Deck 6: International Trade and Factor-Mobility Theory

Question 1

The trade theory that says a country should export more than it imports is known as ________.

A)mercantilism
B)absolute advantage
C)comparative advantage
D)import substitution

Answer 1

A

Question 2

The comparative advantage theory holds that a country will gain from trade ________.

A)when it exports products for which it has an acquired advantage and imports products for which another country has a natural advantage
B)if it exports goods it can produce more efficiently than other countries and imports goods other countries can produce more efficiently than it can
C)even though it can produce all goods more efficiently than other countries
D)if it exports products using its abundant production factors in exchange for products for which it has scarce production factors

Answer 2

C

Question 3

Which of the following is most likely a basis for a Jamaican natural advantage in international trade?

A)product technology developed by a Jamaican company
B)high literacy rates among Jamaican citizens
C)the use of English as the primary language
D)beautiful beaches and climate

Answer 3

D

Question 4

Costa Rica's recent economic transformation to depend more on high-tech manufacturing is largely due to its adoption of ________ trade policy.

A)an import substitution
B)a comparative advantage
C)a factor proportions
D)a strategic

Question 5

Assume the following conditions: In the United States it takes 4 units of resources to produce a ton of potatoes and 5 to produce a ton of coal.In Canada it takes 6 units of resources to produce a ton of potatoes and 10 to produce a ton of coal.According to the theory of comparative advantage, ________.

A)there would be no basis for trade
B)the United States should import potatoes from Canada and export coal to Canada
C)the United States should export both potatoes and coal to Canada
D)the United States should export potatoes to Canada and import coal from Canada

Question 6

What is the country similarity theory? According to this theory, what factors affect trade patterns?

Question 7

As a leading exporter of luxury automobiles, Germany has built a strong reputation in engineering.Germany's trade most likely relies on a(n)________.

A)outward immigration restriction
B)natural advantage
C)acquired advantage
D)neomercantilist policy

Question 8

The free trade theories of specialization primarily assume that ________.

A)specialization leads to unemployment, but production gains compensate for job losses
B)resources can move internationally from the production of one good to another
C)resources can move domestically from the production of one good to another
D)countries have objectives other than economic efficiency

Question 9

Which of the following assumptions was made in the original theories of absolute and comparative advantage?

A)Specialized labor seeks efficiency.
B)Labor resources are fully employed.
C)Countries pursue objectives other than economic efficiency.
D)Production networks enable countries to concentrate on particular functions.

Question 10

Neomercantilism describes the approach of countries that try to run a favorable balance of trade to ________.

A)build up gold reserves
B)achieve a social or political objective
C)lower their rates of inflation
D)buy raw materials more cheaply

Question 11

According to Adam Smith's theory of absolute advantage, specialization allows countries to increase their efficiency for each of the following reasons EXCEPT ________.

A)labor could become more skilled by repeating the same tasks
B)transportation costs could be lowered by producing closer to markets
C)labor would not lose time in switching from the production of one kind of product to another
D)higher production would provide incentives for the development of more effective working methods

Question 12

Countries enact trade policies based on trade theories, which, in turn, affect companies' optimum production locations.

Question 13

What is the theory of country size? How is country size determined? How does country size affect national trade patterns?

Question 14

Comparative advantage differs from absolute advantage in that the former ________, whereas the latter ________.

A)holds that countries should specialize their production; does not
B)holds that trade should be kept as nearly in balance as possible; says countries should seek a favorable balance of trade
C)bases trade on natural advantages; bases trade on acquired advantage
D)states that there is a basis of trade even if one country can produce everything more efficiently than another country; does not deal with this issue

Question 15

Factor mobility refers to the movement of which of the following combinations?

A)capital, technology and people
B)currency, profits and raw materials
C)labor, capital and management
D)trade, profits and materials

Question 16

Which of the following undesirable results will most likely occur for a country running a favorable balance of trade?

A)higher unemployment
B)higher domestic interest rates
C)fewer funds to invest abroad
D)granting credit that may be risky

Question 17

Under mercantilism, governments sought to influence trade by ________.

A)establishing bilateral trading agreements with other countries
B)limiting exports
C)limiting imports and subsidizing exports
D)encouraging the development of manufacturing in their colonies

Question 18

Understanding trade theories helps companies know if they will need to compete against goods and services produced abroad.

Question 19

Assume the following conditions: In the United States it takes 5 units of resources to produce a ton of potatoes and 10 to produce a ton of coal.In Canada it takes 6 units of resources to produce a ton of potatoes and 9 to produce a ton of coal.According to the theory of absolute advantage, ________.

A)the United States should export potatoes to Canada and import coal from Canada
B)the United States should export coal to Canada and import potatoes from Canada
C)the United States should import both potatoes and coal from Canada, while concentrating on production of more valuable goods
D)there would be no basis for trade

Question 20

According to the theory of comparative advantage, a country gains from foreign trade even though it may have an absolute advantage in the production of all products because ________.

A)the country will forgo producing its less efficient output in order to produce its more efficient output
B)workers become more efficient through specialization
C)economies of scale will reduce cost
D)there will be more incentive to develop cost-saving technologies

Question 21

Countries with varied climates and varied natural resources generally ________ than countries with less varied climates and natural resources.

A)have lower per capita incomes
B)depend less heavily on trade
C)have more ethnic subgroups
D)have higher endowments of capital relative to labor

Question 22

Under mercantilism, colonial powers sought to run trade surpluses with their colonies by preventing the colonies from manufacturing.

Question 23

Nontradable goods are BEST defined as ________.

A)products and services for which exporting costs are excessive
B)factors of production that exceed safety regulations
C)goods used for national defense
D)products that comprise a portion of the inputs for finished products

Question 24

Tests to substantiate the factor proportions theory have had mixed results most likely because ________.

A)labor migration quickly outdates any studies
B)most countries have a favorable balance of trade
C)labor skills and education are not homogeneous
D)large and small countries have different trade policies

Question 25

The trade theory that says countries should concentrate production on those products using their most abundant production factors is the ________.

A)factor proportions theory
B)theory of comparative advantage
C)theory of absolute advantage
D)theory of nontradable goods

Question 26

In a short essay, discuss the theory of mercantilism, and discuss favorable and unfavorable balances of trade as they apply to international business.

Question 27

The free trade theories of specialization assume that countries will be better off even though some people are unemployed.

Question 28

Under the theory of absolute advantage, countries hold two types of advantages-acquired advantages and technological advantages.

Question 29

What is the difference between the free trade theories of absolute advantage and comparative advantage? How can free trade improve global efficiency?

Question 30

An objective of neomercantilism is to build up gold reserves.

Question 31

Comparative advantage theory holds that gains from trade are the result of capital movements from countries with low interest rates to countries with higher interest rates.

Question 32

The comparative advantage theory holds that a country will gain from trade even though it can produce all goods more efficiently than other countries.

Question 33

Countries with large land areas are generally less dependent on trade than countries with small land areas because of ________.

A)highly restricted economic scales
B)self-sufficiency with natural resources
C)higher transportation costs related to foreign trade
D)the development of unique products that have a limited demand

Question 34

In a short essay, discuss the theory of absolute advantage and the reasons a country's efficiency improves based on this theory.

Question 35

El Salvador has a population density of about 620 people per square mile and neighboring Honduras a population density of about 115 people per square mile.According to the factor proportions theory of trade, one would expect El Salvador's exports to Honduras to ________.

A)have a lower labor-to-land ratio than its imports from Honduras
B)have a higher labor-to-land ratio than its imports from Honduras
C)embody more capital per square mile than its imports from Honduras
D)embody more capital per worker than its imports from Honduras

Question 36

The theory of absolute advantage holds that there are advantages to trade because different countries can produce different goods more efficiently than others.

Question 37

Eight of the top 10 exporting and importing countries are countries with ________.

A)cheap labor forces
B)small land masses
C)natural advantages
D)developed economies

Question 38

Most world trade takes place ________.

A)between developed countries and developing countries
B)among developed countries
C)among developing countries
D)between raw material exporters and manufacturing exporters

Question 39

Which one of the following is a primary assumption of the free trade theories of specialization?

A)Domestic resources are unable to move from the production of one good to another.
B)Countries have objectives other than economic efficiency.
C)Specialization triggers unemployment.
D)Resources are immobile internationally.

Question 40

What assumptions underlie the theories of specialization in international trade? What are the limitations of these assumptions?

Question 41

Which of the following statements is most likely FALSE?

A)Developing countries trade mainly with developed countries.
B)Developed countries trade mainly with other developed countries.
C)Cultural similarity among countries enhances their trade with each other.
D)The greater the geographic distance between countries, the greater the trade.

Question 42

Countries with large land areas are generally less dependent on trade than countries with small land areas.

Question 43

According to the PLC theory, at an early stage of a product's life cycle the product is likely to be made in a more ________ method than in its later stages.

A)capital-intensive
B)labor-intensive
C)land-intensive
D)low-cost

Question 44

According to the PLC theory, what is the most likely reason that companies manufacture products in locations with high labor rates during the introductory stage of a product's life cycle?

A)Doing so allows use of long production runs using capital-intensive methods.
B)Many consumers are willing to pay high costs for the newest products.
C)Transportation costs are reduced by focusing on markets in developed countries.
D)Import restrictions prevent production in countries other than the ones making product innovations.

Question 45

The factor proportions theory holds that countries should improve their competitiveness by importing capital and skilled employees from abroad.

Question 46

All countries face the questions of what, how much, and with whom they should import and export.How they answer these questions primarily affects whether ________.

A)nontradable goods become tradable
B)products go through a lengthy life cycle
C)companies adhere to laissez-faire export policies
D)a company's present production location will be competitive

Question 47

Most world trade takes place between raw material exporters and manufacturing exporters.

Question 48

Why is the United States both an exporter and importer of such products as vehicles and passenger aircraft?

A)Buyers procure similar products for replacement parts.
B)Transportation costs and cultural differences limit exporters.
C)Companies differentiate products to appeal to different consumers.
D)Bilateral trading agreements require this interchange for a number of products.

Question 49

All of the following are features of the diamond of national advantage theory EXCEPT ________.

A)firm strategy, structure, and rivalry
B)strategic trade policy regulations
C)related and supporting industries
D)demand conditions

Question 50

According to the PLC theory, developing countries have their best production advantage in which stage of the product life cycle?

A)growth
B)maturity
C)decline
D)introduction

Question 51

According to the product life cycle (PLC)theory of trade, most new products are produced in countries where wage rates are low.

Question 52

Contrary to the product life cycle theory, there has been an increased tendency for companies to ________.

A)sell products only in their home markets throughout the cycle
B)produce and sell products in countries where counterfeiting is low
C)introduce new products simultaneously in domestic and foreign markets
D)sell new products in developing countries before expanding into developed countries

Question 53

The factor proportions theory holds that countries should concentrate production on those products that use their most abundant production factors.

Question 54

According to the product life cycle (PLC)theory, production and sales are primarily domestic in the introductory stage because ________.

A)businesses need quick market feedback
B)tariff reductions remain under negotiation
C)international transport costs are too high
D)international patents have not been approved

Question 55

Which of the hypothetical new products, if successful, would most likely diffuse its production and sales according to the product life cycle theory?

A)a Ferrari sports car selling for $200,000 to a niche, upper-end market
B)a Sony television that receives global transmissions without a satellite dish or cable connection, introduced at a high price but targeted eventually for sale to a mass market
C)a new Diet Coca-Cola soft drink flavored with cranberries
D)a Kyocera plastic chip carrier, which is expected to be quickly obsolete because of innovations

Question 56

Many products' location of production will shift internationally as the products go through their life cycle.

Question 57

According to the diamond of national advantage theory, the domestic existence of all four conditions best explains ________.

A)the essence of an industry's development
B)the position of a product in its life cycle
C)where globally competitive firms develop and sustain themselves
D)why countries rely on abundant factor endowments

Question 58

One way that developed countries specialize in order to gain acquired advantages is by ________.

A)allocating research efforts more heavily in specific sectors
B)emphasizing production in natural resource endowments
C)restricting imports to those in the service sector
D)subsidizing the transport of exports

Question 59

All of the following are types of products that are usually exceptions to what is predicted by the product life cycle theory EXCEPT ________.

A)trendy clothing
B)luxury items
C)differentiated products
D)consumer durables

Question 60

The diamond of national advantage would be best used to answer which of the following questions?

A)How do developed countries prevent the trade of blood diamonds?
B)How can developing countries create a significant trade surplus?
C)Why do specialized competitive advantages differ among countries?
D)Why do most innovative products originate in developed countries?

Question 61

All the following are reasons for the lower international mobility of people than capital EXCEPT ________.

A)the differences in economic return between countries are lower for people than for capital.
B)it is more expensive to move people than capital.
C)people may have to learn another language and adapt to a different culture.
D)international capital transfers have less cumbersome legal restrictions than international movements of people.

Question 62

Which of the following statements most likely undermines the arguments for a strategic trade policy?

A)Entrepreneurs, rather than governments, should take business risks.
B)Developed countries have production lead time over developing countries.
C)If big companies can figure out what products to develop, so can governments.
D)Governments have limited resources, so industries with greater growth potential should be targeted.

Question 63

Which of the following BEST supports a nation's decision to implement a strategic trade (industrial)policy?

A)The policies have usually resulted in big payoffs.
B)Governments, rather than entrepreneurs, should take the risks of developing new industries.
C)Consumer needs would otherwise not be met.
D)Government actions should target industries that are believed to give the country its best export advantages.

Question 64

From an economic standpoint, why do production factors move from one country to another? How does factor movement affect international trade?

Question 65

Labor and capital mobility are intertwined because ________.

A)illegal workers sometimes pay large sums to people who smuggle them into another country
B)people cannot emigrate to another country unless they bring capital with them
C)companies receive tax benefits for hiring immigrants
D)immigrants bring an investment in human capital with them

Question 66

All of the following are examples of international labor mobility EXCEPT ________.

A)a manager assigned by an MNE to work short-term abroad
B)a refugee who takes up employment in another country
C)a college student on a study abroad program
D)an illegal immigrant working in another country

Question 67

Which of the following is the LEAST likely result of outward migration?

A)Emigrants remit capital used to start businesses in their home countries.
B)Nations receive more foreign aid.
C)Nations lose highly educated and productive workers.
D)Countries receive remittances from emigrants.

Question 68

Companies and individuals transfer capital internationally primarily because of expectations of earning higher returns.

Question 69

Brain drain is a term that describes ________.

A)a country's loss of educated, productive people
B)a nation's shift from an emerging market to a developed economy
C)the exportation of high-technology products in exchange for low-technology products
D)the unauthorized use of patents, copyrights, and technology by the counterfeiting industry

Question 70

The most internationally mobile factor of production is ________.

A)labor
B)management
C)long-term capital
D)short-term capital

Question 71

Between now and 2050, countries undergoing a simultaneous population reduction and an increased percentage of retirees in the population most likely will need more ________.

A)imports
B)immigrants
C)domestic products
D)favorable balances of trade

Question 72

A governmental strategic trade (industrial)policy is one that ________.

A)lessens dependence on foreign military goods
B)seeks reciprocal free trade agreements between developed and developing countries
C)targets the resources needed to support industries that seem to fit best with the country's advantages
D)limits imports to encourage domestic production of what would otherwise be imported

Question 73

The term brain drain describes the export of high-technology products in exchange for low-technology products.

Question 74

An exception to the PLC theory in terms of production location is often a product with very rapid change in innovation.

Question 75

The international mobility of labor includes workers, students, tourists, and retirees who travel to another country.

Question 76

The four favorable domestic conditions of the diamond of national advantage help to explain how and where globally competitive companies develop and sustain themselves.

Question 77

Country X brings in a large number of unskilled immigrants to meet its labor needs.Which of the following is the LEAST likely to occur in Country X as a result?

A)Country X will develop a long-term class of "have-nots" if the children of immigrants remain unskilled.
B)Country X will need more unskilled people in the future if immigrant children become skilled.
C)The continual supply of unskilled labor will delay the development of labor-saving technology in Country X.
D)Country X will experience a significant transfer of knowledge and a resulting rise in start-up businesses.

Question 78

A strategic trade policy is one that develops industries to lessen dependence on foreign military goods.

Question 79

In this example, assume that both trade and production factors are internationally mobile.Using domestic labor, the labor cost per silicon chip is $.10 in Japan and $.20 in the United States.Using domestic capital, the capital cost per chip is $.10 in Japan and $.05 in the United States.Chip transportation in either direction is $.10.Japanese labor is willing to work in the United States for $.15 per chip including the workers' transport cost.U.S.capital will go to Japan at a cost of $.08 per chip including transaction costs.Which silicon chips will the United States buy?

A)those made in Japan with Japanese labor and capital
B)those made in the United States with U.S. labor and capital
C)those made in Japan with Japanese labor and U.S. capital
D)those made in the United States with Japanese labor and U.S. capital

Question 80

The existence of the four favorable conditions of the diamond of national advantage does not guarantee that an industry will develop in a given locale.