Chapter 5

Question 1

Pattern of International Trade

Answer 1

• Some patterns are easy to understand, clime and natural resource endowments explain why Brazil exports coffee.
• Some are more difficult to explain, why does Japan export automobiles, electronics?
• Heckscher-Ohlin, Product life-cycle and new trade theories

Question 2

Heckscher-Ohlin Theory

Answer 2

emphasizes the interplay between the proportions in which the factors of production (land, labour, capital) are available in different countries and the proportions in which they are needed for producing particular goods

failed to provide proper explanation

Question 3

Product Life-Cycle Theory

Answer 3

suggests that early in their life cycle, most new products are produced in and exported from the country in which they were developed.

As a new product becomes widely accepted internationally, however, production starts in other countries.

Question 4

New Trade Theory

Answer 4

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 only a limited number of firms

Question 5

Mercantilism

Answer 5

economic philosophy advocating that countries should simultaneously encourage exports and discourage imports.

Question 6

What is the flaw of mercantilism?

Answer 6

It views trade as zero-sum game

Question 7

Zero-Sum Game

Answer 7

situation in which an economic gain by one country results in a economic loss by another.

Question 8

Absolute Advantage

Answer 8

A country has an absolute advantage in the production of a product when it is more efficient than any other country at producing it.

Question 9

Comparative Advantage

Answer 9

Theory that a country should specialize in producing goods and services it can produce most efficiently even if this means buying goods from other countries that it could produce more efficiently itself. A country is said to have a comparative advantage in the production of such goods and services.

Question 10

The Leontief Paradox

Answer 10

a country with a higher capital per worker has a lower capital/labor ratio in exports than in imports.

Question 11

Porter’s Diamond

Answer 11

Porter theorizes that 4 broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage.

Question 12

What are the 4 attributes of Porter’s Diamond?

Answer 12

• Factor Endowments
• Demand Conditions (nature of home demand for the industry’s product or service).
• Relating & Supporting Industries (presence or absence of supplier industries and related industries that are internationally competitive).
• Firm strategy, structure, & rivalry (conditions governing how companies are created, organized, and managed and the nature of domestic rivalry).