Chapter 5 - International Trade Theory

Question 1

International trade

Answer 1

Purchase, sale or exchange of goods and services across national borders.

Question 2

Merchantilism

Answer 2

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

Question 3

Trade surplus

Answer 3

Condition that results when the value of a nations exports is greater than its imports.

Question 4

Trade deficit

Answer 4

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

Question 5

Absolute advantage

Answer 5

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

Question 6

Comparative advantage

Answer 6

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.

Question 7

Factor proportions theory

Answer 7

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.

Question 8

International product lifecycle

Answer 8

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

Question 9

New trade theory

Answer 9

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.

Question 10

First-mover advantage

Answer 10

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

Question 11

National competitive advantage theory

Answer 11

Trade theory stating that a nation’s competitiveness in an industry to innovate and upgrade.