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
Which of the following factors do Porter label as basic factors of production?
Multiple select question.
Skilled labor
Climate
Technology
Natural resources
Climate
Natural resources
Porter states that ______ can influence each of the four components of the diamond through subsidies, education policies, and policies toward capital markets.
big business
government
competition
society
government
Porter states that a company can gain ______ advantage if their home customers are demanding and knowledgeable.
comparative
competitive
absolute
competitive
First-mover advantages are especially important in industries where the global market can profitably support only a limited number of firms.
True false question.
True
False
True
A company _____ benefit from related industries that are internationally competitive and can spill over into the company.
Multiple choice question.
can
cannot
can
According to Michael Porter, there is a strong correlation between _____ and the creation and persistence of competitive advantage in an industry.
supply and demand
domestic rivalry
technological know-how
international monopolies
domestic rivalry
Choose the four national attributes that Porter theorizes shape the environment that local firms compete in.
Factor endowments
Demand conditions
Firm strategy, structure, and rivalry
Trade surpluses and trade imbalances
Related and supporting industries
Exchange rates
Factor endowments
Demand conditions
Firm strategy, structure, and rivalry
Related and supporting industries
Porter argues that achieving international success in a certain industry is a function of factor endowments, domestic demand conditions, related and supported industries, and ______.
government intervention
host-country norms
social hierarchies
domestic rivalry
domestic rivalry
Preempting demand, gaining volume cost advantages, building the brand, and establishing a long-term competitive advantage are associated with
brand equity.
secondary-mover advantages.
segmenting, targeting, and positioning.
first-mover advantages.
first-mover advantages.
Since the international market is significantly larger than the domestic market, exporting is nearly always a way to increase a company’s revenue.
True false question.
True
False
True
What three impediments would make it difficult for some companies to gain knowledge of opportunities available in foreign countries?
Manufacturing
Distance
Logistics
Time
Language
Distance
Time
Language
A ______ is a business tool provided by the U.S. Department of Commerce which provides the name, address, and basic business information of potential distributors in foreign markets.
best prospects list
market meter
business forecast
target group
best prospects list
Sunny Soups has never exported their products before but would like to start. What company can provide Sunny Soups with a full menu of services to handle all aspects of their exporting needs?
ROI
TQM
JIT
EMC
EMC
Which company is taking steps to minimize risk as it enters the export market?
Multiple choice question.
Instead of trying to spread itself too thin by going after 22 foreign markets, Natalie’s company focused on three potential foreign markets.
Rather than hire local personnel to oversee her company’s exports, Jenna’s company decided to keep all personnel in the U.S. office.
Jamie’s company has surpassed all of its export goals to Australia. He has decided to open another plant in the United States to meet increasing demand.
After Robert’s company made its initial successful exports to Chile, it decided to wait for other Chilean companies to request products.
Instead of trying to spread itself too thin by going after 22 foreign markets, Natalie’s company focused on three potential foreign markets.
When a company is able to expand its operations by exporting globally, it can often achieve greater economies of scale which results in ______.
fewer product choices
higher consumer prices
lower unit costs
mass customization
lower unit costs
The CORE diagnostic tool on the globalEDGE website helps a company assesses
Multiple choice question.
its readiness to export a product.
the competition’s product line.
possible foreign export opportunities.
the need to hire additional personnel.
its readiness to export a product.
Phase Two Athletics is located in the United States. The company would like to export to Italy but preliminary meetings with representatives from Italy have proven difficult. The representatives don’t understand the value of the company’s fitness gear because they feel most Italians prefer to exercise at a health club where the gear is provided. What impediment to exporting is Phase Two Athletics facing?
Multiple choice question.
Distance
Time
Language
Culture
Culture
For a small fee, the Department of Commerce provides a company with a market research survey on a product of its choice. This is called a(n) ______.
comparison shopping service
export trade relief
best prospects list
supply and demand chart
comparison shopping service
XYZ Company asked an international trade partner to pay for goods prior to delivery. XYZ Company was not fully aware of the company’s background and wanted to be sure that it got paid. This is an example of why the lack of ______ has resulted in the development of special mechanisms for financing exports and imports.
Multiple choice question.
cynicism
wariness
trust
understanding
trust
What firms are export specialists that act as an export department for their clients?
Multiple choice question.
Export management companies
Confirming houses
Customs brokers
Exporting trading companies
Export management companies
What are two factors that can lead to a lack of trust in an export transaction?
Multiple select question.
Similarity in language and culture
Problems enforcing contractual obligations
Multiple legal avenues to uphold contracts
Distance between the two parties
Problems enforcing contractual obligations
Distance between the two parties
In order to reduce the risks associated with exporting, it makes sense for a company to initially focus on one market.
True false question.
True
False
True
A document issued by a bank at the request of an importer that directs the bank to pay money to the exporter upon presentation of specified documents is called a
Multiple choice question.
letter of credit.
bill of lading.
letter of lading.
bill of exchange.
letter of credit.
Businesses would use the CORE diagnostic tool when making decisions regarding _____.
Multiple choice question.
importing
franchising
exporting
licensing
exporting
An order written by an exporter that instructs an importer to pay a specified amount of money at a specified time is called a _____.
Multiple choice question.
draft
letter of credit
policy
bill of lading
draft
Which document indicates that the carrier has received the merchandise described in the document?
Multiple choice question.
Letter of credit
Time draft
Sight draft
Bill of lading
Bill of lading
Exquisite Jewelery Company, based in New York, isn’t sure it wants to start exporting to Europe. The company is concerned that it won’t be paid unless it receives it upfront and the European companies don’t want to pay until they receive the products. This situation demonstrates how _____ can affect exporting.
Multiple choice question.
government regulations
expropriation
technological know-how
a lack of trust
a lack of trust
After the exporter presents the draft to the bank in a typical international trade transaction, what happens next?
Multiple choice question.
The exporter agrees to fill the order.
The exporter’s bank presents the draft to the importer’s bank.
The importer pays the bank.
The importer’s bank tells the importer that documents have arrived.
The exporter’s bank presents the draft to the importer’s bank.
A letter of credit is issued by a bank after being requested by an _____.
Multiple choice question.
exporter
importer
importer
The Foreign Credit Insurance Association and the _____ are two forms of government-backed assistance in the United States that help finance export programs.
Multiple choice question.
Department of the Treasury
Export-Import Bank
United Nations
Federal Deposit Insurance Corporation
Export-Import Bank
The draft, sometimes called the _____, is used in international commerce to effect payment.
Multiple choice question.
bill of exchange
letter of credit
bill of lading
credit invoice
bill of exchange
Which organization is a wholly owned U.S. government corporation that was set up to provide financing to facilitate exports and imports to support U.S. employment?
Multiple choice question.
The World Bank
The Export-Import Bank
The Federal Reserve
The Foreign Credit Insurance Association
The Export-Import Bank
The ______ is a document issued to the exporter by the common carrier transporting the merchandise and acts as a receipt of goods.
Multiple choice question.
bill of lading
dividend
time draft
letter of credit
bill of lading
Brett’s company is in competition with four other suppliers who are trying to get similar products into France. One way Brett’s company could boost its appeal with the importer would be to forgo a _____ even though it will expose the company to default risk.
Multiple choice question.
letter of credit
loan guarantee
bill of lading
tax allowance
letter of credit
XYZ Company asked an international trade partner to pay for goods prior to delivery. XYZ Company was not fully aware of the company’s background and wanted to be sure that it got paid. This is an example of why the lack of ______ has resulted in the development of special mechanisms for financing exports and imports.
Multiple choice question.
wariness
trust
understanding
cynicism
trust
When conventional means of payment are difficult in an international sale, ______ is an alternative means of structuring the sale and allows for the trade of goods and services.
Multiple choice question.
dumping
arbitrage
licensing
countertrade
countertrade
In a typical international trade transaction, after the importer arranges for a letter of credit, the next step is that the
Multiple choice question.
exporter ships the goods to the importer.
importer’s bank sends a letter of credit to the exporter’s bank.
exporter sells the draft to the importer’s bank.
exporter presents the draft to the importer’s bank.
importer’s bank sends a letter of credit to the exporter’s bank.
Why did many Asian countries turn to countertrade following the 1997 currency crisis?
Multiple choice question.
Because of a lack of hard currency
Because they wanted the expertise of EMCs
To increase their exports
To replace the gold standard
Because of a lack of hard currency
What two sources of assistance does the government provide to U.S. exporters to finance their export programs?
Multiple select question.
Export-Import Bank
FDIC
Department of Treasury
Foreign Credit Insurance Association
Export-Import Bank
Foreign Credit Insurance Association
______ is the direct exchange of goods between two parties without a cash transaction.
Multiple choice question.
Counterpurchase
Barter
Offset
Buyback
Barter
The main reason a company would consider ______ is that it provides a firm with a way to finance its export deal when other methods of financing are not available.
Multiple choice question.
a bill of lading
arbitrage
countertrade
a letter of credit
countertrade
What is a reciprocal form of international trade in which goods or services are exchanged for other goods or services, rather than for hard currency?
Multiple choice question.
Dumping
Credit swap
Countertrade
Arbitrage
Countertrade
Boeing often enters into agreements in which the company has to purchase certain components parts from the country in which it hopes to do business. This arrangement is an example of _____.
Multiple choice question.
forward exchange rates
arbitrage
a letter of credit
countertrade
countertrade
What is considered the most restrictive form of countertrade?
Barter
Counterpurchase
Offset
Switch trading
Barter
International trade in services is reflected in the ________ account of a country’s balance of payments.
capital
normal
primary income
secondary income
current
current
As compared to international trade in goods, barriers to international trade in services are
lower.
about the same.
higher.
usually covered by the same agreements.
significantly lower.
higher.
Barriers to the free flow of trade in services like France’s digital services tax on Google
make it easier for foreign competitors to sell their services.
have little effect on the distribution of services.
eliminate the need for import tariffs.
lower the price of Google’s service for consumers in France.
raise the cost of Google’s service in France.
raise the cost of Google’s service in France.
New Trade Theory would suggest that Boeing has stayed out of head-to-head competition with Airbus in the super large capacity aircraft sector because
Multiple Choice
the Boeing 747 is more fuel efficient.
Boeing already produces the 747.
Airbus was first to market with the Airbus 380 aircraft.
most buyers for the aircraft are located in markets closer to Airbus.
Airbus has better designers.
Airbus was first to market with the Airbus 380 aircraft.
Using your knowledge of New Trade Theory, which statement best explains the advantage Airbus has in the production and export of super large capacity aircraft?
Multiple Choice
Airbus is able to benefit from substantial government subsidies.
Airbus has been able to capture scale economies that make it difficult for later entrants to match.
Boeing’s cost basis is lower, but it lacks the sales force of Airbus.
Competitors are able to match Airbus on price but not cost.
Airbus’s alliance with major airlines effectively shut other manufacturers out of the market.
Airbus has been able to capture scale economies that make it difficult for later entrants to match.
In 2018, the Trump Administration imposed 25 percent tariffs on imports of foreign steel into the United States. Which statement is true?
The Trump Administration is adopting a laissez-faire approach to trade.
The policy is attempting to influence what U.S. citizens and companies buy from foreign countries.
The Trump Administration is following Adam Smith’s philosophy of the invisible hand.
The policy is designed to allow the invisible hand rather than government policy to determine trade flows.
The Trump Administration is pursuing a policy of free trade.
The policy is attempting to influence what U.S. citizens and companies buy from foreign countries.
President Trump claims the 25 percent tariffs on imported steel are necessary to protect U.S. steel jobs. Which is a potential outcome of his policy?
U.S. steel companies will quickly become more efficient as compared to their foreign competitors.
U.S. consumers will pay higher prices for domestic steel than they would for imported steel
Foreign steel companies will see a rise in their exports to the United States.
U.S. steel workers are more efficient as compared to foreign steel makers.
Employment in the U.S. steel industry will rise sharply.
U.S. consumers will pay higher prices for domestic steel than they would for imported steel
A situation in which an economic gain by one country results in an economic loss by another is called a
positive-sum game.
diminishing return.
first-mover advantage.
zero-sum game.
dynamic effect.
zero-sum game.
Based on the information provided in the video, which philosophy best describes Donald Trump’s perspective on trade between nations?
Under Trump, the United States is moving toward unrestricted free trade.
U.S. trade policy under Trump is pro free trade.
Trump has a mercantilist philosophy toward trade.
Trump supports Adam Smith’s theory of absolute advantage.
Trump agrees with David Ricardo’s theory of comparative advantage.
Trump has a mercantilist philosophy toward trade.
As Maine Coast Company exports its lobster to foreign markets, which document acts as a receipt, a contract, and a document of title?
letter of credit
time draft
sight draft
bill of lading
bill of exchange
bill of lading
Universities that actively recruit foreign students
effectively limit the choices for American students.
capitalize on the large revenue and profit potential found in foreign markets.
typically have a poor understanding of the competitive positions in that market.
lack effective distribution systems in their own countries.
may have to negotiate more competitive tuition rates to successfully attract students.
capitalize on the large revenue and profit potential found in foreign markets.
If an American university sends a recruiter to a foreign country to speak with high school students in that country about getting their college education in the United States, the university is taking a(n) __________ approach to exporting.
proactive
reactive
high risk
inventive
ethnocentric
proactive
If the export value of American educational institutions is more than twice that of America’s top agricultural export, and supports 455,000 jobs, we can conclude that
exports of higher education represent an important component of the U.S. economy.
American universities have been recruiting foreign students to the detriment of U.S. students.
U.S. taxpayer dollars are being spent in foreign countries rather than domestically.
exports of higher education are paid for in foreign currencies effectively bypassing EXIM bank requirements.
exports of higher education will continue to grow without export assistance.
exports of higher education represent an important component of the U.S. economy.
The __________ program organized by the Department of Commerce provides representatives who accompany groups of U.S. businesses abroad to meet with qualified agents, distributors, and customers.
Multiple Choice
benchmark
diversification
matchmaker
matchmaker
For U.S. firms, the most comprehensive source of information on export opportunities is
Multiple Choice
the U.S. Department of Commerce.
the Internet.
the international department of the firm’s commercial bank.
the U.S. Department of Commerce.
The increase in the use of barter in Venezuela has been prompted by
the imposition of capital controls.
the looming bond maturation date.
the International Monetary Fund’s demand for debt repayment.
rapidly falling inflation rates.
the collapse of the bolivar.
the collapse of the bolivar.
Why did Venezuela’s Health Minister offer to settle a $5 million bill to a group of pharmaceutical companies in the form of diamonds, gold, and coltan rather than cash?
Multiple Choice
Increasing imports have created a shortage of euros.
The dollar shortage in Venezuela made paying the bill in dollars very difficult.
The drachma is no longer a favored currency.
Prices are almost always more favorable when barter is used rather than cash.
Declining exports have created a surplus of goods.
The dollar shortage in Venezuela made paying the bill in dollars very difficult.
Given what you know about countertrade from your text, along with the information provided in the case above, identify which situation is most likely to be present in Venezuela.
Multiple Choice
increasing levels of countertrade activities involving Venezuelan firms
a shift toward a nonconvertible currency
increases in switch trading, but decreases in buyback arrangements
surplus hard currency reserves
looser capital controls
increasing levels of countertrade activities involving Venezuelan firms
Venezuela’s new reliance on barter as a mechanism for exchange reflects in part
the rapid increase in Venezuela’s GDP.
the newly imposed export limits on Venezuelan firms.
EU Central Bank currency manipulation effects.
the economic impact of the drop in global oil prices.
the general preference for a cashless society.
the economic impact of the drop in global oil prices.
