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81) Porter contends that government
A) can influence the domestic demand conditions and the domestic rivalry components of the
diamond, but not the other two components.
B) can influence each of the four components of the diamond either positively or negatively.
C) can influence the factor endowments and the related and supporting industries components of
the diamond, but not the other two components.
D) has little or no effect on the four components that shape the environment in which firms
compete.
82) Which of the following is true regarding Porter's diamond theory?
A) It predicts that countries should be importing products from those industries where all four
components of the diamond are favorable.
B) Porter's theory has been proven to be an accurate predictor of the importing and exporting
patterns of countries.
C) It predicts that countries should be exporting products from those industries where all four
components of the diamond are those areas where the components are not favorable.
D) Porter's theory has not been subjected to detailed empirical testing, so we do not know if it is
correct.
83) The theories of international trade claim that promoting free trade is generally in the best
interests of
A) a country, although it may not always be in the best interest of an individual firm.
B) all multinational corporations.
C) an individual firm, although it may not always be in the best interest of a country.
D) the World Trade Organization.
84) Explain the concept of free trade.
85) How does the Heckscher-Ohlin theory explain international trade?
86) Explain how the theories of trade differ in terms of their support to governmental intervention.
87) Explain Smith's theory of absolute advantage.
88) Explain Ricardo's theory of comparative advantage.
89) Identify a major disadvantage of the product life-cycle theory.
90) Explain how the rivalry within an industry affects international competence.
91) What are the four attributes that are discussed in Porter's diamond?
92) What are the assumptions that we make when we discuss a simple Ricardian model to support
free trade?
93) Briefly differentiate between constant returns to specialization and diminishing returns to
specialization.
94) Explain how the principle of diminishing returns weakens the Ricardian model.
95) Explain the dynamic gains that are generated by opening an economy to trade.
96) Explain Paul Samuelson's critique.
97) Do you think a new trade theorist would stress the role of luck and entrepreneurship? Explain.
