Chapter 02 - International Trade and Foreign Direct Investment
3. Describe mercantilism and explain why mercantilism has been argued to be a poor approach
to use in order to promote economic development and prosperity.
Mercantilism is an economic philosophy based on the belief that (1) a nation’s wealth depends on
4. a. Explain Adam Smith’s theory of absolute advantage.
b. How does Ricardo’s theory of comparative advantage differ from the theory of absolute
advantage?
a. According to Adam Smith’s theory of absolute advantage, each nation should specialize in
5. “The greater part of international trade consists of an exchange of raw materials from
developing nations for manufactured goods from developed nations.” True or false? Explain.
This statement is false, but with modification. More than half the exports from developing nations are
6. Name some products that you believe have passed through the four stages of the international
product life cycle.
7. Use Porter’s Diamond Model of national advantage to explain why an emerging market such
as Indonesia would be expected to experience great difficulty in achieving global
competitiveness in a new industry sector such as “smart” cell phones or hybrid electric-gasoline
automobile engines.
An emerging market such as Indonesia would be expected to experience great difficulty in achieving
global competitiveness in a new industry sector such as “smart” cell phones or hybrid
electric-gasoline automobile engines because:
