Ch.5- International Trade Theory (Part 3: International Trade and Investment)

Question 1

The purchase, sale, or exchange of goods and services across national borders

Answer 1

International Trade

Question 2

Trade as a share of GDP is defined as

Answer 2

the sum of exports and imports (of goods and services) divided by GDP.

Question 3

One way to measure the importance of trade to a nation is to

Answer 3

examine the volume of an economy’s trade relative to its total output.

Question 4

Benefits of International Trade

Answer 4

1. provides a country’s people with a greater choice of goods and services
2. an important engine for job creation in many countries.

Question 5

How many million US jobs depend on exports?

Answer 5

12

Question 6

Ability of a nation to produce a good more efficiently than any other nation.

Answer 6

Absolute Advantage

Question 7

Inability of a nation to produce a good more efficiently than other nations but an ability to produce that good more efficiently than it does any other good

Answer 7

Comparative advantage

Question 8

Trade theory stating that countries produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply

Answer 8

Factor Proportions theory

Question 9

Economic and strategic advantage gained by being the first company to enter an industry

Answer 9

First-mover advantage

Question 10

Theory stating that a company will begin by exporting its product and later undertake foreign direct investment as the product moves through its life cycle

Answer 10

International product life cycle theory

Question 11

Trade theory that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports

Answer 11

Mercantilism

Question 12

Trade theory stating that a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade

Answer 12

National Competitive Advantage Theory (p.145)

Question 13

Trade theory stating that:
(1) there are gains to be made from specialization and increasing economies of scale,
(2) the companies first to market can create barriers to entry, and
(3) government may play a role in assisting its home companies

Answer 13

New Trade Theory

Question 14

Condition that results when the value of a country’s imports is greater than the value of its exports

Answer 14

Trade Deficit

Question 15

Condition that results when the value of a nation’s exports is greater than the value of its imports

Answer 15

Trade Surplus