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27) David Ricardo's theory of comparative advantage explains global trade in terms of the
A) first-mover advantage that certain countries and firms enjoy.
B) geographical differences between various countries.
C) international differences in labor productivity.
D) late-mover advantage that certain countries and firms possess.
28) Which of the following theories emphasizes the interplay between the proportions in which the
factors of production are available in different countries and the proportions in which they are
needed for producing particular goods?
A) Porter's theory
B) Smith's theory
C) Ricardo's theory
D) Heckscher-Ohlin theory
29) ________ stresses that in some cases countries specialize in the production and export of
particular products because the world market can support only a limited number of firms.
A) New trade theory
B) Absolute advantage
C) The world market theory
D) Mercantilism
30) ________ supports the idea that countries should export more than they import.
A) Absolute advantage
B) Mercantilism
C) The world market theory
D) New trade theory
31) The principle of mercantilism views trade as a(n) ________ game.
A) advantage
B) positive-sum
C) zero-sum
D) negative-sum
32) ________ argued that countries should specialize in the production of goods for which they
have an absolute advantage.
A) Paul Krugman
B) David Hume
C) David Ricardo
D) Adam Smith
33) According to Ricardo's theory of comparative advantage, countries should
A) specialize in the production of those goods that it produces most efficiently.
B) specialize in the production of those goods that their competitors in the world market currently
have monopolies on.
C) produce all the products for which they have an absolute advantage.
D) produce only the products for which they have an absolute advantage.
34) The theory of comparative advantage suggests that trade is a ________ game in which all
countries that participate realize economic gains.
A) net-sum
B) positive-sum
C) zero-sum
D) negative-sum
35) The Heckscher-Ohlin theory predicts that countries will
A) export those goods that make intensive use of factors that are locally scarce.
B) export those goods that make intensive use of factors that are locally abundant.
C) import those goods that make intensive use of factors that are locally abundant.
D) import those goods that make intensive use of factors that are available worldwide.
36) The ________ theory argues that the pattern of international trade is determined by differences
in factor endowments.
A) comparative advantage
B) Leontief Paradox
C) Heckscher-Ohlin
D) absolute advantage
37) A capital-intensive country exports products that are capital intensive. Which theory is this an
example of?
A) new trade
B) Leontief paradox
C) Porter's diamond
D) Heckscher-Ohlin
38) The ________ argues that a large proportion of the world's new products had been developed
by U.S. firms.
A) product life-cycle theory
B) Porter's diamond
C) new trade theory
D) Leontief paradox
39) ________ are unit cost reductions associated with a large scale of output.
A) Current account deficits
B) Economies of scale
C) Current account surpluses
D) Factor endowments
40) Which of the following is the main principle of mercantilism?
A) Protection of domestic industries is not essential for a nation's welfare.
B) Government intervention is not required in global trade.
C) Countries should encourage absolute free trade.
D) It is in a country's best interests to maintain a trade surplus.
41) Which of the following is a flaw associated with mercantilism?
A) Mercantilists do not support government intervention in trade.
B) Mercantilists view trade as a zero-sum game.
C) Mercantilists recommend policies to maximize imports.
D) Mercantilists recommend countries maintain a negative trade balance.
42) A country has an absolute advantage in the production of a product when it
A) has the capability to produce the product within its boundaries.
B) is more efficient than any other country in producing it.
C) has the largest domestic demand for the product.
D) has access to the raw materials needed to produce the product.
43) According to Adam Smith, a country should specialize in the production of a good when it has
A) an absolute advantage in the production of the good.
B) a strong domestic demand for the good.
C) the ability to help country increase its national output.
D) the necessary raw materials for production.
44) Country A can produce product X, but it can also buy it at a cheap rate from Country B. Which
of the following courses of action is suitable in this situation according to Adam Smith's theory of
absolute advantage?
A) Country A should import product X from Country B and it should not attempt to produce it at
home.
B) Country A should partly import the product and produce it domestically.
C) Country A should produce more of product X and should attempt to obtain an absolute
advantage for the product.
D) Country A should subsidize the production of product X to obtain an absolute advantage over
Country B.
45) According to Ricardo's theory of comparative advantage, a country should produce goods
A) for which it has access to raw materials.
B) that it produces most efficiently.
C) that have the highest domestic demand.
D) for which it has an absolute advantage.
46) Which of the following is a statement that supports the theory of comparative advantage?
A) International trade is a zero-sum gain where one nation's gain is another's loss.
B) Domestic industries are at risk when a country engages in free trade.
C) A country should maintain a trade surplus to succeed in global trade.
D) Global production is greater with free trade than it is with restricted trade.
