Chapter 8

Question 1

The value of trade passing through the borders of all countries exceeds the amount of goods and services they produce.
Select one:
True
False

Answer 1

False

Question 2

The ability of a nation to produce a good more efficiently than any other nation is called its comparative advantage.
Select one:
True
False

Answer 2

False

Question 3

Both absolute and comparative advantage theories assume that \_\_\_\_\_\_\_\_ is the only resource used in the production process.
Select one:
a. capital
b. labor 
c. land
d. equipment

Answer 3

b. labor

Question 4

One of the major pillars upon which the practice of mercantilism rested was \_\_\_\_\_\_\_\_.
Select one:
a. excessive imports
b. trade surpluses 
c. economies of scale
d. pricing mechanism

Answer 4

b. trade surpluses

Question 5

The measures of a nation's well-being other than the financial wealth accumulated through exports are irrelevant according to \_\_\_\_\_\_\_\_.
Select one:
a. new trade theory
b. factor proportions theory
c. mercantilism 
d. absolute advantage theory

Answer 5

c. mercantilism

Question 6

Trade in services tends to be relatively more important for the world’s richest countries.
Select one:
True
False

Answer 6

True

Question 7

Which element of national competitive advantage theory divides resources into two groups: basic and advanced?
Select one:
a. factor conditions
b. firm, strategy, structure, and rivalry
c. related and supporting industries
d. demand conditions

Answer 7

a. factor conditions

Question 8

Most of the world’s merchandise trade is composed of trade in agricultural products.
Select one:
True
False

Answer 8

False

Question 9

The theories of comparative and absolute advantage assume that specialization in the production of one particular good results in efficiency gains.
Select one:
True
False

Answer 9

False

Question 10

Which of the following statements is incorrect with regard to the importance of colonies for mercantilist nations?
Select one:
a. They served as a source of profits for mercantilist powers.
b. They served as markets for higher-priced finished goods.
c. They served as a source of military protection.
d. They served as sources of inexpensive raw materials.

Answer 10

c. They served as a source of military protection.

Question 11

The new trade theory is mainly at odds with the \_\_\_\_\_\_\_\_ theory.
Select one:
a. factor proportions 
b. national competitive advantage
c. international product life cycle
d. comparative advantage

Answer 11

a. factor proportions

Question 12

Most of the world merchandise trade is composed of trade in \_\_\_\_\_\_\_\_.
Select one:
a. agricultural products
b. services
c. minerals
d. manufactured goods

Answer 12

d. manufactured goods

Question 13

Walmart has been very successful in the U.S. market, so much so that it is now considering entering the global market.
Select one:
True
False

Answer 13

False

Question 14

Scenario: Better Mousetrap Inc.

Better Mousetrap Inc. is a manufacturing company that sells pest control products. Recently the company launched an innovative mousetrap with a unique design that has been selling well in the U.S. market. Senior Vice President Marc Wallace, even recommended expanding sales overseas in order to increase company revenues.

Wallace expects that markets abroad will soon become fully aware of the existence of the product and its benefits. Which of the following life cycle stages will the product be a part of during that period?
Select one:
a. product decline stage
b. standardized product stage
c. maturing product stage 
d. new product stage

Answer 14

c. maturing product stage

Question 15

National competitive advantage theory states that a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.
Select one:
True
False

Answer 15

True

Question 16

Much production in the world today closely resembles what is predicted by the \_\_\_\_\_\_\_\_.
Select one:
a. international product life cycle
b. theory of comparative advantage 
c. theory of factor proportions
d. new trade theory

Answer 16

b. theory of comparative advantage

Question 17

The theory of absolute advantage measures a nation’s wealth by the standard of living of its people.
Select one:
True
False

Answer 17

True

Question 18

Country A produces a ton of coffee using one unit of resources. Country B produces two tons of coffee using one unit of resources. Which of the following is true regarding Country A and Country B?
Select one:
a. Both Country A and Country B have an absolute advantage in producing coffee.
b. Country A has an absolute advantage in producing coffee.
c. Neither Country A nor Country B has an absolute advantage in producing coffee.
d. Country B has an absolute advantage in producing coffee.

Answer 18

d. Country B has an absolute advantage in producing coffee.

Question 19

Today, countries seen by others as trying to maintain a trade surplus and expand their national treasures at the expense of other nations are accused of practicing \_\_\_\_\_\_\_\_.
Select one:
a. social stratification
b. economic nationalism 
c. anti-mercantilism
d. totalitarianism

Answer 19

b. economic nationalism

Question 20

The smallest portion of the total world trade comprises trade between \_\_\_\_\_\_\_\_.
Select one:
a. low-income and middle-income nations 
b. high-income and middle-income nations
c. developed countries
d. First World member countries

Answer 20

a. low-income and middle-income nations

Question 21

Mercantilist countries used to amass wealth by acquiring less-developed territories around the world.
Select one:
True
False

Answer 21

True

Question 22

As US firms expand trade with Asia and more managers without prior international experience begin interacting with Asian consumers, clients, partners and others, they should take great care to express all important issues in very clear. detailed legal documents to avoid possible cross-cultural misunderstandings.
Select one:
True
False

Answer 22

False

Question 23

In the maturing product stage of the international product life cycle theory, production facilities are introduced in countries with the highest demand.
Select one:
True
False

Answer 23

True

Question 24

The ability of a nation to produce a good more efficiently than any other nation is called its comparative advantage.
Select one:
True
False

Answer 24

False

Question 25

During which stage of the international product life cycle theory does demand rise and remain sustained for a fairly lengthy period of time?
Select one:
a. standardized product stage
b. maturing product stage 
c. new product stage
d. product decline stage

Answer 25

b. maturing product stage

Question 26

The theories of comparative and absolute advantage assume that specialization in the production of one particular good results in efficiency gains.
Select one:
True
False

Answer 26

False

Question 27

The international product life cycle theory was developed by \_\_\_\_\_\_\_\_.
Select one:
a. Michael Porter
b. Karl Marx
c. Milton Friedman
d. Raymond Vernon

Answer 27

d. Raymond Vernon

Question 28

Scenario: Foodland and Drinkland

Two countries, Foodland and Drinkland, produce food and drinks. In Foodland, one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks. In Drinkland, one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks.

Which of the following statements is true of the above scenario?
Select one:
a. Drinkland cannot trade with Foodland because trade is too expensive.
b. Foodland has a comparative advantage in producing drinks.
c. Foodland should stop producing food and just produce drinks.
d. Drinkland has an absolute advantage in producing drinks.

Answer 28

d. Drinkland has an absolute advantage in producing drinks.

Question 29

The Leontief paradox describes evidence ________.
Select one:
a. contrary to the predictions of the factor proportions theory
b. in support of the predictions of the mercantilist theory
c. that the assumptions of the new trade theory are invalid
d. that the assumptions of international product life cycle theory are invalid

Answer 29

a. contrary to the predictions of the factor proportions theory

Question 30

Companies that belong to a nation’s internationally competitive industries exist in isolation from supporting industries.
Select one:
True
False

Answer 30

False

Question 31

Trade between most nations is presently characterized by a certain degree of isolationism.
Select one:
True
False

Answer 31

False

Question 32

Factor proportions theory was developed by \_\_\_\_\_\_\_\_.
Select one:
a. Heckscher and Smith
b. Heckscher and Ohlin 
c. Smith and Ricardo
d. Ricardo and Ohlin

Answer 32

b. Heckscher and Ohlin