production is greater with unrestricted free trade than it is with restricted free trade. Ricardo's theory remains a popular weapon for free trade supporters.




85.(p. 172-173)

Discuss the link between trade and economic growth. Research shows that in general, countries that adopt a more open stance toward international trade enjoy higher growth rates than those that close their economies to trade. Higher growth should, in turn, raise income level and living standards.




86.(p. 174)

Explain the Heckscher-Ohlin theory. What is the relationship between Heckscher-Ohlin's work and the theory of comparative advantage? Heckscher and Ohlin suggested that comparative advantage arises from differences in national factor endowments. The Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make use of factors that are locally scarce. Thus, Heckscher and Ohlin suggest that free trade is beneficial, but argue that the pattern of trade is determined by differences in factor endowments, rather than differences in productivity.




87.(p. 174)

What is the Leontief paradox? Wassily Leontief tested the Heckscher-Ohlin theory. Leontief postulated that since the United States was relatively abundant in capital compared to other nations, the United States would be an exporter of capital-intensive goods, and an importer of labor-intensive goods. However, Leontief found that U.S. exports were less capital intensive than U.S. imports. Because this result was at variance with the predictions of Heckscher-Ohlin, it has become known as the Leontief paradox.




88.(p. 175-176)

Explain the product life-cycle theory. The product life-cycle theory, proposed by Raymond Vernon in the mid-1960s, was based on the observation that for most of the 20th century a very large proportion of the world's new products had been developed by U.S. firms and sold first in the U.S. market. It suggests that the wealth and size of the U.S. market gave American firms a strong incentive to develop new consumer products. Vernon argued that most new products were initially produced in the U.S. According to Vernon, early in the life cycle of a product most new products are produced and are exported from the country in which they were developed. As a new product becomes widely accepted internationally, production starts in other countries. As a result, the theory suggests, the product may ultimately be exported back to the country of its innovation.




89.(p. 176-177)

Evaluate the product life cycle. How well does the theory hold up? What are the theory's weaknesses? When viewed historically, the product life-cycle theory appears to be an accurate explanation of international trade patterns. However, from an Asian or a European perspective, the theory is ethnocentric. Many new products are now introduced in Japan or Europe, or even simultaneously in the U.S., Europe, and Japan. In general, while Vernon's theory was useful for explaining trade during the brief period of American dominance, it is not particularly relevant in today's global economy.




90.(p. 178)

What are economies of scale? Why are they important in understanding trade patterns? Economies of scale are unit cost reductions associated with a large volume of output. Economies of scale are a major source of cost reductions in many industries. Because of the need to achieve economies of scale, some global industries may only be able to support a small number of firms. World trade patterns would reflect this phenomenon.




91.(p. 178)

Explain the new trade theory. What is the role of economies of scale in this theory? The new trade theory emerged in the 1970s when several economists suggested that economies of scale might play a role in world trade. New trade theory suggests that (1) through its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease average costs of those goods and (2) in those industries when the output required to attain economies of scale represents a significant proportion of total world demand, the global market may only be able to support a small number of enterprises.




92.(p. 179-180)

Explain the connections between economies of scale, first-mover advantages, and trade patterns. First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. Because they are able to gain economies of scale, early entrants may get a lock on the world market that discourages subsequent entry. In other words, the ability of first movers to reap economies of scale creates a barrier to entry. Countries may dominate in the export of certain goods because economies of scale are important to their production and because firms located in those countries were first to capture scale economies, giving them a first-mover advantage.




93.(p. 179-180)

Discuss the implications of the new trade theory. The new trade theory suggests that countries may benefit from trade even when they do not differ in resource endowments or technology. Through trade, a country can specialize in the production of certain products and achieve scale economies and thus, lower production costs, and trade for other products. Consumers should benefit from lower prices. New trade theory also suggests that a company may dominate a certain industry simply because it got there first. If the firm can achieve economies of scale, they may act as a barrier to entry to other firms.




94.(p. 180)

Does new trade theory support the work of Heckscher and Ohlin? Is the theory at variance with the theory of comparative advantage? New trade theory does not support Heckscher and Ohlin's work. In fact, new trade theorists argue that the U.S. is a major exporter of commercial jet aircraft not because the country is better endowed with the factors of production required to manufacture aircraft, but because Boeing, an American firm, was one of the first movers in the industry. In contrast, the theory does support the theory of comparative advantage.




95.(p. 180)

Does new trade theory support government intervention and strategic trade policy? Explain. According to new trade theorists, luck, entrepreneurship, and innovation are all important in giving a firm first-mover advantages. Therefore, new trade theory supports the notion of government intervention on the basis that a government, through the judicious use of subsidies, could increase the chances of its domestic firms becoming first movers in newly emerging industries.




96.(p. 181)

What are the four attributes identified by Porter as being important in determining why a nation achieves success in a particular industry? The four attributes identified by Porter include factor endowments; demand conditions or the nature of home demand for the industry's product or service; related and supporting industries or the presence or absence in a nation of supplier industries and related industries that are internationally competitive; and firm strategy, structure, and rivalry or the conditions in the nation governing how companies are created, organized, and managed and the nature of domestic rivalry.




97.(p. 182)

What is the difference between basic factors and advanced factors in Porter's diamond? Porter differentiates between factors of production. According to Porter, there are basic factors such as natural resources, climate, and demographics, and advanced factors such as infrastructure, skilled labor, and research facilities. Advanced factors are a product of investment by individuals.Porter suggests that advanced factors are most important for competitive advantage.




98.(p. 182)

Porter has stated that a nation's firms gain competitive advantage if their domestic consumers are sophisticated and demanding. Explain this statement. Firms are typically most sensitive to the needs of their closest customers. Therefore, according to Porter, the characteristics of home country demand will shape the attributes of domestically made products and create pressure for innovation and quality. Porter suggests that if a nation's domestic consumers are sophisticated and demanding, the nation's firms will gain a competitive advantage.




99.(p. 183-185)

What is the role of government in Porter's theory? According to Porter, government can influence each of the four main attributes of his model. For example, factor endowments can be affected by subsidies or policies toward education, domestic demand can be shaped through local product standards, regulations can influence supporting and related industries, and firm rivalry can be affected by tax policies and antitrust regulations.




100.(p. 185-187)

Discuss the implications of international trade theory for a firm. The implications of trade theory for a firm are reflected in location implications, firms can capitalize on the differences between countries by dispersing their production activities around the globe to wherever a product can be produced the most efficiently; in first-mover implications, it pays to invest substantial financial resources in trying to build a first-mover advantage; and in policy implications, it is in the best interests of a firm to invest in upgrading advanced factors of production and to lobby the government to adopt policies that have a favorable impact on Porter's diamond.




ch5 Summary

Category # of Questions

AACSB: Analytic Skills 53

AACSB: Domestic and Global Economic Environments 1

AACSB: Reflective Thinking Skills 38

AACSB: Value Creation 8

Bloom's: Comprehension 26

Bloom's: Knowledge 74

Difficulty: Easy 21

Difficulty: Hard 6

Difficulty: Medium 73

Hill - Chapter 05 100

Learning Objective: 05-1 3





ch5

Documents

trade surplus

country results

new trade theory stresses

free trade regime

importance of country

heckscherohlin theory

cases countries

ricardos theory