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Name:
Class:
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chapter 5
Indicate whether the statement is true or false.
1. Monitoring and nurturing the absolute advantage of certain locations can determine the success and failure of a firm’s
exports around the globe.
a.
True
b.
False
2. Resource mobility is not perfect in reality, and there are many resources that cannot easily be moved from one industry
to another.
a.
True
b.
False
3. When discussing the question "Why do nations trade?" we are really asking "Why do governmentsfrom different
nations trade?"
a.
True
b.
False
4. Nations go through the trouble of trading internationally as there must be economic gains from trade.
a.
True
b.
False
5. An exporting country will never voluntarily agree to restrict its exports.
a.
True
b.
False
6. Karla Corp. exports large quantities of goods outside the United States and does not import much. Karla Corp. thus
directly contributes to the U.S. trade surplus.
a.
True
b.
False
7. Trade embargoes are politically motivated trade sanctions against foreign countries to signal displeasure.
a.
True
b.
False
8. A nation that is more efficient than anyone else in the production of any good or service is said to have a comparative
advantage in the production of that good or service.
a.
True
b.
False
9. The strategic trade theory is criticized because many scholars and policy makers are uncomfortable with government
intervention.
a.
True
b.
False
10. Calls for protection are only limited to commodity producers.
a.
True
b.
False
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chapter 5
11. According to the resource-based view, there are economic gains from international trade because some firms in one
nation generate exports that are valuable, unique, and hard to imitate that firms from other nations find it beneficial to
import.
a.
True
b.
False
12. Roc&All Inc. imports large quantities of goods into the United States and does not export much. Roc&All thus
directly contributes to the U.S. trade surplus.
a.
True
b.
False
13. The Wealth of Nationsby Adam Smith, published in 1776, is usually considered the foundation of modern economics.
a.
True
b.
False
14. In order for free trade to continue, it requires constant efforts to demonstrate and advance the gains from such trade.
a.
True
b.
False
15. Tariff barriers include subsidies, import quotas, export restraints, local content requirements, administrative policies,
and antidumping duties.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
16. Which of the following statements is true of the theory of mercantilism?
a.
It suggested that the wealth of the world was flexible.
b.
It proposed the first dynamic theory to account for changes in the patterns of trade over time.
c.
It is also referred to as a modern trade theory.
d.
It is the oldest theory in international trade.
17. China is able to produce wheat relatively less inefficientlythan it is able to produce aircraft. By letting China specialize
in the production of wheat an importing some wheat from China, the United States is able to devote its resources to
aircraft. In this example, the United States is:
a.
utilizing strategic government intervention
b.
gaining first-mover advantage
c.
leveraging absolute advantage
d.
leveraging comparative advantage
18. _____ are rules stipulating that a certain proportion of the value of the goods made in one country must originate from
that country.
a.
Local content requirements
b.
Voluntary export restraints
c.
Import quotas
d.
Subsidies
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chapter 5
19. In the context of the product life cycle theory, which of the following statements is true of the maturing stage?
a.
In this stage, a new product is commoditized.
b.
In this stage, a new product is standardized.
c.
In this stage, it becomes worthwhile to produce goods in other developed nations.
d.
In this stage, production of a new product that commands a price premium is involved.
20. Which of the following statements is true of the theory of absolute advantage?
a.
It was advocated by British economist David Ricardo.
b.
It opened the floodgates for the free trade movement.
c.
It suggests that international trade is a zero-sum game.
d.
It is more realistic and useful than comparative advantage when applied in the real world.
21. The oldest and most frequently used economic argument against free trade is the urge to shield domestic industries,
firms, and jobs from allegedly unfair foreign competition. This is called _____.
a.
protectionism
b.
economic nationalism
c.
anti-globalization
d.
developmentalism
22. _____ is defined as the relative advantage in one economic activity that one nation enjoys in relation to other nations.
a.
Outright advantage
b.
First-mover advantage
c.
Absolute advantage
d.
Comparative advantage
23. _____ against free trade include national security, consumer protection, foreign policy, and environmental and social
responsibility.
a.
Conservative arguments
b.
Protectionist arguments
c.
Economic arguments
d.
Political arguments
24. Which of the following statements is true of import quotas?
a.
They are the most straightforward denial of absolute or comparative advantage.
b.
They are government payments to domestic firms.
c.
They are rules stipulating that a certain proportion of the value of the goods made in one country must
originate from that country.
d.
They are bureaucratic rules that make it harder to import foreign goods.
25. The product life cycle theory is criticized because _____.
a.
it assumes that absolute and comparative advantages stem from different factor endowments
b.
it assumes that China is absolutely inefficient than the United States in the production of both wheat and
aircrafts
c.
it argues that by trying to be self-sufficient and producing a wide range of goods, the wealth of a nation is
reduced.
d.
it assumes that a stage-by-stage migration of production takes at least several years, if not decades
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26. _____ is the assumption that a resource used in producing for one industry can be shifted and put to use in another
industry.
a.
Resource dependence
b.
Resource necessity
c.
Resource mobility
d.
Resource endowment
27. A(n) _____ is a government payment to a domestic firm.
a.
embargo
b.
subsidy
c.
tariff barrier
d.
business payment
28. The _____ theory is also known as Heckscher-Ohlin theory.
a.
strategic trade
b.
diamond
c.
factor endowment
d.
product life cycle
29. The strategic trade theory is criticized because _____.
a.
many industries claim that they are strategically important
b.
the government does not intervene when necessary
c.
the theory claims that the United States will always have a strategic advantage in terms of innovation
d.
stage-by-stage migration of production takes several years
30. According to the theory of absolute advantage, which of the following is true of a nation with free trade?
a.
A nation gains by specializing in economic activities in which it has an absolute advantage.
b.
A nation gains absolute advantage by restricting trade with other countries.
c.
A nation gains tremendously by focusing on economic activities in which it has a comparative advantage.
d.
A nation will develop absolute advantage based on its locally abundant factors.
31. According to the resource-based view, which of the following is the reason for economic gains from international
trade?
a.
Some firms in a nation generate exports that are hard to imitate.
b.
Some firms in a nation generate exports that are not valuable or unique.
c.
Firms importing products have a balance of trade.
d.
Firms exporting more products have a trade surplus.
32. Which of the following statements is true of the theory of national competitive advantage of industries?
a.
It focuses on why certain industries within a nation are competitive internationally.
b.
It proposes to help only a few strategically important industries.
c.
It was first proposed in the 1960s by the American economist Raymond Vernon.
d.
It is the idea that governments should actively protect domestic industries from imports and vigorously
promote exports.
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33. Plentiful labor supply in China and innovative commercialization of basic research in the United States are both
examples of the_____ theory.
a.
diamond
b.
strategic trade
c.
product life cycle
d.
factor endowment
34. In the context of the product life cycle theory, which of the following statements is true of the first stage?
a.
In this stage, a new product is commoditized.
b.
In this stage, a new product is standardized.
c.
In this stage, production of a new product that commands a price premium is involved.
d.
In this stage, it becomes worthwhile to produce a product in other developed nations.
35. _____ are government payments to domestic firms.
a.
Import quotas
b.
Subsidies
c.
Voluntary export restraints
d.
Local content requirements
36. Net losses that occur in an economy as the result of tariffs are known as:
a.
deadweight costs
b.
tariff barriers
c.
import quotas
d.
the material, labor, and distribution gains associated with producing a product
37. The value of exported items to the United Kingdom equals $1 trillion last year, but the value of items imported by the
United Kingdom equals $750 billion. The United Kingdom has a $250 billion _____.
a.
trade deficit
b.
trade surplus
c.
trade volume
d.
trade debit
38. Which of the following statements is true of nontariff barriers?
a.
They are government payments to international firms.
b.
They are restrictions on the quantity of goods exported.
c.
They can discourage imports by means of subsidies.
d.
They tend to encourage imports over exports.
39. A(n) _____ is a means of discouraging imports by placing a tax on imported goods.
a.
embargo
b.
non-tariff barrier
c.
tariff barrier
d.
import quota
40. Which of the following is a difference between merchandise trade and service trade?
a.
Merchandise trade takes place only between a firm and a consumer, whereas service trade takes place only
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between a producer and a consumer.
b.
Merchandise trade includes services and foreign direct investment, whereas service trade includes only trade
in goods.
c.
Merchandise trade is the buying and selling of tangible products, whereas service trade is the buying and
selling of intangible services.
d.
Merchandise trade is defined by the Four Modes of Supply of the General Agreement on Trade in Services
(GATS), whereas service trade is defined by the Four Modes of Demand of the GATS.
41. _____ can determine the success and failure of a firm’s exports around the globe.
a.
Monitoring and nurturing the absolute advantage of certain locations
b.
Leveraging comparative advantage of world-class locations
c.
Discovering absolute advantage of selective locations
d.
Improving the old promising locations
42. Which of the following statements is true of trade surplus?
a.
It occurs when a nation only imports goods and services.
b.
It occurs when a nation imports goods and services more than it exports.
c.
It occurs when a nation only exports goods and services.
d.
It occurs when a nation exports goods and services more than it imports.
43. The value of imported items to Australia equals $1 trillion, but the value of exported items from Australia equals $750
billion. Australia has a $250 billion _____.
a.
trade deficit
b.
trade surplus
c.
absolute advantage
d.
comparative disadvantage
44. The theory of national competitive advantage of industries is also popularly known as the _____.
a.
diamond theory
b.
product life cycle theory
c.
factor endowment theory
d.
mercantilism theory
45. Which of the following statements is true of administrative policies?
a.
They are imposed on imports that have been dumped.
b.
They are bureaucratic rules that make it harder to import foreign goods.
c.
They have been developed to show that, on the surface, exporting countries voluntarily agree to restrict their
exports.
d.
They are rules ordering a certain proportion of the value of the goods made in one country must originate from
that country.
46. According to the institution-based view, why do nations benefit from international trade?
a.
Because some firms in one nation generate exports that are valuable, unique, and hard to imitate that firms
from other nations find it beneficial to import.
b.
Because governments actively protect domestic industries from imports and vigorously promote exports.
c.
Because different rules governing trade are designed to determine how economic gains from international
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chapter 5
trade are shared.
d.
Because the wealth of the world (measured in gold and silver) is fixed and a nation that exports more than it
imports will enjoy the net inflows of gold and silver and become richer.
47. Which of the following statements is true of trade?
a.
It only consists of the exchange of services.
b.
It involves export and import of goods and services.
c.
It leads to the stagnation of the wealth of the world.
d.
It only consists of the buying and selling of tangible goods.
48. Strategic trade theory suggests that strategic intervention by governments in certain industries can enhance their odds
for international success. These industries:
a.
are highly capital-intensive industries.
b.
are highly labor-intensive industries.
c.
have low barriers to entry.
d.
let domestic firms enter the market easily without government assistance.
49. Managers who fail to realize when a location no longer has a _____ are likely to fall behind.
a.
comparative advantage
b.
absolute advantage
c.
economic advantage
d.
first-mover advantage
50. Which of the following is true of related and supporting industries within the theory of national competitive advantage
of industries?
a.
They provide the foundation upon which key industries can excel
b.
They highlight a firm’s structure, strategy, and rivalry
c.
They are able to be developed in a country within a few months to boost a firm’s competitive advantage
d.
Most firms thrive in the absence of strong related and supporting industries
51. Discuss the determinants of the success and failure of a firm’s exports around the globe.
52. Discuss the propositions of the modern theories of international trade.
53. Identify the strengths and influences of the classical theories of international trade.
54. Compare and contrast absolute advantage and comparative advantage trade theories.
55. Discuss the political arguments against free trade.
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chapter 5
Answer Key
Name:
Class:
Date:
chapter 5
Name:
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Date:
chapter 5
