Deck 2: International Trade Theory and Application

Question 1

Which of the following theorists state the following: "the more similar the demand preferences for manufactured goods in two countries, the more intensive is the potential trade in manufactures between them"

A) Vernon's
B) Adam's
C) Leontief
D) Linder's

Answer 1

D

Question 2

An example of a country with increased probability for producing technology innovations would be

A) the USA.
B) United Kingdom.
C) Japan.
D) all of the above.

Answer 2

D

Question 3

The product life cycle theory would predict that washing machines will probably be produced mainly in

A) developed countries like the US or UK.
B) developing countries like Mexico or Brazil.
C) lesser developed countries like Kenya or Zimbabwe.
D) none of the above.

Answer 3

B

Question 4

The US is one of the biggest exporters of chopsticks. This is because the US has great resources in terms of forest products. This is an example of:

A) Factor endowments
B) Life cycle theory
C) Technology gaps
D) Information usage

Question 5

The US exports a great many technology products. This is an example of

A) absolute advantage.
B) comparative advantage.
C) competitive advantage.
D) none of the above.

Question 6

An example of an unfair trade practice is

A) EU Government policy prohibiting imports of US beef.
B) EU prohibitions of Latin American bananas.
C) US tariffs on European steel.
D) all of the above.

Question 7

H-O theory, according to the text, is

A) entirely correct.
B) not entirely obsolete.
C) predictive of all trade.
D) false.

Question 8

The biggest importer of automotive products is

A) Hungary.
B) Germany.
C) The United States.
D) Canada.

Question 9

The biggest exporting region for automotive products is

A) Asia.
B) North America.
C) Europe.
D) Africa.

Question 10

New Trade Theory specializes in

A) advantages in promoting international trade.
B) the role of increasing returns in predicting trade.
C) the role of consumer preferences in predicting trade.
D) bribe paying as a predictor of international trade.

Question 11

Which of the following is not an element of Vernon's PLC?

A) smuggling
B) product maturity
C) level of economic development
D) dispersal of innovations

Question 12

A technology gap

A) is a difference in technical capabilities that promotes innovation.
B) a technical difference between industries
C) heightened progress that promotes computer use.
D) all of the above.

Question 13

The concept of comparative advantage indicates that trade exists when

A) there is a desire for trade between companies.
B) there is a relative cost or productivity advantage over other nations producing the same good.
C) the company trading is at a competitive position.
D) there is a lack of trade policy transparency.

Question 14

By definition, trade is ___________ to predict

A) difficult
B) easy
C) unimportant
D) none of the above

Question 15

The more correct purpose of international trade theory is to

A) bore everyone thoroughly.
B) explain, predict and control international trade practice
C) promote academics in their respective professions.
D) explain why at least one company trades with another.

Question 16

When the WTO ruled that the EU violated international law by establishing tariffs and quotas on Latin American bananas, the outcome was

A) that the EU was obligated to change its policies.
B) the EU could no longer import bananas for a specified time
C) the EU was in danger of going to war with Costa Rica.
D) there needed to be extended negotiations to overcome the trade impasse.

Question 17

In terms of overall trade patterns, the fastest growing segment listed i

A) transportation.
B) agriculture.
C) mining products.
D) manufacturing.

Question 18

Movement of production from advanced high-income economies to low-income economies indicates a movement along

A) a usage curve.
B) a learning curve.
C) an economy of scale line.
D) a product life cycle.

Question 19

An example of a factor that will likely perpetuate production is

A) a natural resource like lumber or water power.
B) plentiful labor.
C) a mineral resource like gold or tin.
D) all of the above.

Question 20

Which stage of Product Life Cycle is characterized by production of standardized products with stable techniques and intense price competition?

A) new-product stage
B) growth stage
C) maturity stage
D) decline stage

Question 21

The __________ is associated with the later portion of the export monopoly (A-B) and the start of foreign production ©

A) new-product stage
B) growth stage
C) maturity stage
D) decline stage

Question 22

The __________ is associated with the first production of the product in the innovating country (0-A) and the early portion of the export monopoly stage.

A) new-product stage
B) growth stage
C) maturity stage
D) decline stage

Question 23

__________ theory further developed the imitation-gap approach by suggesting that changes occur in the input requirements of a new product as it becomes established in a market and standardized in production.

A) Vernon's
B) Adam's
C) Leontief
D) Heckscher-Ohlin

Question 24

A _______________ occurs when the relative prices of labor and capital change over time, which changes the relative mix of capital and labor in the production process of a commodity from being capital intensive to labor intensive (or vice versa)

A) factor-intensity reversal
B) demand bias for capital-intensive
C) factor-intensity trade barriers
D) none of the above

Question 25

Based on Leontief Theory, which of the following paradoxes is correct?

A) demand bias for capital-intensive goods and existence of trade barriers
B) importance of natural resources
C) prevalence of factor-intensity reversals
D) all of the above

Question 26

_________________ argues that the exchange of goods between agricultural and industrial countries would result in an increase in the previously relatively low levels of land rents and a drop in the high level of industrial wages in the agricultural country.

A) Absolute Advantage law of factor price equalization
B) Heckscher-Ohlin law of factor price equalization
C) Balance of Trade
D) None of the above

Question 27

In the Heckscher-Ohlin Theorem, _________ function shows the amount of output that can be produced by using a given quantity of capital and labor.

A) revenue
B) trade
C) production
D) labor

Question 28

In today's world economy, comparative advantage must be explained by reference to differences in

A) comparative production cost.
B) production factors.
C) both A and B.
D) none of the above.

Question 29

Which of the following statement is true?

A) A country has a comparative advantage in producing a good if the opportunity cost for producing the good is higher at home than in the other country.
B) A country has a comparative advantage in producing a good if the opportunity cost for producing the good is the same at home and in the other country.
C) A country has a comparative advantage in producing a good if the opportunity cost for producing the good is lower at home than in the other country.
D) None of the above are true.

Question 30

_________ means literally "let make freely" or, more generally, "freedom of enterprise and freedom of commerce."

A) Laissez faire
B) Absolutism
C) Globalization
D) Balance of trade

Question 31

What were the primary goals of Mercantilism Theory?

A) increase the wealth of the nation by acquiring gold
B) to extract trade gains from foreigners through regulations and controls so as to achieve a surplus in the balance of trade through maximizing exports
C) minimizing imports
D) all of the above

Question 32

What is the first international trade theory?

A) mercantilism
B) absolute advantage
C) laissez faire
D) none of the above

Question 33

______________ is the exchange of goods and services across borders.

A) International trade
B) Foreign trade
C) Local trade
D) Only A and B

Question 34

Europe and Asia have a relative advantage in producing steel, primarily because factories in those regions are newer and more efficient. This is an example of

A) relative advantage.
B) comparative advantage.
C) factor endowments.
D) money laundering.

Question 35

Which of the following is an example of absolute advantage?

A) A forest where rare species of flower grows.
B) A country where it is cheaper to produce coffee.
C) A country where products have been produced for a great many years.
D) All of the above are examples.

Question 36

New trade theory postulates that trade is explained and predicted by all except

A) economy of scale.
B) increasing returns.
C) inter/intra industry trade.
D) consumer preferences.

Question 37

The product life cycle theory was introduced by

A) Adam Smith.
B) Michael Porter.
C) John Vernon.
D) Raymond Vernon

Question 38

The context for explaining trade on the basis of human skills was the lack of the following types of human skills

A) scientist, managerial, technical and skilled labor skills
B) light assembly skills.
C) manual dexterity and uniform skills.
D) clerical and stenographical skills.

Question 39

Mercantilists identified national wealth with the size of a nation's reserves of precious metals.

Question 40

Under mercantilism, the government had two goals in foreign economic policy.

Question 41

Mercantilism places great faith in government to improve the well-being of people, using economic controls.

Question 42

International (or foreign) trade is the exchange of goods and services across borders

Question 43

Mercantilists identified national wealth with the size of a nation's reserves of precious metals.

Question 44

According to New Trade Theory, nations trade because of national advantages only.

Question 45

Developed countries trade more than lesser developed ones.

Question 46

High income countries will tend to produce product innovations before lower income countries, according to Vernon.

Question 47

Nations will tend to import goods where there are human and/or technology gaps in the national infrastructure.

Question 48

Nations may produce goods where they have disadvantages due to demand biases or even trade barriers.

Question 49

Government policies, like minimum wage, will tend to throw off production preferences based upon comparative advantage.

Question 50

According to Ricardo, if England has a higher opportunity cost of producing wine over textiles, it should produce wine.

Question 51

According to Adam Smith, if Morocco produces oil related products better than any other country, it should concentrate on that type of production while importing other necessities.

Question 52

Smith argued that all nations would benefit from unregulated, free trade

Question 53

Production function shows the amount of output that can be produced by using a given quantity of capital and labor.

Question 54

Production can be predicted by human skills and technology gaps existing in an economy.

Question 55

The second policy of mercantilists is to extract trade gains from foreigners through regulations and controls so as to achieve a surplus in the balance of trade through maximizing exports.

Question 56

Gold reserves represent a minor portion of national foreign exchange reserves.

Question 57

In the search for explanations of the Leontief Paradoxes, economists explored all of these except

A) demand biases for capital intensive goods.
B) existence of trade barriers.
C) use of minimum wages and welfare programs.
D) factor intensity reversals.

Question 58

H-O explains the link between

A) factor endowments and life cycles.
B) factor endowments and comparative advantage.
C) comparative advantage and competitive advantage.
D) life cycles and natural resources.

Question 59

David Ricardo wrote on ____________ Advantage Theory

A) Absolute
B) Competitive
C) National
D) Comparative

Question 60

Absolute Advantage theory was introduced by

A) David Ricardo
B) Adam Smith
C) Niccolo Machiavelli
D) Raymond Vernon

Question 61

Mercantilism is a doctrine that emerged in the

A) eighteenth century
B) fifteenth century
C) sixteenth century
D) nineteenth

Question 62

The Leontief theories challenge Heckscher-Ohlin's suppositions.

Question 63

Heckscher-Ohlin advocates that nations should produce goods where there are favorable factor endowments.

Question 64

All trade theories explain trade equally well.

Question 65

Nations should produce goods and services where they possess a comparative production cost advantage and favorable production factors.

Question 66

The concept of comparative advantage advocates the analysis of opportunity costs in choosing those goods and services to produce at home.

Question 67

The concept of Absolute Advantage indicates that nations should encourage production in goods and services where those nations possess absolute production advantages over other nations.

Question 68

The concept of mercantilism indicates that maximizing national wealth as expressed by a trade surplus is a desirable thing.

Question 69

Laissez-faire means literally "make freely" or, more generally, "freedom of enterprise and freedom of commerce."

Question 70

Lower comparative production costs, in comparison with other nations, would indicate the need to produce at home.

Question 71

Adam Smith wrote primarily about comparative advantage.

Question 72

Governments use gold reserves to intervene in foreign exchange markets.

Question 73

According to Leontief, government agendas and industrial biases will vary production based upon factor endowments.