Module 3 Flashcards
______ is reflected in a nation in which the government does not attempt to influence what its citizens can buy from another country by applying import duties or what citizens can produce and sell to another country.
Restricted trade
Fair trade
Free trade
Bilateral trade
Free trade
Based on the theories of Smith, Ricardo, and Heckscher-Ohlin, in a country with access to cheap labor, productive land, and diverse plant life, it makes sense to _____ agricultural goods.
import
export
embargo
buy
export
Because of economies of scale, some countries specialize in manufacturing a particular product (such as cars) for which the global market can only support a limited number of firms. This is a reflection of _____.
product life-cycle theory
new trade theory
production possibilities frontier
mercantilism
new trade theory
The trade theories associated with Smith and Ricardo advocate for _____ free trade.
unrestricted
restricted
unrestricted
______ is the first theory of trade that advocated that a country should export more than it imports and should accumulate gold and silver to make up the difference and maintain a trade surplus.
Planned economy
Mercantilism
New Trade
Isolationism
Mercantilism
Manatee Mfg. is able to source parts for its refrigeration products from anywhere in the world because the United States does not place any quotas or limitations on the imports they need. This is a reflection of a _____ policy.
mixed economy
free trade
restricted trade
planned economy
free trade
A country is said to have an absolute advantage in the production of an item when the country
promotes the idea of importing but downplays the idea of exporting.
is more efficient than any other country at producing the item.
is able to import the item at a lower cost than producing it themselves.
exports more of the item to other nations than any other country.
is more efficient than any other country at producing the item.
Reflecting the theories of Smith, Ricardo, and Heckscher-Ohlin, free trade permits ______, which allows a country to manufacture and export in those areas where they have a comparative advantage.
quality control
quotas
specialization
embargoes
specialization
Ricardo’s theory of _____ advantage states that it makes sense for a country to specialize in the production of those goods that it produces most efficiently and then purchase the goods that it produces less efficiently from other countries, even if this means buying goods from other countries that it could produce more efficiently itself.
absolute
comparative
quality
competitive
comparative
New trade theory states that some countries specialize in the production and export of a particular product because _____.
in certain industries the world can only support a limited number of firms
other countries do not possess the same factor endowments
domestic demand is lower than international demand
location economies support their industrial advantage
in certain industries the world can only support a limited number of firms
A basic message of Ricardo’s theory of comparative advantage is that: (Check the two that apply.)
even if countries lack an absolute advantage in the production of any good, consumers can still consume more if there are no restrictions on trade.
trade is a zero-sum game that creates clear winners and losers.
potential world production is greater with unrestricted free trade than it is with restricted trade.
by strategically using subsidies, a government would increase the chances of its domestic firms becoming first movers in newly emerging industries.
even if countries lack an absolute advantage in the production of any good, consumers can still consume more if there are no restrictions on trade.
potential world production is greater with unrestricted free trade than it is with restricted trade.
Which theory does NOT support unrestricted free trade between countries?
Ricardo’s Theory
Smith’s Theory
Hecksher-Ohlin’s Theory
Mercantilism
Mercantilism
A criticism of Ricardo’s theory of comparative advantage is that it is a simple model that includes many
former Communist countries.
unrealistic assumptions.
data errors.
outdated products.
unrealistic assumptions.
When a government intervenes to achieve a surplus in the nation’s balance of trade, this action is consistent with the main tenet of ______.
free trade
mercantilism
an open economy
expansionism
mercantilism
When discussing constant returns to specialization, it is realistic to assume that the units of resources required to produce one unit will _____ no matter where a country is on the production possibilities frontier.
increase gradually
remain the same
diminish rapidly
remain the same
Heckscher and Ohlin identified differences in national factor endowments as the root of ______.
deregulation
absolute advantage
comparative advantage
entrepreneurship
comparative advantage
Portugal can produce wine and cloth with less labor than England. But, given all factors of production, England can produce cloth relatively better than Portugal. According to Ricardo’s theory of comparative advantage, it make sense for England to
export cloth and import wine from Portugal.
export both cloth and wine to Portugal.
import both cloth and wine from Portugal.
import cloth from Portugal, but export wine.
export cloth and import wine from Portugal.
According to the Heckscher-Ohlin theory, it is expected that the United States would export capital-intensive goods and import labor-intensive goods, but the opposite was found to be true. This became known as the
Leontief paradox.
Ricardo paradox.
Porter paradox.
Greenspan paradox.
Leontief paradox.
Ricardo’s theory encourages ______ because it suggests that trade is a positive-sum game where all participating countries realize economic gains.
a planned economy
restricted trade
free trade
isolationism
free trade
Raymond Vernon’s product life-cycle theory was based on the observation that for most of the 1900s the majority of the world’s new products were developed in
the United States.
the United Kingdom.
Japan.
Germany.
the United States.
Ricardo’s theory of comparative advantage assumes ______ returns to scale.
increasing
constant
evolving
decreasing
constant
How does the product-life cycle theory relate to the modern world?
Its relevance in the modern world seems limited as more and more products are introduced outside of the United States.
It is more relevant today than when it was introduced as the majority of new products are developed in the United States.
While it is becoming more relevant, the main tenet of mercantilism no longer plays a role in the United States.
Its relevance in the modern world seems limited as more and more products are introduced outside of the United States.
Which form of returns to specialization means that the units of resources required to produce one unit are assumed to remain the same no matter where a country is on the production possibilities frontier?
Absolute
Diminishing
Increasing
Constant
Constant
According to Heckscher and Ohlin, each country has certain ______, such as land, labor, and capital.
wealth sources
factor endowments
economic principles
output endowments
factor endowments
The reductions in the cost of a single unit that result from large scale output of that product are called
purchasing parity.
factor endowments.
economies of scale.
mass customization.
economies of scale.
Who raised questions about the Heckscher-Ohlin theory?
Vernon
Sachs
Welch
Leontief
Leontief
Based on new trade theory, as the size of markets increases, companies may be able to attain better ______.
tariff barriers
economies of scale
factor endowments
product life-cycles
economies of scale
Which theory was based on the observation that early in the development of a commodity, all the parts and labor come from the area in which it was invented?
Comparative advantage theory
Absolute advantage theory
New trade theory
Product life-cycle
Product life-cycle
Which of these companies is demonstrating a first-mover advantage?
Top Hat Tuxedo plans to open twelve new retail stores next year and place them in shopping malls near similar formal wear businesses.
Nelson Concrete recently opened a production plant in the Middle East after learning there were no competitive firms in that area.
Jet-Way Now is a small airline that plans to compete with the major airlines since air travel numbers are increasing.
Black Gold Oil needs to open a second refinery because its original refinery has outdated equipment.
Nelson Concrete recently opened a production plant in the Middle East after learning there were no competitive firms in that area.
The ethnocentric view that most new products are developed and introduced in the United States is a key weakness in the ______ theory.
comparative advantage
Heckscher-Ohlin
product life-cycle
new trade
product life-cycle
According to new trade theory, the first mover’s ability to benefit from increasing returns ______ for other firms.
fosters the competitive spirit
accelerates the demand
creates a barrier to entry
creates a barrier to entry
When discussing constant returns to specialization, it is realistic to assume that the units of resources required to produce one unit will _____ no matter where a country is on the production possibilities frontier.
diminish rapidly
remain the same
increase gradually
remain the same
What are three sources of economies of scale?
The ability of large-volume producers to use more specialized equipment
The opportunity for product customization and narrow product lines
The ability of large-volume producers to use more effective, specialized employees
Spreading costs over a smaller volume of product
Spreading fixed costs over a larger volume
The ability of large-volume producers to use more specialized equipment
The ability of large-volume producers to use more effective, specialized employees
Spreading fixed costs over a larger volume
Porter developed ______ broad attributes of a nation that shape the environment in which local firms compete.
five
two
six
four
four
Which two simultaneous outcomes are implied by new trade theory?
A nation can lower the cost of the goods being offered to consumers.
A nation can increase the variety of goods available to consumers.
A nation can allow other nations to compete in most product categories without incurring losses.
A nation can support more than one producer of goods.
A nation can lower the cost of the goods being offered to consumers.
A nation can increase the variety of goods available to consumers.
To gain competitive advantage, it is important to encourage companies to invest in __________________________
factors of production. (Choose between advanced or basic.)
advanced
Jameson Machinery Inc. wants to release their newest equipment in the South American market before other companies in order to establish the Jameson brand. In other words, the company wants to benefit from ____.
first-mover advantages
economies of scale
factor endowments
pioneering costs
first-mover advantages
What did Porter call the concept where firms are typically most sensitive to the needs of their closest customers?
Demand conditions
First-mover advantage
Supporting industries
Factor endowments
Demand conditions
Which trade theory has these implications: (1) nations may benefit from trade even when they do not differ in resource endowments or technology; and (2) specialization allows for scale economies and lower production costs?
Mercantilism
Fair trade
New trade
Ricardo
New trade
Which aspect of Porter’s Diamond is best evidenced by the U.S. semiconductor industry providing the basis for U.S. success in the production of personal computers?
Demand conditions
Related and supporting industries
Factor endowments
Firm strategy, structure, and rivalry
Related and supporting industries
Which form of returns to specialization means that the units of resources required to produce one unit are assumed to remain the same no matter where a country is on the production possibilities frontier?
Increasing
Absolute
Diminishing
Constant
Constant
In Porter’s model of the determinants of national competitive advantage, he noted many U.S. firms were led by people with ______ backgrounds, likely leading to U.S. firms’ lack of attention to improving manufacturing process and product design.
marketing
operations
finance
engineering
finance
