Chap 2 International Trade And Foreign Direct Investment

Question 0

Absolute advantage

Answer 0

Theory: when a nation can produce a larger amount of a good or service for the same amount of inputs as can another country or when it can produce the same amount of a good or service using fewer inputs than another country.

Question 1

Mercantilism

Answer 1

An economic philosophy based on the belief that (1) a nation’s wealth depends on accumulating treasure, usually precious metals such as gold and silver, and (2) to increase wealth, government policies should promote exports and discourage imports

Question 2

Comparative advantage

Answer 2

Theory that a nation having disadvantages in the production of two goods with respect to another nation has a comparative or relative advantage in the production of the good which its absolute disadvantage is less

Question 3

Offshoring

Answer 3

Location info activities in another nation

Question 4

Exchange rate

Answer 4

The price of one currency stated in terms of another currency

Question 5

Currency devaluation

Answer 5

The lowering of a currency’s price in terms of other currencies

Question 6

Resource endowment

Answer 6

Theory that countries exports products requiring large amounts of their abundant production factors and import products requiring large amounts of their scarce production factors

Question 7

Overlapping demand

Answer 7

Theory that trade in manufactured goods will be greater between nations with similar levels of per capita income, and that the goods traded will be those for which consumers in both countries demand the same good

Question 8

Product differentiation

Answer 8

The development of products that have unique differences, with the intent of positively influencing demand

Question 9

International product life cycle IPLC

Answer 9

A theory explaining why a product that begins as a nations’s export eventually becomes its import.

Question 10

Economies of scale

Answer 10

Situation where the average cost of productions each unit of output decreases as a plant gets larger and output increases

Question 11

Experience curve

Answer 11

Reduction of unit costs of production as accumulated volume increase, due to improved efficiency resulting from increased cumulative experience and learning.

Question 12

National competitiveness

Answer 12

a nation’s relative ability to design, produce, distribute, or service products within an international trading context while earning increasing returns on its resources

Question 13

Portfolio investment

Answer 13

The purchase of stocks and bonds to obtain a Return on the funds invested

Question 14

Direct investment

Answer 14

The purchases of sufficient stocks in a firm to obtain significant management control

Question 15

Monopolistic advantage theory

Answer 15

Theory that foreign direct investment is made by firms in oligopolistic industrial possessing technical and other advantages over indigenous firms

Question 16

Internationalization theory

Answer 16

The concept that obtained a higher return on its investment, a firm will transfer its superior knowledge to a foreign subsidiary, rather than sell it in the open market

Question 17

Dynamic capability

Answer 17

Theory that for a firm to successfully invest overseas, it must have not only ownership of unique knowledge or resources, but the ability dynamically create and exploit these capabilities over time.

Question 18

Eclectic theory of international production

Answer 18

Theory that for a firm to invest overseas, it must have three kinds of advantages: ownership specific, internationalization, and location specific.