53) Which of the following statements is true of the above scenario?
A) Foodland has a comparative advantage in producing drinks.
B) Drinkland cannot trade with Foodland because trade is too expensive.
C) Drinkland has an absolute advantage in producing drinks.
D) Foodland should stop producing food and just produce drinks.
54) If these two countries were to gain from trading with each other, this would support the
notion that trade is a ________.
A) zero-sum game
B) negative experience
C) positive-sum game
D) form of economic nationalism
55) Which theory suggests that a country should produce and export those goods and services for
which it is relatively more productive than other countries and import those goods and services
for which other countries are relatively more productive?
A) relative advantage
B) comparative advantage
C) absolute advantage
D) specialization of countries
56) The theory of absolute advantage destroys the mercantilist idea that international trade is a
zero-sum game.
57) The theory of absolute advantage measures a nation’s wealth by the standard of living of its
people.
58) Economist David Ricardo developed the theory of comparative advantage.
59) The ability of a nation to produce a good more efficiently than any other nation is called its
absolute advantage.
60) The theories of comparative advantage and absolute advantage assume that countries are
driven only by the maximization of production and consumption.
61) The theories of comparative and absolute advantage assume that specialization in the
production of one particular good results in efficiency gains.
62) Explain how the theory of absolute advantage conflicts with the theory of mercantilism.
63) Explain the theory of comparative advantage using an example, and describe its assumptions
and limitations.
64) 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
65) The focus of factor proportions theory is on the ________.
A) productivity of the production process
B) cost-effectiveness of the production process
C) use of depleting production factors
D) use of expensive production factors
66) Which theory listed below is also called the Heckscher-Ohlin theory?
A) relative advantage
B) comparative advantage
C) factor proportions theory
D) specialization of countries
67) Factor proportions theory differs from the theory of comparative advantage in that the focus
of factor proportions theory is on the ________.
A) usage of the most abundant factors of production, while the focus of the comparative
advantage theory is on the productivity of the production process
B) accumulation of financial wealth in the form of gold by encouraging imports and
discouraging exports, while the comparative advantage theory focuses on usage of the most
abundant factors of production
C) productivity of the production process, while the comparative advantage theory focuses on
maximization of production and consumption
D) minimization of trade surpluses, whereas the comparative advantage theory focuses on the
mercantilist idea that international trade is a zero-sum game
68) Which factors of production did Leontief focus on?
A) land and labor
B) land and technology
C) capital and labor
D) labor and technology
69) Factor proportions theory states that factors in great supply relative to demand will be more
costly than factors in short supply relative to demand.
70) Factor proportions theory states that a country will produce and export those goods that
require resources abundantly available within the country.
71) The factor proportions theory of international trade was developed by Heckscher-Ohlin.
72) How does the theory of comparative advantage differ from the factor proportions theory?
Include a description of the factor proportions theory in your answer.
73) Discuss the factor proportions theory and describe the evidence on this theory.
74) Explain the factor proportions theory and discuss why it is at odds with the new trade theory.
75) The international product life cycle theory was developed by ________.
A) Milton Friedman
B) Karl Marx
C) Michael Porter
D) Raymond Vernon
76) The international product life cycle theory was put forth for ________.
A) service goods
B) abundant resources
C) manufactured goods
D) natural resources
77) 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
78) During which of the following stages of the international product life cycle theory does high
purchasing power and buyer demand in an industrialized nation encourage a company to design
and introduce a product concept?
A) product decline stage
B) new product stage
C) maturing product stage
D) standardized product stage
79) During which stage of the international product life cycle theory does demand rise and
remain sustained for a fairly lengthy period of time?
A) product decline stage
B) new product stage
C) maturing product stage
D) standardized product stage
80) In which stage of the international product life cycle does the innovating firm’s country
become a net importer of the product?
A) new product stage
B) maturing product stage
C) standardized product stage
D) never
81) In the ________ of the international product life cycle, competition from other companies
selling similar products pressures companies to lower prices in order to maintain sales levels.
A) product decline stage
B) new product stage
C) maturing product stage
D) standardized product stage
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Copyright © 2019 Pearson Education, Inc.
Scenario: Better Mousetrap Inc.
Better Mousetrap Inc. is a manufacturing company that sells pest control products. Recently the
company launched an innovative mousetrap with a unique design that has been selling well in
the U.S. market. Senior Vice President Marc Wallace, even recommended expanding sales
overseas in order to increase company revenues.
82) Wallace’s executive team reviews the stages of the international product life cycle to
understand better what to expect when the product is sold overseas. Since there is virtually no
export market for the product at present, the product is most likely in which of the following
stages of the international product life cycle?
A) maturing product stage
B) new product stage
C) product decline stage
D) standardized product stage
83) Wallace expects that markets abroad will soon become fully aware of the existence of the
product and its benefits. Which of the following life cycle stages will the product be a part of
during that period?
A) maturing product stage
B) product decline stage
C) standardized product stage
D) new product stage
84) Eventually, Wallace expects that domestic production of the mousetrap will cease altogether.
This would happen in the ________ stage of the product life cycle.
A) new product
B) maturing product
C) adapted product
D) standardized product
85) According to the international product life cycle theory, the innovating firm’s country is
primarily an exporter of the product in all three stages.
86) Discuss the limitations of the international product life cycle theory. How well does the
theory explain current trade patterns?
87) Explain how both the international product life cycle theory and the new trade theory
ultimately result in lower priced goods. Include a definition of “first mover advantage” in your
answer.
88) Which of the following is an argument offered by the new trade theory?
A) It is in line with the factor proportions theory.
B) There are gains to be made from specialization and increasing economies of scale.
C) The companies first to market forgo the opportunities to create barriers to entry.
D) Market forces alone play a role in assisting the home companies in a country.
89) 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
90) Chuck is convinced that his golf equipment will sell itself. But he is preparing a special
presentation for Asian customers because he wants to make a good first impression. As an expert
in culture of the Pacific Rim countries, which of the following would be your most likely advice
to Chuck?
A) Be sure to have a tight legal contract ready, to avoid product piracy problems.
B) Aggressive salesmanship is unlikely to work in Pacific Rim countries.
C) Have plenty of English-language business cards to pass around because most Asians know
English and like the language.
D) Avoid the confusion introduced by third-party contacts.
91) Chuck believes that his business has grown because of his personal involvement in every
step of the way. What advice do you offer Chuck as he continues to expand his business in new
Asian markets?
A) Contact distributors directly to avoid misunderstandings that can arise when using third-party
contacts.
B) Always stick to corporate settings when doing business to avoid misunderstandings that can
arise in less formal environments.
C) Protect your interests by insisting on detailed contracts from the start.
D) Use proper intermediaries as required in Pacific Rim nations.
32
Copyright © 2019 Pearson Education, Inc.
Scenario: Better Mousetrap Inc.
Better Mousetrap Inc. is a manufacturing company that sells pest control products. Recently the
company launched an innovative mousetrap with a unique design that has been selling well in
the U.S. market. Senior Vice President Marc Wallace, even recommended expanding sales
overseas in order to increase company revenues.
92) Jack has always handled product returns on a case-by-case basis, but he is often unprepared
to deal with too many cases of returns. Which of the following would most likely help Jack
increase his repeat business?
A) continuing with the current system, since it is already well-established
B) accepting returns but crediting customer accounts slowly to discourage future returns
C) planning for returns and giving prompt credits to customers
D) avoiding receiving returns when possible to discourage the loss of revenue
93) National competitive advantage theory states that a nation’s competitiveness in an industry
depends on ________.
A) the capacity of companies to create barriers to entry
B) the capacity of the industry to innovate and upgrade
C) the availability of government subsidies for industry development
D) the availability of cheap factors of production in the nation
94) According to the Porter diamond, which of the following is an example of an advanced
factor?
A) labor forces in the nation
B) technological infrastructure in the nation
C) climate in the nation
D) natural resources in the nation
95) Which element of national competitive advantage theory divides resources into two groups:
basic and advanced?
A) demand conditions
B) factor conditions
C) related and supporting industries
D) firm, strategy, structure, and rivalry
96) An absolute advantage is the economic and strategic advantage gained by being the first
company to enter an industry.
97) National competitive advantage theory states that a nation’s competitiveness in an industry
depends on the capacity of the industry to innovate and upgrade.
98) According to Michael Porter, advanced factors account for the sustained competitive
advantage a country enjoys in a product.
99) Companies that belong to a nation’s internationally competitive industries exist in isolation
from supporting industries.
100) Explain how the national competitive advantage theory supports and builds upon the factor
proportions theory.