Deck 5: Theories of International Trade and Investment

Question 1

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

Answer 1

C

Question 2

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.

Answer 2

B

Question 3

Which of the following is true with regard to mercantilism?

A)Mercantilism does not harm consumers.
B)Mercantilism helps curb inflation.
C)Mercantilism is superior to free trade.
D)Mercantilism tends to harm firms that import.

Answer 3

D

Question 4

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 5

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 6

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 7

Which of the following comparative advantages is acquired over time?

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

Question 8

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.

Question 9

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 10

________ 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 11

Which of the following is true about absolute advantage principle?

A)According to this approach, enhanced product specialization adversely affects communal welfare.
B)This approach allows the nation to consume more than it otherwise could, generally at lower cost.
C)This is the only approach that can be used to explain why nations attempt to run a trade surplus.
D)This approach explains the process by which firms acquire and retain one or more value-chain activities inside the firm.

Question 12

The ________ states that it can be beneficial for two countries to trade without barriers as long as one is relatively more efficient at producing goods or services needed by the other.

A)monopolistic advantage theory
B)internalization theory
C)absolute advantage principle
D)comparative advantage principle

Question 13

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 14

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 15

The Gulf nations benefit economically from rich petroleum reserves in the region. This is an example of ________.

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

Question 16

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 17

________ 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 18

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 19

The ________ rests on the premise that countries differ in the type and quantity of production factors they possess.

A)cost-advantage theory
B)competitive advantage theory
C)factor proportions theory
D)comparative advantage theory

Question 20

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 21

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

Question 22

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 23

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

Question 24

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

Question 25

________ argues that increasing returns to scale, especially economies of scale, are important for superior international performance in industries that succeed best as their production volume increases.

A)Comparative theory
B)Competitive theory
C)Cost-advantage theory
D)New trade theory

Question 26

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

Question 27

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 28

David Ricardo advanced the absolute advantage theory.

Question 29

According to the factor proportions theory, differences in the quantity of factors of production held by countries do not determine international trade patterns.

Question 30

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 31

Distinguish between comparative and competitive advantages. Provide examples.

Question 32

In the ________ phase of international product life cycle theory, knowledge about how to produce the product is widespread and manufacturing becomes straightforward.

A)temporary monopoly
B)introduction
C)standardization
D)maturity

Question 33

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

Question 34

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

Question 35

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

Question 36

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 37

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 38

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 39

Countries cannot create or acquire comparative advantage.

Question 40

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 41

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 42

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 43

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 44

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 45

According to Porter, the competitive advantage of a nation depends on the collective competitive advantages of the nation's firms.

Question 46

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 47

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

Question 48

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 49

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

Question 50

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 51

The innovativeness of a nation's firms has no significant impact on the national competitive advantage.

Question 52

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 53

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 54

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

Question 55

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 56

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

Question 57

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 58

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

Question 59

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 60

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 61

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 62

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 63

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 64

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

Question 65

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 66

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

Question 67

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

Question 68

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 69

________ 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 70

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 71

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 72

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

Question 73

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 74

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

Question 75

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 76

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

Question 77

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 78

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 79

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 80

________ 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