Question 1

Country X, a poor country, invents a revolutionary electronic product. The country markets this new product in other poor countries to garner large profits. This occurrence is against the idea of ____.

Accepted Answer

A)   product life-cycle theory
B)   Ricardo's theory
C)   theory of absolute advantage
D)   theory of comparative advantageE) A) and B)
F) All of the above

Question 2

What will happen, according to Paul Samuelson's critique, if a rich country enters into a free trade agreement with a poor country?

Accepted Answer

A)   Both the countries will incur losses due to the exchanges between them.
B)   The productivity of the poor country will decline rapidly.
C)   The poor country will rapidly improve its productivity.
D)   Both the countries will garner benefits from the exchanges between them.E) A) and D)
F) A) and C)

Question 3

Explain how the rivalry within an industry affects international competence.

Accepted Answer

Porter's second point is that there is a...

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly?

Accepted Answer

A)   Comparative advantage theory
B)   New trade theory
C)   Ricardo's theory
D)   Smith's theoryE) C) and D)
F) All of the above

Question 6

What are the assumptions that we make when we discuss a simple Ricardian model to support free trade?

Accepted Answer

1. We have assumed a simple world in whi...

Question 7

Heckscher-Ohlin theory stresses that comparative advantage arises from differences in productivity.

Accepted Answer

A) True 
 B)False

Question 8

From a profit perspective, it makes sense for firms to disperse their productive activities to those countries where they can be performed most efficiently.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is a statement that supports the theory of comparative advantage?

Accepted Answer

A)   International trade is a zero-sum gain where one nation's gain is another's loss.
B)   Domestic industries are at risk when a country engages in free trade.
C)   A country should maintain trade surplus to succeed in global trade.
D)   Global production is greater with free trade than it is with restricted trade.E) A) and C)
F) C) and D)

Question 10

Heckscher-Ohlin theory supports the case for unrestricted free trade between nations.

Accepted Answer

A) True 
 B)False

Question 11

Diminishing returns show that it is feasible for a country to specialize to the degree suggested by the simple Ricardian model.

Accepted Answer

A) True 
 B)False

Question 12

Country A can produce product X, but it can also buy it at a cheap rate from Country B. Which of the following courses of action is suitable in this situation according to Adam Smith's theory of absolute advantage?

Accepted Answer

A)   Country A should import product X from country B and it should not attempt to produce it at home.
B)   Country A should partly import the product and produce it domestically.
C)   Country A should produce more of product X and should attempt to obtain an absolute advantage for the product.
D)   Country A should subsidize the production of product X to obtain an absolute advantage over country B.E) A) and B)
F) A) and C)

Question 13

Porter argues that a nation's firms gain competitive advantage if ____.

Accepted Answer

A)   their domestic consumers lack technical awareness
B)   they function in a labor intensive market
C)   the country has abundant supply of unskilled workers
D)   their domestic consumers are demandingE) A) and B)
F) B) and D)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Briefly explain Vernon's product life-cycle theory.

Accepted Answer

Vernon's theory was based on the observa...

Question 16

Which of the following observations is consistent with Michael Porter's theory of national competitive advantage?

Accepted Answer

A)   Factors such as domestic demand and domestic rivalry determine nations' dominance on production.
B)   Countries should produce only those goods for which they have a comparative advantage.
C)   Interplay between the factors of production cause international marketing decisions.
D)   International differences in labor productivity determine nations' supremacy in production.E) A) and B)
F) A) and C)

Question 17

New trade theory stresses that in some cases countries specialize in the production and export of particular products because the world market can support only a limited number of firms.

Accepted Answer

A) True 
 B)False

Question 18

According to Ricardo's theory of comparative advantage, countries should produce all the products for which they have an absolute advantage.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Ricardo's theory makes fewer simplifying assumptions compared to Heckscher-Ohlin theory.

Accepted Answer

A) True 
 B)False

Exam 6: International Trade Theory

Ricardo's theory makes fewer simplifying assumptions compared to Heckscher-Ohlin theory.

Correct AnswerverifiedShow Answer

Heckscher-Ohlin theory stresses that comparative advantage arises from differences in productivity.

Correct AnswerverifiedShow Answer

From a profit perspective, it makes sense for firms to disperse their productive activities to those countries where they can be performed most efficiently.

Correct AnswerverifiedShow Answer

Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly?

Correct AnswerverifiedShow Answer

Diminishing returns show that it is feasible for a country to specialize to the degree suggested by the simple Ricardian model.

Correct AnswerverifiedShow Answer

New trade theory stresses that in some cases countries specialize in the production and export of particular products because the world market can support only a limited number of firms.

Correct AnswerverifiedShow Answer

Porter argues that a nation's firms gain competitive advantage if ____.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to Ricardo's theory of comparative advantage, countries should produce all the products for which they have an absolute advantage.

Correct AnswerverifiedShow Answer

Country X, a poor country, invents a revolutionary electronic product. The country markets this new product in other poor countries to garner large profits. This occurrence is against the idea of ____.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Country A can produce product X, but it can also buy it at a cheap rate from Country B. Which of the following courses of action is suitable in this situation according to Adam Smith's theory of absolute advantage?

Correct AnswerverifiedShow Answer

Explain how the rivalry within an industry affects international competence.

Correct AnswerverifiedPorter's second point is that there is a...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

What are the assumptions that we make when we discuss a simple Ricardian model to support free trade?

Correct Answerverified1. We have assumed a simple world in whi...View AnswerShow Answer

Briefly explain Vernon's product life-cycle theory.

Correct AnswerverifiedVernon's theory was based on the observa...View AnswerShow Answer

Which of the following observations is consistent with Michael Porter's theory of national competitive advantage?

Correct AnswerverifiedShow Answer

Which of the following is a statement that supports the theory of comparative advantage?

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Heckscher-Ohlin theory supports the case for unrestricted free trade between nations.

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What will happen, according to Paul Samuelson's critique, if a rich country enters into a free trade agreement with a poor country?

Correct AnswerverifiedShow Answer

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Porter's second point is that there is a...
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1. We have assumed a simple world in whi...
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Vernon's theory was based on the observa...
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