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51) 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.
52) Which of the following is one of the four attributes present in Porter’s diamond?
A) economies of scale
B) factor conditions
C) structural innovation
D) procedural innovation
53) 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
54) Which of the following factors, according to Porter, is most likely to give a country
competitive advantage over another country?
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A) natural resources
B) climate
C) skilled labor and know-how
D) demographics
55) 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 and markets are sophisticated and demanding.
56) 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.
57) A country’s balance-of-payments accounts keep track of the
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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.
58) 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
59) 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.
60) Factor endowments refer to the extent to which a country
A) supports education, research, and development.
B) develops the infrastructure to support industrialism.
C) supports free trade.
D) has such factors of production as land, labor, and capital.
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61) China has the infrastructure and the skilled labor that has enabled it to become a world
manufacturing leader. This relates to which of Porter’s attributes of a nation?
A) firm strategy, structure, and rivalry
B) related and supporting industries
C) demand conditions
D) factor conditions
62) The _____ theory was based on the observation that for most of the twentieth century a
very large proportion of the world’s new products had been developed by U.S. firms and sold
first in the U.S. market.
A) product life-cycle
B) Heckscher-Ohlin
C) new trade
D) Ricardo
63) Economies of scale have a number of sources, including the ability
A) to average out the variable costs of production.
B) of large-volume producers to utilize specialized employees and equipment.
C) to adjust the scale of production based upon product saturation in the marketplace.
D) to utilize nonspecialized employees interchangeably.
64) One of the advantages of being the first mover in a market is
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A) there is little risk involved.
B) to benefit from a higher cost structure.
C) the ability to capture scale economies ahead of later entrants.
D) local governments are more favorable to the first movers.
65) Diminishing returns to specialization occur when
A) each additional unit is produced with lesser number of laborers.
B) a nation’s gross domestic product declines for a few years.
C) production possibility frontier appears as a rectangle.
D) more units of resources are required to produce each additional unit.
66) What will happen, according to Paul Samuelson’s critique, if a rich country enters into a
free trade agreement with a poor country?
A) Both the countries will incur losses due to the exchanges between them.
B) The productivity of the poor country will decline rapidly.
C) The poor country will rapidly improve its productivity.
D) Both the countries will garner benefits from the exchanges between them.
67) Company A entered the production of office software before its competitors. Because of
this, the company’s products are more familiar among and favored by customers. This situation
exemplifies the
A) first-mover advantage.
B) diminishing marginal returns.
C) economies of scale.
D) constant marginal returns.
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68) Which of the following theories suggests that first-mover advantage is significant in the
export of a good?
A) product life-cycle theory
B) Ricardo’s theory
C) new trade theory
D) theory of comparative advantage
69) New trade theory suggests that nations
A) increase their commitment to research and development.
B) adopt policies that promote strong competition within domestic markets.
C) cannot benefit from trade when they do not differ in resource endowments or
technology.
D) may benefit from trade even when they do not differ in resource endowments or
technology.
70) The commercial aircraft industry can support only a limited number of firms, largely
because the existence of established firms would make it difficult to be competitive. This is a
basic tenet of
A) mercantilism.
B) the theory of absolute advantage.
C) Heckscher-Ohlin theory.
D) new trade theory.
71) Which of the following theories stress the role of luck, entrepreneurship, and innovation
in the production and export of a good or service by the firms in a country?
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A) product life-cycle theory
B) Ricardo’s theory
C) theory of comparative advantage
D) new trade theory
72) 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.
73) 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 or
consumer.
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.
74) The theories of Smith and Ricardo show that trade makes every nation better off.
⊚ true
⊚ false
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75) Porter’s theory of national competitive advantage recommends that government should
never interfere in free trade policies .
⊚ true
⊚ false
76) Mercantilist doctrine advocates unrestricted free trade between countries.
⊚ true
⊚ false
77) A country has an absolute advantage in the production of a product when it is more
productive and cost efficient than any other country in producing it.
⊚ true
⊚ false
78) Factor endowments refer to a country’s factors of production, such as land, labor, and
capital.
⊚ true
⊚ false
79) Heckscher-Ohlin theory stresses that comparative advantage arises from differences in
productivity.
⊚ true
⊚ false
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80) A key assumption in the Heckscher-Ohlin theory is that technologies are the same across
countries.
⊚ true
⊚ false
81) Some of the arguments made by the product life-cycle theory seem ethnocentric and
increasingly dated when viewed from an Asian or European perspective.
⊚ true
⊚ false
82) XYZ Toys manufactures and sells small quantities of each of its products, but it can still
benefit from economies of scale.
⊚ true
⊚ false
83) The simple model of free trade assumed away transportation costs between countries.
⊚ true
⊚ false
84) Resources always move easily from one economic activity to another.
⊚ true
⊚ false
85) According to Paul Samuelson’s critique, a poor country will rapidly improve its
productivity if a rich country enters into a free trade agreement with it.
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⊚ true
⊚ false
86) Apple’s iPhone was unique when it first came out, with many features that no other
phones had. As such, it enjoyed great success and dominated the cell phone market. This
demonstrates the first-mover advantage.
⊚ true
⊚ false
87) New trade theorists stress the role of luck, entrepreneurship, and innovation in giving a
firm first-mover advantages.
⊚ true
⊚ false
88) According to the new trade theory, firms that establish a first-mover advantage with
regard to the production of a particular new product may subsequently dominate global trade in
that product.
⊚ true
⊚ false
89) From a profit perspective, it makes sense for firms to disperse their productive activities
to those countries where they can be performed most efficiently.
⊚ true
⊚ false
Answer Key
Test name: chapter 6
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