51) Which of the following is the LEAST likely result of outward migration?
A) Emigrants remit capital used to start businesses in their home countries.
B) Nations receive more foreign aid.
C) Nations lose highly educated and productive workers.
D) Countries receive remittances from emigrants.
52) Country X brings in a large number of unskilled immigrants to meet its labor needs. Which of the
following is the LEAST likely to occur in Country X as a result?
A) Country X will develop a long-term class of “have-nots” if the children of immigrants remain
unskilled.
B) Country X will need more unskilled people in the future if immigrant children become skilled.
C) The continual supply of unskilled labor will delay the development of labor saving technology in
Country X.
D) Country X will experience a significant transfer of knowledge and a resulting rise in start-up
businesses.
53) In this example, assume that both trade and production factors are internationally mobile. Using
domestic labor, the labor cost per silicon chip is $.10 in Japan and $.20 in the United States. Using
domestic capital, the capital cost per chip is $.10 in Japan and $.05 in the United States. Chip
transportation in either direction is $.10. Japanese labor is willing to work in the United States for $.15
per chip including the workers’ transport cost. U.S. capital will go to Japan at a cost of $.08 per chip
including transaction costs. Which silicon chips will the United States buy?
A) those made in Japan with Japanese labor and capital
B) those made in the United States with U.S. labor and capital
C) those made in Japan with Japanese labor and U.S. capital
D) those made in the United States with Japanese labor and U.S. capital
54) The inability of a company to gain foreign production factors to use in its domestic operations most
likely ________.
A) entices the company to export its own production factors
B) stimulates the company to adopt efficient substitute methods of production
C) stimulates foreign companies to invest in that domestic market
D) causes the company’s products to move more rapidly through their life cycles
55) All of the following are reasons that foreign investment may stimulate exports from the home
(donor) country EXCEPT which of the following?
A) The investor often sends home-country components to its facilities abroad.
B) The investor often sends home-country equipment to its facilities abroad.
C) Home-country aid usually goes where the investments are made.
D) The foreign facility is adept at selling the investors’ home country products.
56) Analysts conclude that the finite supply of natural resources will most likely ________.
A) cause a higher proportion of world trade to occur among developed countries
B) cause a higher proportion of world trade to occur among developing countries
C) serve as an advantage for developing countries in their sales to developed countries
D) create a greater portion of world trade in the form of services
57) Research shows that urbanization leads to higher productivity. Which of the following is the LEAST
likely reason for this?
A) Urbanization establishes an inflow of immigrants who will work for less money.
B) In urban areas, firms can more easily find people with the exact skills they need.
C) Urbanization allows for economies in moving supplies and finished products.
D) In urban areas, knowledge flows more easily from one company to another and from one industry to
another.
58) The premise that there will be more finely tuned specialization of production among countries is
most likely based on the idea that companies will ________.
A) depend more on production of nontradable goods and services
B) encourage urbanization in emerging countries that lack infrastructure
C) establish facilities in dispersed locations to hinder domestic competition
D) take advantage of wage and skill differences among countries
59) Costa Rica’s recent economic transformation to depend more on high-tech manufacturing is largely
due to its adoption of ________ trade policy.
A) an import substitution
B) a comparative advantage
C) a factor proportions
D) a strategic
60) All of the following factors most likely led to Costa Rica’s attraction of high-tech FDI EXCEPT the
country’s ________.
A) demand for high-tech products
B) literacy rate
C) quality of life
D) political stability
61) Countries enact trade policies based on trade theories, which, in turn, affect companies’ optimum
production locations.
62) Understanding trade theories helps companies know if they will need to compete against goods and
services produced abroad.
63) Under mercantilism, colonial powers sought to run trade surpluses with their colonies by preventing
the colonies from manufacturing.
64) An objective of neomercantilism is to build up gold reserves.
65) The theory of absolute advantage holds that there are advantages to trade because different countries
can produce different goods more efficiently than others.
66) Under the theory of absolute advantage, countries hold two types of advantages—acquired
advantages and technological advantages.
67) The comparative advantage theory holds that a country will gain from trade even though it can
produce all goods more efficiently than other countries.
68) Comparative advantage theory holds that gains from trade are the result of capital movements from
countries with low interest rates to countries with higher interest rates.
69) The free trade theories of specialization assume that countries will be better off even though some
people are unemployed.
70) According to theories of specialization in international trade, gains occur because specialized
workers move to countries that can use their skills more effectively.
71) Countries with large land areas are generally less dependent on trade than countries with small land
areas.
72) The top 10 exporting countries are dominated by developing countries.
73) The factor proportions theory holds that countries should concentrate production on those products
that use their most abundant production factors.
74) The factor proportions theory holds that countries should improve their competitiveness by
importing capital and skilled employees from abroad.
75) Most world trade takes place between raw material exporters and manufacturing exporters.
76) Trade occurs more between culturally dissimilar countries than between culturally similar countries.
77) Many products’ location of production will shift internationally as the products go through their life
cycle.
78) According to the PLC theory of trade, most new products are produced in countries where wage
rates are low.
79) Luxury products are the most likely types of products to behave according to the product life cycle
theory of trade.
80) An exception to the PLC theory in terms of production location is often a product with very rapid
change in innovation.
81) The four favorable domestic conditions of the diamond of national advantage help to explain how
and where globally competitive companies develop and sustain themselves.
82) The existence of the four favorable conditions of the diamond of national advantage does not
guarantee that an industry will develop in a given locale.
83) A strategic trade policy is one that develops industries to lessen dependence on foreign military
goods.
84) Companies and individuals transfer capital internationally primarily because of expectations of
earning higher returns.
85) The international mobility of labor includes workers, students, tourists, and retirees who travel to
another country.
86) The foreign-born population as a percentage of total population is substantial for some countries and
insignificant for others.
87) The term brain drain describes the export of high-technology products in exchange for low-
technology products.
88) The combination of free trade and free movement of production factors offers maximum production
efficiency.
89) The finite nature of natural resources should work as a disadvantage for the export prices of
developing countries.
90) The growth of small-scale production technology will most likely enable small countries to produce
products efficiently for their own consumption.
91) As an international business manager, how can you benefit from an understanding of international
trade theories?
92) In a short essay, discuss the theory of mercantilism, and discuss favorable and unfavorable balances
of trade as they apply to international business.
93) In a short essay, discuss the theory of absolute advantage and the reasons a country’s efficiency
improves based on this theory.
94) What is the difference between the free trade theories of absolute advantage and comparative
advantage? How can free trade improve global efficiency?
95) What assumptions underlie the theories of specialization in international trade? What are the
limitations of these assumptions?
96) What is the theory of country size? How is country size determined? How does country size affect
national trade patterns?
97) What is the country similarity theory? According to this theory, what factors affect trade patterns?
98) In a short essay, discuss the four stages of the international product life cycle.
99) What are the arguments for and against nations developing and implementing strategic trade
policies?
100) From an economic standpoint, why do production factors move from one country to another? How
does factor movement affect international trade?