Deck 5: Theories of International Trade and Investment

Question 1

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

A) Absolute advantage theory
B) Factor proportions theory
C) Mercantilism
D) Communism.

Answer 1

C

Question 2

Which of the following comparative advantages is acquired over time?

A) labor
B) innovative capacity
C) arable land
D) petroleum reserves

Answer 2

B

Question 3

Which of the following is a typical outcome of free trade?

A) Unrestricted international trade generally increases the overall prosperity of poor countries.
B) Free trade sustains inflation in developing economies.
C) Domestically produced products tend to be cheaper than imported products.
D) Lower-cost imports cause living standards to deteriorate.

Answer 3

A

Question 4

When a country is not able to produce a good more efficiently than other nations, but produces the good more efficiently than it does any other good, it is said to have a(n) ________.

A) absolute advantage
B) resource advantage
C) first-mover advantage
D) comparative advantage

Question 5

Which of the following is an element of the comparative advantage principle?

A) per unit cost advantage
B) relative efficiency of production
C) absolute cost of production
D) negative balance of trade

Question 6

Which of the following is a comparative advantage?

A) close relationships with suppliers
B) superior strategies of an organization
C) entrepreneurial orientation
D) the distinct capabilities of an organization

Question 7

According to the ________, a country benefits by producing only those products in which it has complete advantage or that it can produce using fewer resources than another country.

A) absolute advantage principle
B) comparative advantage principle
C) factor proportions theory
D) international product cycle theory

Question 8

Mercantilism Assignment (Scenario)
The final assignment for Daniel Parilla's international business class involves taking an in-depth look at one of the six classical perspectives that explain the rationale for international trade. Daniel plans to present an argument in favor of mercantilism. Daniel will be attempting to convince his classmates that mercantilism leads to national prosperity. Daniel's peers will be given the opportunity to counter his argument.
Which of the following statements strengthens the proposition that free trade is beneficial to nations?

A) Free trade increases the standard of living by reducing consumer expenses.
B) Imported products tend to be more expensive than domestically produced products.
C) Unrestricted international trade generally lowers the overall prosperity of poor countries.
D) Unrestricted international trade generally boosts inflation in developed economies.

Question 9

________ is the belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports.

A) Positivism
B) Imperialism
C) Communism
D) Mercantilism

Question 10

In recent years, business executives and scholars have used ________ to refer to the advantages possessed by nations and individual firms in international trade and investment.

A) comparative advantage
B) country-specific advantage
C) competitive advantage
D) cost advantage

Question 11

Which of the following is TRUE about the theory of absolute advantage?

A) The theory accepts the mercantilist idea that international trade is a zero-sum game.
B) The theory approves the objective of national governments to acquire wealth through restrictive trade policies.
C) The theory emphasizes that nations should open their doors to trade so that people can obtain more goods at cheaper rates.
D) The theory measures a nation's wealth by how much gold and silver it has on reserve.

Question 12

Nations running a trade surplus ________.

A) rely solely on imports
B) openly discourage export
C) export more goods than they import
D) import more goods than they export

Question 13

Which of the following refers to the ability of a nation to produce a good more efficiently than any other nation?

A) mercantilism
B) comparative advantage
C) absolute advantage
D) neomercantilism

Question 14

________ refers to the superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or deliberate national policies.

A) Comparative advantage
B) Competitive advantage
C) Absolute advantage
D) Industrial cluster

Question 15

Which of the following was the analysis revealed by the "Leontief paradox"?

A) that despite having an abundant pool of labor, the U.S. was exporting capital-intensive goods
B) that the U.S. often exported labor-intensive goods and imported more capital-intensive goods
C) that international trade was simpler than perceived
D) that contrary to the popular belief, new products are more likely to originate in developing economies

Question 16

Mercantilism Assignment (Scenario)
The final assignment for Daniel Parilla's international business class involves taking an in-depth look at one of the six classical perspectives that explain the rationale for international trade. Daniel plans to present an argument in favor of mercantilism. Daniel will be attempting to convince his classmates that mercantilism leads to national prosperity. Daniel's peers will be given the opportunity to counter his argument.
Which of the following, if TRUE, weakens Daniel's proposition?

A) Mercantilism helps curb inflation.
B) Running a trade surplus is beneficial for nations.
C) Restricting imports reduces the choice of products consumers can buy.
D) Mercantilism tends to benefit firms that import.

Question 17

Which of the following is TRUE with regard to firm-level theories?

A) Firm-level theories are classical theories, widely accepted since the sixteenth century.
B) Firm-level explanations address the question: "How can internationalizing firms gain and sustain competitive advantage?"
C) Firm-level explanations address the question: "Why do nations trade?"
D) Firm-level theories do not address the issue of organizational performance.

Question 18

The ________ theory states that countries produce and export goods that require resources available in abundance and import goods that require resources in short supply.

A) new trade
B) absolute advantage
C) international product life cycle
D) factor proportions

Question 19

Competitive advantage refers to the ________.

A) belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports
B) superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or deliberate national policies
C) distinctive assets or competencies of a firm that are difficult for competitors to imitate and are typically derived from specific knowledge, capabilities, skills, or superior strategies
D) relative absence of restrictions to the flow of goods and services between nations

Question 20

Which of the following is TRUE with regard to competitive advantage?

A) Competitive advantages are typically derived from deliberate national policies.
B) A competitive advantage is difficult for competitors to imitate.
C) A competitive advantage is also known as a country-specific advantage.
D) Competitive advantage includes inherited resources, such as arable land.

Question 21

Early trade theories failed to consider the fact that the primary participants in international trade are individual firms that differ in significant ways from each other.

Question 22

According to the absolute advantage principle, national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports.

Question 23

In a short essay, explain the absolute advantage principle. Provide an example of the principle at work.

Question 24

Comparative advantage includes inherited resources, such as labor, climate, arable land, and petroleum reserves.

Question 25

According to the factor proportions theory, differences in the quantity of factors of production held by countries does determine international trade patterns.

Question 26

Which of the following is TRUE with regard to new trade theory?

A) According to new trade theory, achieving economies of scale is not necessary for superior international performance.
B) According to new trade theory, trade is beneficial even for countries that produce only a limited variety of products.
C) New trade theory suggests that export is less beneficial to firms than commonly believed.
D) New trade theory rests solely on the premise that countries differ in the type and quantity of production factors they possess.

Question 27

Free trade produces lower-cost imports that help consumers save money, thereby increasing their living standards.

Question 28

Distinguish between comparative and competitive advantages. Provide examples.

Question 29

Mercantilism benefits consumers because restricting imports increases the choice of domestic products they can buy.

Question 30

Adam Smith attacked the mercantilist view by suggesting that nations benefit most from free trade.

Question 31

The ________ theory states that a country's export eventually becomes its import.

A) competitive advantage
B) factor proportions
C) international product life cycle
D) new trade

Question 32

Modern business executives use the term comparative advantage when referring to the assets of individual firms.

Question 33

In his International Product Life Cycle (IPLC) Theory, Raymond Vernon observed that each product and its manufacturing technologies go through three stages of evolution: introduction, maturity, and ________.

A) decline
B) standardization
C) growth
D) diversification

Question 34

The new trade theory is mainly at odds with the ________ theory.

A) international product life cycle
B) comparative advantage
C) national competitive advantage
D) factor proportions

Question 35

Which of the following is the last stage of evolution in the international product life cycle theory?

A) temporary monopoly
B) standardization
C) decline
D) diversification

Question 36

David Ricardo advanced the comparative advantage theory.

Question 37

Why do nations trade? What would the world be like without international trade?

Question 38

Countries can create or acquire comparative advantage.

Question 39

According to the comparative advantage principle, what matters most is the absolute cost of production of the product and not the relative efficiency with which a country can produce the product.

Question 40

Which of the following is TRUE about the first stage of evolution in the international product life cycle theory?

A) The product enjoys a temporary monopoly at this stage.
B) The product's inventors mass-produce it and seek to export it.
C) The knowledge about how to produce the product is widespread.
D) The competition intensifies at this stage and export orders begin to come from lower-income countries.

Question 41

Entrepreneurial orientation and lack of venture capital are examples of country-specific advantages.

Question 42

Firm strategy, structure, and rivalry of Michael Porter's diamond model refer to the presence of clusters of suppliers, competitors, and complementary firms that excel in particular industries.

Question 43

The innovativeness of a nation's firms has a significant impact on the national competitive advantage.

Question 44

Which of the following statements would be supported by Michael Porter?

A) Economic prosperity depends primarily on inherited national advantages.
B) The presence of strong competitors in a nation hinders national competitive advantage.
C) The presence of highly demanding customers discourages innovation.
D) Rivalry among industry competitors spurs innovation.

Question 45

Kazmia Revitalization (Scenario)
The leaders of Kazmia, a small nation in the southern hemisphere, have called a meeting to discuss ways to encourage foreign firms to invest in Kazmia. The country was once a leader in diamond mining and exports; however, the diamond mines have been depleted. Meanwhile, the standard of living in Kazmia has plummeted to its lowest levels, and young people are fleeing the country. Government leaders must devise a plan to reinvigorate the once prosperous nation.
In the context of national industrial policy, which of the following actions by the government of Kazmia would be the most beneficial for the long-term economic security of the country?

A) increasing the rate of taxation
B) devoting resources to improve national infrastructure
C) discouraging foreign trade
D) discouraging entrepreneurial ventures undertaken by small firms

Question 46

According to Porter, the competitive advantage of a nation depends on the collective comparative advantages of the country.

Question 47

According to Michael Porter, a nation's factor endowments help determine its ________.

A) national competitive advantage
B) demand conditions
C) negative balance of trade
D) comparative advantage

Question 48

What is the connection between the competitive advantage of a firm and the competitive advantage of a nation? In a short essay, explain the nature of the relationship between firms and nations.

Question 49

Kazmia Revitalization (Scenario)
The leaders of Kazmia, a small nation in the southern hemisphere, have called a meeting to discuss ways to encourage foreign firms to invest in Kazmia. The country was once a leader in diamond mining and exports; however, the diamond mines have been depleted. Meanwhile, the standard of living in Kazmia has plummeted to its lowest levels, and young people are fleeing the country. Government leaders must devise a plan to reinvigorate the once prosperous nation.
According to Porter, Kazmia can attain economic prosperity by systematically cultivating new and superior factor endowments through ________.

A) devaluation of the national currency
B) redevelopment of the country's depleted diamond mines
C) proactive national industrial policy
D) the consolidation of national human rights institutions

Question 50

Which of the following is TRUE about national industrial policy?

A) It is designed to create monetary and fiscal policies, such as low-interest loans, that provide a stable supply of capital for company investment needs.
B) It explains why nations attempt to run a trade surplus.
C) It demonstrates that what matters is not the absolute cost of production, but rather the relative efficiency with which two countries can produce the products.
D) It underlines the demerits of rigorous educational systems at the precollege level.

Question 51

Industrial cluster refers to a concentration of businesses, suppliers, and supporting firms in the same industry at a particular geographic location, characterized by a critical mass of human talent, capital, or other factor endowments.

Question 52

The ________ is one of the three key modern perspectives that helps explain the development of national competitive advantage.

A) factor proportions theory
B) absolute advantage principle
C) national industrial policy
D) comparative advantage of nations

Question 53

Which of the following is TRUE about the determinants of national competitive advantage?

A) The presence of strong competitors in a nation adversely affects national competitive advantage.
B) The presence of demanding customers pressures firms to innovate faster and produce better products.
C) Demand conditions describe the nation's position in factors of production, such as labor, natural resources, capital, technology, entrepreneurship, and know-how.
D) Vigorous competitive rivalry among firms lowers national innovativeness.

Question 54

Which of the following is an example of an industrial cluster?

A) the proliferation of counterfeit goods in the global marketspace
B) the elite community of industrialists in the United States
C) high productivity of workers in South Korea
D) the consumer electronics industry in Japan

Question 55

Developing new product designs and new ways of organizing or training are some of the ways in which companies innovate.

Question 56

In today's world, the most important source of national advantage is a country's natural resources.

Question 57

According to Porter's competitive advantage of nations, ________ refer to the nature of home-market demand for specific products and services.

A) firm strategy, structure, and rivalry
B) factor conditions
C) demand conditions
D) demand liabilities

Question 58

In a short essay, explain the factor proportions theory. How does the theory differ from other theories?

Question 59

National industrial policies designed to build new capabilities and encourage the emergence of new industries typically exclude superior educational systems.

Question 60

A proactive economic development plan initiated by the government, often in collaboration with the private sector, that aims to develop or support particular industries within the country is referred to as ________.

A) national endowment policy
B) national fiscal policy
C) national industrial policy
D) policy on national industrial relations

Question 61

Azure Inc. has established a domestic market in clothing and apparel in Thailand and has received orders from abroad. Currently, the firm is investigating the feasibility of undertaking international business. Azure is in the ________ stage of the internationalization process.

A) active involvement
B) experimental involvement
C) pre-export
D) committed involvement

Question 62

In which of the following stages of the internationalization process is a firm preoccupied with business in its home market?

A) domestic focus
B) experimental involvement
C) active involvement
D) pre-export

Question 63

In the internationalization process of a firm, the committed involvement stage follows the active involvement stage.

Question 64

In the ________ stage of the internationalization process, a firm targets numerous foreign markets via various entry modes, especially FDI.

A) pre-export
B) domestic focus
C) experimental involvement
D) committed involvement

Question 65

According to the internationalization process model, internationalization takes place in incremental stages over a short time.

Question 66

According to the internationalization process model, a firm starts out in a pre-export phase and is preoccupied with business in its home market.

Question 67

Born global firms are young companies that internationalize early in their evolution.

Question 68

________ theory suggests that firms using FDI as an internationalization strategy must own or control certain resources and capabilities not easily available to competitors.

A) Factor proportions
B) Monopolistic advantage
C) Internalization
D) Absolute advantage

Question 69

In a short essay, explain why the comparative advantage principle is the foundation and overriding justification for international trade. How does this principle support the competitive advantage of nations theory?

Question 70

Which of the following explains how firms can use FDI to gain and sustain competitive advantage?

A) monopolistic advantage theory
B) new trade theory
C) Leontief paradox
D) factor proportions theory

Question 71

Born globals have emerged in large numbers for two main reasons: globalization and advances in communication and transportation technologies.

Question 72

According to the internationalization process model, a firm advances to the ________ stage by initiating limited international activity, typically in the form of basic exporting.

A) active involvement
B) experimental involvement
C) pre-export
D) domestic focus

Question 73

International entrepreneurship is a new field of scholarly inquiry that is a result of the ________ phenomenon.

A) standardization
B) industrial cluster
C) localization
D) born global

Question 74

Current trends suggest that early internationalizing firms will ________.

A) eliminate MNEs worldwide
B) be unable to sustain the rigors of international trade
C) become even more common in international business
D) significantly dampen entrepreneurial efforts of smaller firms

Question 75

A ________ is one or more resources or capabilities a company possesses that few other firms have.

A) factor endowment
B) country-specific advantage
C) comparative advantage
D) monopolistic advantage

Question 76

Which of the following explains the expansion of born global firms despite the scarcity of financial, human, and tangible resources?

A) Globalization has made doing international business easier than ever before.
B) a concerted effort by developing nations for running a trade surplus
C) product shortages and supply crunch resulting from import restrictions
D) rising inflation in developing economies

Question 77

According to the internationalization process model, a firm is likely to receive unsolicited product orders from abroad before advancing to the pre-export stage.

Question 78

________ describes the total value of assets that MNEs own abroad via their investment activities.

A) Monopolistic advantage
B) FDI stock
C) Absolute advantage
D) Variable capital

Question 79

Born global firms are ________.

A) companies that forgo the domestic focus stage of the internationalization process
B) companies that focus mainly on running a trade surplus
C) young companies that internationalize early in their evolution
D) young companies that focus on the ratio of production costs rather than the absolute cost of production

Question 80

Explain the limitations of early trade theories. Discuss born global firms.