47) The theory of comparative advantage provides strong rationale for supporting the idea of
A) business nationalism.
B) free trade.
C) protectionist trade policies.
D) governmental intervention in trade.
48) Which of the following terms refers to a nation’s position in factors of production, such as
skilled labor or the infrastructure necessary to compete in a given industry?
A) current accounts
B) factor endowments
C) national balance
D) national accounts
49) Identify the theory that predicts that countries will export those goods that make intensive use
of factors that are locally abundant.
A) theory of comparative advantage
B) Ricardo theory
C) new trade theory
D) Heckscher-Ohlin theory
50) Which of the following is the reason most economists prefer Heckscher-Ohlin theory to
Ricardo‘s theory?
A) Heckscher-Ohlin stresses the differences in productivity between nations.
B) Ricardo’s theory considers factor endowments to describe national competitiveness.
C) Heckscher-Ohlin theory makes fewer simplifying assumptions.
D) Ricardo’s theory considers the law of marginal returns.
51) Which of the following statements is true of the Leontief paradox?
A) It shows an anomaly that occurs when a nation has high domestic demand for a product.
B) It explains the relationship between domestic demand and comparative advantage.
C) It disproved Ricardo’s theory of comparative advantage.
D) It raised questions about the validity of the Heckscher-Ohlin theory.
52) Identify the theory that argues that advanced nations have an incentive to develop new
consumer products and hence such nations always tend to create a good or service for the first
time.
A) absolute advantage
B) Ricardo
C) product life-cycle
D) Heckscher-Ohlin
53) Country X, a poor country, invents a revolutionary electronic product. The country markets
this new product in other poor countries to garner large profits. This occurrence is against the idea
of
A) product life-cycle theory.
B) Ricardo’s theory.
C) theory of absolute advantage.
D) theory of comparative advantage.
54) Professor Baldwin believes that early in the life cycle of a U.S. product, demand in other
advanced countries is limited to high-income groups. Consequently, it is seldom worthwhile for
firms in those countries to start producing the product. This view conforms to
A) the product life-cycle theory.
B) Ricardo’s theory.
C) the theory of absolute advantage.
D) the theory of comparative advantage.
55) Which of the following is a major disadvantage of the product life-cycle theory introduced by
Vernon?
A) The theory’s arguments seem ethnocentric and increasingly dated.
B) The theory failed to explain the dominance of developed nations.
C) The theory applies only when a poor nation invents a new product.
D) The theory cannot be used to explain the production of luxury products.
56) Which of the following terms refers to the unit cost reductions associated with large sized
outputs?
A) absolute advantage of production
B) economies of scale
C) constant marginal returns
D) diminishing marginal returns
57) Walmart makes bulk purchases from its vendors and hence it is able to get better deals than its
competitors. This allows Walmart to offer greater discounts to its customers. In this case, Walmart
benefits from
A) first-mover advantage.
B) constant marginal returns.
C) economies of scale.
D) absolute advantage of production.
58) Which of the following is one of the four attributes present in Porter‘s diamond?
A) economies of scale
B) factor endowments
C) structural innovation
D) procedural innovation
59) Which of the following is an example of a basic factor that a nation will possess as proposed by
Porter?
A) communication infrastructure
B) skilled labor
C) natural resources
D) technological knowledge
60) Which of the following factors, according to Porter, is most likely to give a country
competitive advantage over another country?
A) natural resources
B) climate
C) skilled labor
D) demographics
61) Porter argues that a nation’s firms gain competitive advantage if
A) their domestic consumers lack technical awareness.
B) they function in a labor–intensive market.
C) the country has an abundant supply of unskilled workers.
D) their domestic consumers are demanding.
62) If, for example, the textile industry in a nation is characterized by vigorous domestic rivalry,
which of the following observations of this nation’s international competency is most likely to be
true?
A) The nation will have access to such basic factors of the textile industry as natural resources.
B) The nation’s textile firms will have a competitive advantage in international trade.
C) The domestic customers of the textile firms will be less demanding.
D) The nation’s textile industry will lack the advanced factors that are necessary to be
internationally competent.
63) A country’s balance-of-payments accounts keep track of the
A) basic factor endowments and advanced factor endowments that the nation possesses.
B) payments to and receipts from other countries for a particular time period.
C) income taxes paid by domestic firms and the spending on the firms.
D) total value of taxes paid by domestic firms and the spending on the firms.
64) Which of the following balance-of-payment accounts records onetime changes in the stock of
assets?
A) capital account
B) current account
C) financial account
D) monetary account
65) If foreigners suddenly reduced their investments in the United States, what would happen?
A) The value of the dollar on foreign exchange markets would increase.
B) The action would have no impact on the U.S. economy.
C) The foreigners would sell U.S. dollars for another currency.
D) The price of U.S. exports would increase.
66) The main tenet of mercantilism is that it is in a country‘s best interests to
A) maintain a trade deficit.
B) maintain a trade surplus.
C) import goods made from products that it does not have in abundance.
D) import more than it exports.