Introduction and Reasons for International Activity

Question 1

Identify three major reasons for international economic activity.

Answer 1

1 - To develop new markets for the sale of goods and services.
2 - To obtain commodities not otherwise available domestically.
3 - To obtain goods and services at lower costs than available domestically.

Question 2

Define “comparative advantage.”

Answer 2

The ability of a country, business, individual, or other entity to produce a particular good or service at a lower opportunity cost than the opportunity cost of producing the good or service by another entity.

Question 3

Identify some of the reasons for comparative advantage between countries.

Answer 3

Differences in availability of economic resources, including:

• Natural resources
• Labor
• Technology

Question 4

Define “absolute advantage.”

Answer 4

The ability of a country, business, individual, or other entity to produce a particular good or service more efficiently (with fewer resources) than another entity.

Question 5

What are the four broad national attributes (factors) identified by Michael Porter as promoting or impeding the creation of competitive advantage for a firm within a country?

Answer 5

1 - Factor endowments - the factors of production
2 - Demand and conditions - the nature of domestic demand
3 - Relating and supporting industries - the international competitiveness of related industries
4 - Firm strategy, structure, and rivalry - how companies are created, organized, managed, and compete.