International Business: The Challenges of Globalization, 9e (Wild)
Chapter 5 International Trade Theory
1) The term ________ refers to the voluntary exchange of goods, services, assets, or money
between one person or organization and another across national borders.
A) sales
B) transaction
C) international trade
D) strategic management
2) The importance of trade for a nation can be measured by ________.
A) examining the amount of wealth acquired by the national government through restrictive
trade policies
B) the living standards of people involved in only trade activities
C) the number of acquired territories the nation has that serves as sources of inexpensive raw
materials
D) examining the volume of its trade relative to its total output
3) Most of the world merchandise trade is composed of trade in ________.
A) minerals
B) services
C) manufactured goods
D) agricultural products
4) A majority of the total world merchandise trade occurs among ________.
A) middle–income and low-income economies
B) high–income economies
C) newly industrialized countries
D) emerging markets
5) The smallest portion of the total world trade comprises trade between ________.
A) high-income and middle-income nations
B) low–income and middle-income nations
C) developed countries
D) First World member countries
6) The danger of trade dependency is that ________.
A) it often leads to the exploitation of developed countries
B) political turmoil in a country might affect all dependent countries
C) the countries involved in trade often get into rivalry over trade tariff issues
D) it is difficult to end trade activities with current trade partners and find new trade partners
7) The condition that results when a nation’s exports are greater than its imports is called
________.
A) a trade deficit
B) a trade surplus
C) mercantilism
D) dumping
8) The condition that results when the value of a country’s imports is greater than the value of its
exports is called ________.
A) a trade deficit
B) economies of scale
C) a trade surplus
D) absolute advantage
9) In reviewing his fulfillment process, Jack realizes that different customers opt for different
types of shipping based on their preferences. Which of the following would most likely help Jack
provide better shipping service to his customers?
A) introduce overnight delivery but at a very high cost
B) reduce costs by implementing a cheaper but slower delivery method
C) implement a universal delivery method to capitalize on efficiency gains
D) offer customers a choice of delivery methods with different speeds and costs
10) International trade is the purchase, sale, or exchange of goods and services across national
borders.
11) The value of trade passing through the borders of all countries always exceeds the amount of
goods and services they produce.
12) Most of the world’s merchandise trade is composed of trade in manufactured products.
13) Trade in services tends to be relatively more important for the world’s richest countries.
14) When a country’s currency is stronger relative to other nations, domestic products are more
expensive than imports.
15) Trade deficit occurs when the value of a country’s exports is greater than the value of its
imports.
16) According to Adam Smith, international trade should not be restricted by tariffs and quotas
in order to give a country an absolute advantage.
17) Discuss the dangers of trade dependency.
18) Describe the potential benefits of international trade. Why would a nation trading with a neo-
mercantilist country be at a disadvantage?
19) Discuss the volume of international trade, and explain the role government and chance play
in the growth of international trade.
20) ________ says that nations should accumulate financial wealth, usually in the form of gold,
by encouraging exports and discouraging imports.
A) Absolute advantage theory
B) Factor proportions theory
C) Mercantilism
D) Communism
21) The measures of a nation’s well-being other than the financial wealth accumulated through
exports are irrelevant according to ________.
A) mercantilism
B) absolute advantage theory
C) factor proportions theory
D) new trade theory
22) According to mercantilism, what should a country’s primary goal be?
A) protecting citizens from unfair labor practices
B) encouraging imports to prevent resource depletion
C) promoting exports to enlarge gold and silver holdings
D) ensuring sufficient labor for low-wage jobs in the textile industry
23) One of the major pillars upon which the practice of mercantilism rested was ________.
A) economies of scale
B) pricing mechanism
C) excessive imports
D) trade surpluses
24) According to mercantilism, the accumulation of national wealth depended on the ________.
A) increase in a nation’s trade surplus
B) increase in a nation‘s trade deficit
C) expansion of a nation’s total value of trade
D) expansion of a nation’s total volume of trade
25) Which of the following statements is incorrect with regard to the importance of colonies for
mercantilist nations?
A) They served as sources of inexpensive raw materials.
B) They served as markets for higher-priced finished goods.
C) They served as a source of military protection.
D) They served as a source of profits for mercantilist powers.
26) Nations following the theory of ________ believed that the world’s wealth was limited and
that a nation could increase its share of the pie only at the expense of its neighbors.
A) absolute advantage
B) comparative advantage
C) mercantilism
D) factor proportions
27) Today, countries seen by others as trying to maintain a trade surplus and expand their
national treasures at the expense of other nations are accused of practicing ________.
A) totalitarianism
B) anti-mercantilism
C) social stratification
D) economic nationalism
28) Another term for neomercantilism is ________.
A) new trade
B) free trade
C) economic nationalism
D) political nationalism
29) Trade between most nations is presently characterized by a certain degree of isolationism.
30) Mercantilism states that nations should only concern themselves with accumulating financial
wealth.
31) Mercantilist countries used to amass wealth by acquiring less-developed territories around
the world.
32) Mercantilism views competition for the world’s wealth as a positive–sum game.
33) Explain mercantilism. What were its major flaws?
34) Discuss the three essential pillars of the theory of mercantilism.
35) Which of the following refers to the ability of a nation to produce a good more efficiently
than any other nation?
A) mercantilism
B) comparative advantage
C) absolute advantage
D) neomercantilism
36) Who proposed the theory of absolute advantage?
A) David Ricardo
B) Adam Smith
C) Bertil Ohlin
D) Raymond Vernon
37) Which theory suggests that a country should export those goods and services for which it is
more productive than other countries and import those goods and services for which other
countries are more productive?
A) mercantilism
B) comparative advantage
C) absolute advantage
D) specialization of countries
38) The theory of absolute advantage measures a nation’s wealth by determining the ________.
A) amount of gold it has on reserve
B) quantity of minerals it has on reserve
C) total trade volume in the country
D) living standards of its people
39) The theory of absolute advantage destroys the mercantilist idea that international trade is a
________.
A) positive-sum game
B) zero–sum game
C) negative-sum game
D) win–win game
40) Which of the following is true about the theory of absolute advantage?
A) The theory accepts the mercantilist idea that international trade is a zero–sum game.
B) The theory approves the objective of national governments to acquire wealth through
restrictive trade policies.
C) The theory emphasizes that nations should open their doors to trade so that people can obtain
more goods at cheaper rates.
D) The theory measures a nation’s wealth by how much gold and silver it has on reserve.
41) When there are gains to be had by both countries that are party to an exchange, international
trade is considered a(n) ________.
A) positive-sum game
B) equal–sum game
C) negative-sum game
D) zero–sum game
42) When a country is not able to produce a good more efficiently than other nations, but
produces the good more efficiently than it does any other good, it is said to have a(n) ________.
A) absolute advantage
B) resource advantage
C) first-mover advantage
D) comparative advantage
43) The theory of comparative advantage was proposed by ________.
A) David Ricardo
B) Adam Smith
C) Bertil Ohlin
D) Raymond Vernon
44) To complete his business bookkeeping work each month, a business owner spends about 20
hours and in the process, has to give up $900 in income. If he hired a bookkeeper to do the work,
the job would be completed in 15 hours and would cost him $600. Should the owner hire the
bookkeeper or continue to do the work himself?
A) He should hire the bookkeeper because the bookkeeper has an absolute advantage in
completing the books.
B) He should do the bookkeeping himself because he has an absolute advantage in completing
the books.
C) He should hire the bookkeeper only if the bookkeeper agrees to give him a discount on the
service price.
D) He should hire the bookkeeper only if the bookkeeper is willing to complete the work in 12
hours.
45) Country A produces a ton of coffee using one unit of resources. Country B produces two tons
of coffee using one unit of resources. Which of the following is true regarding Country A and
Country B?
A) Country A has an absolute advantage in producing coffee.
B) Country B has an absolute advantage in producing coffee.
C) Neither Country A nor Country B has an absolute advantage in producing coffee.
D) Both Country A and Country B have an absolute advantage in producing coffee.
46) According to the theory of ________, trade is beneficial even if one country is less efficient
in the production of two goods, as long as it is less inefficient in the production of one of the
goods.
A) absolute advantage
B) mercantilism
C) comparative advantage
D) factor proportions
47) 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
48) Which of the following is an assumption made by the comparative advantage theory?
A) maximization of production and consumption
B) government interference and control in trade activities
C) creation of trade deficits
D) creation of trade surpluses
49) Both absolute and comparative advantage theories assume that ________ is the only resource
used in the production process.
A) land
B) labor
C) capital
D) equipment
50) A product’s components are manufactured in a country that can produce them at a very low
cost while maintaining its quality. These components are then assembled in another country
where productivity in assembly is high. This process resembles the theory of ________.
A) comparative advantage
B) mercantilism
C) the international product life cycle
D) factor proportions
51) Much production in the world today closely resembles what is predicted by the ________.
A) new trade theory
B) international product life cycle
C) theory of comparative advantage
D) theory of factor proportions
52) Based on the above scenario, which of the following statements is true?
A) Foodland has an absolute advantage in producing food.
B) Foodland has an absolute advantage in producing drinks.
C) Drinkland has an absolute advantage in producing both food and drinks.
D) Drinkland has an absolute advantage in producing food.