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END-OF-CHAPTER GUIDE
*Review Questions and Answers
*Critical Discussion Questions and Answers
*Global Action
*Closing Case
REVIEW QUESTIONS AND ANSWERS
1. Look at PengAtlas Maps 2.1 (Top Merchandise Importers and Exporters) and 2.2 (Top
Service Importers and Exporters). Compare the global position of the United States in
merchandise versus service imports and exports.
a. Does the United States have an advantage globally in either merchandise or
services? Does it have an advantage in both? If it has any type of advantage, is it
absolute or comparative? Or does it have a disadvantage in both? Explain your
answers.
Students need to understand that even if a country had an absolute advantage in
everything, there may be one area of greatest advantage that is its area of comparative
b. Imagine that you were asked to give reasons why you think it is good, from the
US perspective, to have its position among the countries of the world as the top
importer in both merchandise and services. What reasons would you mention?
Some may mention that it demonstrates the wealth of the country and that the imports
2. Looking at PengAtlas Maps 2.1 and 2.2, given the size of U.S. exports, why does the
United States import so much? Why not use resources in the U.S. to produce the things
the U.S. currently imports instead of using them to produce exports?
There are many reasons. For example, the U.S. both imports and exports oil. Suppose
there is a refinery in the Midwest or eastern part of the U.S. that refines oil from Alaska.
3. ON CULTURE: Mercantilism involved a relatively significant amount of government
control over both domestic and international activity, whereas Smith’s concept of
absolute advantage focused on relative economic freedom and minimal government
controls over domestic and international economic activity. Do you think that the values
prevalent in American culture today are more in line with those of the mercantilists or
those of Smith? If there is some combination of Smith and mercantilism, which tends to
be dominant?
Opinions will vary and won’t always follow political lines. Certainly, the government is
involved in both global trade and investment as well as in the domestic economy and
4. The rules of the game for international trading can be quite complex, so why do nations
routinely engage in this activity?
Economic gain from trade is a strong reason for international trade. More importantly,
5. Name and describe the two key components of a balance of trade.
6. Compare and contrast the six theories of international trade.
See Table 5.4 for summaries of each theory.
Theory of mercantilism says international trade is a zero-sum game.
Theory of absolute advantage says nations should specialize in economic activities in
which they have an absolute advantage.
7. What are two primary economic arguments that critics use against free trade?
Summarize four political arguments against free trade.
These arguments include (1) national security, (2) consumer protection, (3) foreign
policy, and (4) environmental and social responsibility. First, national security concerns
8. Is a persistent trade deficit a matter of grave concern? Why or why not?
The important thing is not so much the answer as the extent to which the student
9. Will the service trade benefit or hurt rich countries?
The important thing is not so much the answer as the extent to which the student
10. What are some of the factors that managers need to consider when assessing the
comparative advantage of various locations around the world?
This can be summarized by noting that comparative advantage is constantly changing: a
11. Why is it necessary for business people to monitor political activity concerning
international trade?
Managers need to be politically active if they appreciate the gains from trade. Although
CRITICAL DISCUSSION QUESTIONS AND ANSWERS
1. Is the trade policy of your country’s government protectionist? Why?
2. What is the ratio of international trade (exports + imports) to GDP in your country? How
about the ratio for Brazil, China, the EU, Egypt, India, Japan, Russia, Singapore, Turkey,
and the U.S.? Why are there such differences?
This is a question in which the answer is not as important as the thought process and the
3. ON ETHICS: As a foreign policy tool, trade embargoes, such as U.S. embargos against
Cuba, Iraq (until 2003), and North Korea, are meant to discourage foreign governments.
But they also cause a great deal of misery among the population (such as shortages of
medicine and food). Are embargoes ethical?
This is a question in which the answer is not as important as the thought process and the
ability to clearly articulate. It should be noted that embargoes are only one instrument of
4. ON ETHICS: While the nation as a whole may gain from free trade, there is no doubt
that certain regions, industries, firms, and individuals may lose their jobs and livelihood
due to foreign competition. How can the rest of the nation help the unfortunate ones cope
with the impact of international trade?
GLOBAL ACTION
Cities worldwide differ considerably along many dimensions. However, one facet of
trading internationally is to identify global cities to base a network of operations. Choose
one dimension on which to measure different cities. Then, develop a report that discusses
your findings in detail.
Exercise 1 Answers
At times, corporate tax rates in specific locations can be considered a trade barrier to
business development. As a result, locations that have lower tax rates may encourage
corporations to conduct operations or relocate headquarters there. Find a list of tax rates
for a variety of locations. If you were part of a company seeking to relocate its
operations, which location(s) would you recommend, and why?
Exercise 2 Answers
Website: varies based on location selected
globalEDGE™ Tag: Rankings
CLOSING CASE DISCUSSION GUIDE AND ANSWERS
Why Are US Exports So Competitive?
When evaluating US competitiveness, students should form their own opinions based on
accurate data rather than relying on the media. US exports valuable, rare, and difficult to
imitate, and US exporters are well organized. Several US government agencies offer export
assistance. Free trade agreements and negotiated access to markets have also helped US
exporters. Finally, American norms and values encourage US companies to succeed.
1. ON ETHICS: Prior to taking this class and studying this case, have you often heard or
read about the decline of US export competitiveness? What are the social and ethical
implications of such excessive (one-sided) negative reporting? Does this case change
your mind? Why?
2. From a resource-based view, explain why US exports are so competitive.
3. From an institution-based view, explain why US exports are so competitive.
