Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
c6 Key
1. Mercantilism, propagated in the sixteenth and seventeenth centuries, advocated that countries should
simultaneously encourage both imports and exports.
2. Although mercantilism is an old and largely discredited doctrine, its echoes remain in modern political debate
and in the trade policies of many countries.
3. Free trade refers to a situation in which a government, through quotas or duties, attempts to influence what its
citizens can buy from another country, or what they can produce and sell to another country.
4. David Ricardo's theory of comparative advantage was the first to explain why unrestricted free trade is
beneficial to a country.
5. According to Adam Smith, market mechanism, rather than government policy, should determine a country's
imports and exports.
6. The theories of Smith, Ricardo, and Heckscher-Ohlin failed to identify the specific benefits of international
trade.
7. Smith, Ricardo, and Heckscher-Ohlin suggested that a country's economy would gain only if its citizens buy
products that are made in that country.
8. Limits on imports are often in the interests of domestic consumers, but not domestic producers.
9. New trade theory stresses that in some cases countries specialize in the production of particular products
because of underlying differences in factor endowments.
10. The first theory of international trade that emerged in England asserted that gold and silver were the
mainstays of national wealth and essential to vigorous commerce.
11. The main tenet of mercantilism was that it was in a country's best interests to maintain a trade surplus.
12. The major advantage of mercantilism was that it viewed trade as a zero-sum game.
13. A country has an absolute advantage in the production of a product when it is more efficient than any other
country in producing it.
14. In his book The Wealth of Nations, Adam Smith supported the mercantilist assumption that trade is a
zero-sum game.
15. According to Adam Smith, countries should specialize in the production of goods for which they have an
absolute advantage and then trade these for goods produced by other countries.
16. According to Ricardo's theory of comparative advantage, it makes sense for a country to specialize in the
production of those goods that it produces most efficiently and to import goods that it produces less efficiently.
17. According to the theory of comparative advantage, potential world production is greater with unrestricted
free trade than it is with restricted trade.
18. Ricardo's theory of comparative advantage is a major intellectual weapon for advocates of free trade
because it provides a strong rationale for encouraging free trade.
19. The Nobel Prize-winning economist Paul Samuelson argued that contrary to the standard interpretation, in
certain circumstances the theory of comparative advantage predicts that a rich country might actually be worse
off by switching to a free trade regime with a poor nation.
20. A certain amount of friction is involved when resources are required to move from one economic activity to
another.
21. Free trade is likely to increase a country's stock of resources and the efficiency with which it utilizes those
resources.
22. Despite the short-term adjustment costs associated with adopting a free trade regime, trade would seem to
produce greater economic growth and higher living standards in the long run.
23. Factor endowments refer to the extent to which free trade impacts the wealth of a country.
24. Most economists prefer Ricardo's theory to the Heckscher-Ohlin theory because it makes fewer simplifying
assumptions.
25. The Heckscher-Ohlin theory is the best predictor of real-world international trade patterns.
26. When the impact of differences of technology on productivity is controlled for, Heckscher-Ohlin theory
gains predictive power.
27. Raymond Vernon's product life-cycle theory was based on the observation that for most of the twentieth
century a very large proportion of the world's new products were developed by the firms situated in Germany
and sold first in the German market.
28. According to the product life cycle theory, as demand for a product starts to grow in other advanced
countries, potential for exports from the United States will gradually increase.
29. According to the product life-cycle theory, the locus of global production initially switches from developing
countries to other advanced nations and then from those nations to the United States.
30. Viewed from an Asian or European perspective, Vernon's argument that most new products are developed
and introduced in the United States seems ethnocentric and increasingly dated.
31. While Vernon's theory is useful for explaining the pattern of international trade in the modern world, its
relevance during the period of American global dominance seemed more limited.
32. The new trade theory emerged from the thought that the ability of firms to attain economies of scale might
have important implications for international trade.
33. Factor endowments are unit cost reductions associated with a large scale of output.
34. The new trade theory suggests that a country may predominate in the export of a good simply because it was
lucky enough to have one or more pioneering firms to produce that good.
35. Porter argues that an absence of domestic rivalry is vital to the creation and persistence of international
competitive advantage in an industry.
36. Michael Porter argues that advanced factors are the most significant for competitive advantage.
37. According to Michael Porter, government can influence each of the four components of Porter's
diamond—either positively or negatively.
38. Porter's theory has been subjected to detailed empirical testing and it is proven that it accurately predicts
international trade patterns.
39. Individual firms should invest substantial financial resources in trying to build a first-mover advantage, even
if that means several years of losses before a new venture becomes profitable.
40. Porter's theory suggests that it is in the best interest of business for a firm to invest in upgrading advanced
factors of production.
41. Which of the following terms best represents a situation in which a government does not attempt to
influence through quotas or duties what its citizens can buy from another country, or what they can produce and
sell to another country?
42. Sentoria is an island nation in the Pacific Ocean. Its geographical location is advantageous since it has
access to a variety of aquatic life forms and also a number of freshwater sources that provide for fisheries. The
lack of arable land drives local demand for seafood. The competition in the domestic fishing industry is fierce
and enables Sentoria to be one of the major exporters of seafood. Which of the following theories of
international trade best explains Sentoria's dominance as an exporter of seafood?
43. Which of the following factors is taken into consideration by David Ricardo's theory of comparative
advantage in order to explain the pattern of international trade?
44. Salcia is a country that depends heavily on domestic products. The Salcian government decides on the
products that can be imported and ensures that any product that can be produced at home is not imported. A
major part of Salcia's trade is concentrated on exporting agricultural produce and textiles. Which of the
following influences Salcia's approach to international trade?
45. The argument for unrestricted free trade is that both import controls and export incentives:
46. Which of the following asserts that countries should simultaneously encourage exports and discourage
imports?
47. Which of the following is in a country's best interests, according to the main tenet of mercantilism?
48. Considered to be the first theory of international trade, the principal assertion of mercantilism is that:
49. Which of the following is consistent with the central beliefs of mercantilism?
50. The Republic of Argonia, owing to its vast resources of arable land and fresh water, is an agrarian nation. It
exports agricultural products and in turn imports products that it does not produce such as oil, machinery,
computers, and electronic devices. The result is that it spends more on imports than it gains from exports.
Which of the following theories prohibits such international trade?
51. An inconsistency in the mercantilist doctrine, as pointed out by David Hume, is that:
52. A zero-sum game is a situation in which:
53. Neo-mercantilists equate political power with economic power and economic power with:
