Q&A Hero

Q: Dumping involves foreign producers: A.attempting hostile takeovers of domestic firms and usurping the available resources for production. B.indiscriminately exploiting the natural resources of a foreign country to create a later demand that can be met only by imports. C.eliminating competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits. D.capturing the niche market rather than the masses. E.exporting only a small quantity of their products into an importing country.

Q: If Argonia exports vast quantities of cheap toys to Cadmia, selling them at below their costs of production, it would constitute: A.monopolism. B.dumping. C.offshoring. D.nearshoring. E.subsidizing.

Q: The Palladian government required that all imported products that came from Lovaskiya be checked by Palladian customs inspectors. The inspection was done at a container freight station that was both remote and poorly staffed. This delayed the Lovaskiyan consignment from reaching the consumers in Palladia. The inspection strategy adopted by the customs officers in Palladia is an example of a(n): A.antidumping policy. B.voluntary export restraint policy. C.administrative trade policy. D.monopolistic competition policy. E.tariff rent policy.

Q: Which of the following are bureaucratic rules designed to make it difficult for imports to enter a country? A.Voluntary export restraints B.Consumer regulations C.Subsidies D.Administrative trade policies E.Public sector regulations

Q: Which of the following specifies that U.S. government agencies must give preference to U.S. products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage? A.Export Administration Act B.Helms-Burton Act C.Hawley-Burton Act D.Buy America Act E.Volcker Rule

Q: Animax Limited got an order to sell 50,000 central processing units (CPUs) to Palladia, but the Palladian government stipulated that 15 percent of the component parts of those CPUs must be produced in Palladia. This stipulation by the Palladian government would be example of a(n): A.voluntary export restraint. B.quota rent. C.import quota. D.local content requirement. E.antidumping policy.

Q: Which of the following requires that some specific fraction of a good must be produced domestically? A.International allocation requirement B.Local content requirement C.Specific quota requirement D.Ad valorem portion requirement E.Domestic sales requirement

Q: The extra profit that producers make when supply is artificially limited by an import quota is referred to as a: A.net profit. B.quota rent. C.trade surplus. D.profit margin. E.quota share.

Q: Which of the following statements is true about voluntary export restraints (VERs)? A.VERs benefit consumers by limiting import competition. B.VERs reduce the domestic price of an imported good. C.When imports are limited to a low percentage of the market by a VER, the price is bid up for that limited foreign supply. D.Foreign producers agree to VERs because they fear economic instability in the world economy. E.VERs negatively affect domestic producers by increasing import competition.

Q: Discuss the policy implications of Porter's theory of national competitive advantage.

Q: From a profit perspective based on the various international theories, how would a business go about choosing locations for its various productive activities?

Q: Briefly explain how demand conditions shape the environment in which local firms compete.

Q: Identify and briefly describe the four broad attributes that constitute Porter's diamond.

Q: Outline the relationship between economies of scale, first-mover advantages, and the pattern of trade as indicated by new trade theory.

Q: Briefly describe the new trade theory.

Q: Describe the Leontief paradox.

Q: Discuss Paul Samuelson's critique of free trade.

Q: How does the theory of comparative advantage suggest that trade is a positive-sum game to a greater degree than the theory of absolute advantage?

Q: Discuss Adam Smith's concept of absolute advantage.

Q: Mercantilism viewed trade as a zero-sum game. Discuss Adam Smith's and David Ricardo's stand on this view. Also discuss the phenomenon of neo-mercantilism.

Q: What is meant by the term free trade? Is free trade compatible with the concept of mercantilism?

Q: Which of the following helps a firm to preempt available demand, gain cost advantages related to volume, and build an enduring brand ahead of later competitors? A.Monopolistic practices B.Comparative advantages C.Absolute advantages D.First-mover advantages E.Mercantilism

Q: If a company were to draw from the ideas proposed in the various theories of international trade, from a profit perspective, how would it go about selecting locations for its businesses? A.It would concentrate its productive activities mostly in developing countries. B.It would concentrate its productive activities in its home country. C.It would disperse its productive activities to those countries where they can be performed most efficiently. D.It would disperse its productive activities across all countries that serve as its market. E.It would concentrate its productive activities mostly in developed countries.

Q: Which of the following was a pervasive finding of Porter's study? A.Successful industries within a country tend to be grouped into clusters of related industries. B.Trade increases the specialization of production within an industry. C.The pattern of trade we observe in the world economy may be the result of first-mover advantages. D.Purchasing power parity of a country determines its demand conditions. E.Differences in technology may lead to differences in productivity, which in turn, drives international trade patterns.

Q: Porter, in his diamond model, suggested that there is a strong association between which of the following and the creation and persistence of competitive advantage in an industry? A.Trade barriers B.Vigorous domestic rivalry C.Purchasing power parity D.The availability of a captive market E.First-mover advantages

Q: Porter argues that a nation's firms gain competitive advantage if their domestic consumers are: A.sophisticated and demanding. B.price insensitive and trusting. C.accommodating and flexible. D.nationalistic and protective of their domestic industries. E.biased toward foreign products.

Q: Which of the following components of Porter's diamond is particularly important in shaping the attributes of domestically made products and in creating pressures for innovation and quality? A.Basic factor endowments B.Advanced factor endowments C.Firm strategy D.Demand conditions E.Supporting industries

Q: Which of the following is true of factor endowments according to Porter? A.Basic factors, unlike advanced factors, are the most significant for competitive advantage. B.Basic factors can be upgraded by nations, while advanced factors are endowed by nature. C.The initial advantage provided by advanced factors is extended by investment in basic factors. D.Disadvantages in basic factors can create pressures to invest in advanced factors. E.Advanced factors include climate, location, and demographics.

Q: Which of the following factor endowments would be classified as a basic factor by Michael Porter? A.Communication infrastructure B.Research facilities C.Natural resources D.Skilled labor E.Technological know-how

Q: Which of the following is one of the four factors included in Porter's diamond? A.Purchasing power parity B.Gross national income C.Economies of scale D.Firm strategy, structure, and rivalry E.Gross domestic product

Q: Which of the following is true of the four attributes that make Porter's diamond? A.Absence of any single attribute does not impact effectiveness of the diamond. B.The effect of one attribute is contingent on the state of others. C.The diamond is not a mutually reinforcing system. D.Chance events, such as major innovations, do not affect Porter's diamond. E.Only in the absence of one of the four attributes can government policies influence Porter's diamond.

Q: According to Porter's diamond, what are factor endowments? A.The position of a nation regarding the components of production necessary to compete in a given industry B.The presence or absence of related industries that are internationally competitive C.The conditions governing how companies are created, organized, and managed and the nature of domestic rivalry D.The nature of home demand for the industry's product or service E.The economic and strategic advantages that accrue to early entrants into an industry

Q: Which of the following formed the crux of Porter's study of national competitive advantage? A.Identifying the various stages of the life cycle of a product B.Determining why a country achieves international success in a particular industry C.Determining how trade barriers affect the prices of products in the international market D.Determining how pre-industrialization theories predict international trade patterns E.Determining the relationship between factor endowments and economies of scale

Q: The new trade theory diverts from its advocacy of free trade by suggesting that: A.the price of a new product increases along with the increase in the popularity of the product. B.nations benefit from trade even in the absence of resource endowments and technology. C.there is an economic rationale for a proactive trade policy. D.the role of luck, entrepreneurship, and innovation is important in giving a firm first-mover advantages. E.market expansion leads to better realization of economies of scale.

Q: Which of the following theories supports government intervention and strategic trade policy? A.Theory of absolute advantage B.Theory of comparative advantage C.Heckscher-Ohlin theory D.New trade theory E.Poduct life-cycle theory

Q: Which of the following is an empirically supported prediction of the new trade theory? A.Trade increases the specialization of production within an industry. B.Nations benefit from trade only when they differ in factor endowments. C.Government intervention and strategic trade policies are more likely to harm international trade than is free trade. D.The locus of global production initially switches from the United States to other advanced nations. E.Comparative advantage arises from differences in productivity and factor endowments.

Q: The new trade theory is at variance with which of the following theories, which suggests that a country will predominate in the export of a product when it is particularly well endowed with those factors used intensively in its manufacture? A.Heckscher-Ohlin B.Product life-cycle C.Comparative advantage D.Absolute advantage E.National competitive advantage

Q: Which of the following creates a barrier to subsequent entries in an industry dominated by first movers? A.The laissez-faire stance toward trade adopted by first movers B.Implementation of policies to maximize imports and minimize exports C.Specializing in the production of goods for which firms have an comparative advantage D.The ability of first movers to benefit from increasing returns E.Decrease in the variety of goods available to consumers and increase in the cost of existing goods

Q: One of the suggestions of the new trade theory is that: A.differences in technology leads to differences in productivity, which in turn, drives international trade patterns. B.nations may benefit from trade irrespective of resource endowments or technology. C.the demand for most new products tends to be based on nonprice factors. D.globally dispersed production reduces the production costs of mature products. E.comparative advantage does not arrive from a difference in factor endowments but from a difference in productivity.

Q: Which of the following advantages is most likely to be enjoyed by a company as a part of the first-mover advantages? A.Increasing returns to specialization B.A positive-sum game due to lack of competition C.The ability to capture scale economies ahead of later entrants D.Absolute advantage and higher efficiency E.The ability to specialize in the production of a particular product

Q: The economic and strategic advantages that accrue to early entrants in an industry are called: A.first-mover advantages. B.comparative advantages. C.absolute advantages. D.economies of scale. E.factor endowments.

Q: According to the new trade theory: A.the ability to capture first-mover advantages is restricted in a world that disallows trade. B.differences in labor productivity between nations underlie the notion of comparative advantage. C.a country may predominate in the export of a good because it has firms that were among the first to produce that good. D.to ensure economic progress, countries should implement several trade barriers. E.different goods use resources in different proportions and this leads to constant returns to specialization.

Q: According to the new trade theory, how does trade offer an opportunity for mutual gain when countries do not differ in their resource endowments or technology? A.Trade results in a contraction of the size of the markets of individual firms. B.Trade allows for production of products at higher prices. C.Trade increases the variety of goods available to consumers and lowers the costs of those goods. D.Trade allows countries to attain self-sufficiency in the production of all goods. E.Trade guarantees first-mover advantages to all the countries that engage in trade.

Q: According to the new trade theory, which of the following is most likely to be a result of market expansion due to trade? A.A wide variety of products is produced at greater unit costs than in the absence of trade. B.As the variety of products increases, demand for individual products decreases, leading to non-realization of economies of scale. C.Each nation may specialize in producing a narrower range of products, importing goods that it does not make. D.The ability to capture first-mover advantages is restricted in a world that allows trade. E.When countries do not differ in their resource endowments or technology, trade does not offer mutual benefits.

Q: Which of the following is a result of certain products having small national markets, in the absence of trade? A.The variety of products available to consumers increases. B.Limited demand for such products leads to non-realization of economies of scale. C.Each nation will specialize in producing a narrower range of products than it would in the presence of trade. D.At low volumes of production, unit costs and prices would be lowered. E.The first movers in an industry may get a lock on the world market that discourages subsequent entry.

Q: According to the new trade theory, trade, through its impact on economies of scale, is most likely to: A.reduce the volume of the goods produced. B.decrease the variety of goods available to consumers. C.decrease the average costs of goods. D.inhibit first-mover advantages in all industries. E.benefit only nations that differ in resource endowments or technology.

Q: The new trade theory states that: A.the locus of global production initially switches from the United States to other advanced nations. B.world trade in certain products may be dominated by countries whose firms were first movers in their production. C.differences in technology may lead to differences in productivity, which in turn drives international trade patterns. D.differences in labor productivity between nations underlie the notion of comparative advantage. E.a rich country might actually be worse off by switching to a free trade regime with a poor nation.

Q: Which of the following theories states that in those industries where the output required to attain economies of scale represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises? A.Heckscher-Ohlin B.Comparative advantage C.Product life-cycle D.New trade E.Absolute advantage

Q: New trade theory argues that, through its impact on economies of scale, trade can: A.increase the average costs of goods. B.enable the global market to support a wide range of enterprises. C.negatively affect the first-mover advantage for all products. D.increase the variety of goods available to consumers. E.prevent diminishing of returns and promote constant returns to specialization.

Q: Which of the following are unit cost reductions associated with a large scale of output? A.Comparative advantages B.Factor endowments C.Economies of scale D.Diminishing returns E.Absolute advantages

Q: Which of the following theories began to emerge when economists pointed out that the ability of firms to attain economies of scale might have important implications for international trade? A.Comparative advantage B.Heckscher-Ohlin C.New trade D.Product life-cycle E.Absolute advantage

Q: Which of the following is a drawback of the product life-cycle theory? A.Its relevance in the modern world seems limited. B.It makes many simplifying assumptions. C.It fails to explain the pattern of international trade during the period of American global dominance. D.It fails to explain what happens when a product's market in the United States and other advanced nations matures. E.It fails to account for diminishing returns.

Q: According to the product life-cycle theory, the locus of global production initially switches from the United States to other advanced nations and then from those nations to developing countries. Which of the following is most likely to be a consequence of these trends? A.U.S. imports become less capital-intensive than U.S. exports. B.The pattern of international trade is affected by differences in factor endowments rather than differences in productivity. C.Over time, the United States switches from being an exporter of a product to an importer of the product. D.The wage rates in the United States decrease. E.Developing nations fail to upgrade their skill levels to compete with advanced countries.

Q: According to Vernon, which of the following influences the movement of the locus of global production from advanced countries to developing countries? A.Cost considerations B.Factor endowments C.Domestic competition D.Supporting industries E.Firm structure

Q: Vernon theorizes that as the market in the United States and other advanced nations matures: A.it necessitates exports from the United States to those countries. B.it is no longer worthwhile for foreign producers to produce for their home markets. C.it obviates the need to look for low-cost production sites in other countries. D.the product becomes more standardized, and price becomes the main competitive weapon. E.the resources used in production begin to become scarce.

Q: Vernon predicts that as the demand for a new product starts to grow in other advanced countries, in the long run: A.the cost of labor in these advanced countries begins to increase. B.it becomes profitable for foreign firms to invest in production facilities in the United States. C.the firms in the United States begin to gain an absolute advantage. D.it begins to limit the potential for exports from the United States. E.the same product will begin to command a higher price.

Q: Vernon argues that early in the life cycle of a typical new product, while demand is starting to grow rapidly in the United States, demand in other advanced countries: A.remains limited to high-income groups. B.necessitates production of that product in those countries. C.necessitates outsourcing of production to low-cost locations. D.raises the cost of production in the United States. E.causes a shift in the position of the United States from that of an exporter to an importer.

Q: According to Vernon, which of the following factors obviates the need for pioneering U.S. firms to look for low-cost production sites in other countries? A.The uncertainties and risks inherent in introducing new products are very low. B.The demand for most new products tends to be based mainly on price. C.U.S. labor costs are relatively low compared to global standards. D.Firms can charge relatively high prices for new products. E.The production of innovative products in other advanced countries limits the potential for exports from the United States.

Q: Vernon argues that pioneering firms in the United States kept production facilities closer to the market and centers of decision making because: A.of the uncertainty and risks inherent in introducing new products. B.they believed that foreign production facilities were inferior in technical skills. C.they believed that U.S. labor costs were much lower than those in foreign markets. D.the U.S. government was critical of outsourcing production to other countries. E.of the high trade barriers implemented by several Asian and European countries.

Q: According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to: A.lower costs of services to offset a fall in demand. B.develop cost-saving process innovations. C.invite foreign direct investment in domestic industries. D.embrace and promote open market capitalism. E.import new consumer products and export agricultural products.

Q: On which of the following observations was Raymond Vernon's product life-cycle theory based? A.The wealth and size of the U.S. market gave U.S. firms a strong incentive to develop new consumer products. B.The high cost of U.S. labor gave U.S. firms an incentive to develop cost-saving process innovations. C.The United States developed a very large proportion of the world's new products for most of the twentieth century and sold them first in the U.S. market. D.The United States exports goods that heavily use skilled labor and imports heavy manufacturing products that use large amounts of capital. E.The United States has long been a substantial exporter of agricultural goods, reflecting in part its unusual abundance of arable land.

Q: Which of the following is most likely an explanation for the Leontief paradox observed in the case of the United States? A.The United States imports goods that heavily use skilled labor and innovative entrepreneurship. B.The United States has a special advantage in producing new products made with innovative technologies. C.The United States exports heavy manufacturing products that use large amounts of capital. D.The United States has a strong absolute advantage over other nations because of its advantageous factor endowments. E.The United States imports goods that make intensive use of factors that are locally abundant.

Q: U.S. exports are less capital-intensive than U.S. imports, despite the relative abundance of capital in the country. What is this phenomenon that runs contrary to the prediction of the Heckscher-Ohlin theory called? A.A zero-sum game B.The Leontief paradox C.A positive-sum game D.Samuelson's critique E.A first-mover advantage

Q: Which of the following predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce? A.Mercantilism B.The theory of absolute advantage C.The Heckscher-Ohlin theory D.The theory of comparative advantage E.Samuelson's critique

Q: The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory: A.makes more simplifying assumptions. B.cannot be subjected to empirical tests. C.actually predicts trade patterns with greater accuracy. D.argues that the pattern of international trade is determined by differences in national factor endowments. E.suggests that trade is a positive-sum game in which all countries that participate realize economic gains.

Q: Meitneria and Seaboria specialize in the production of heavy machinery and textiles respectively. While Meitneria doesn't produce textiles, Seaboria is not as technologically advanced as Meitneria. In this situation, according to the Heckscher-Ohlin theory: A.Meitneria will import textiles from Seaboria and export heavy machinery to it. B.Meitneria will invest more than Seaboria in the production of textiles to exploit its comparative advantage. C.Meitneria and Seaboria will raise their trade barriers to protect their economies. D.Seaboria will recruit experts from Meitneria to specialize in the production of heavy machinery. E.Meitneria will recruit workers from Seaboria to improve its standing in the textile industry.

Q: According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in: A.labor productivity. B.diminishing returns. C.factor endowments. D.management practices. E.trade barriers.

Q: Which of the following is true of the relationship between trade and economic growth? A.Countries open to international trade display higher growth rates than those that close their economies to trade. B.Within a group of developing countries, closed economies grow faster than open economies. C.The Leontief paradox notes that adopting an open economy and embracing free trade does not reward a nation with higher economic growth. D.Free trade hampers economic growth and leads to lower living standards in the long run. E.Free trade has historically benefited poor counties and hence trade barriers should be introduced to protect rich countries from exploitation.

Q: One of the rebuttals to Samuelson's critique of the free trade model is that: A.the United States' ability to achieve constant returns to specialization is unparalleled. B.the strict immigration policies of the United States help insulate the economy from inward migration. C.introducing trade barriers may in fact be beneficial to developed nations to some extent. D.developing nations are unlikely to upgrade the skill level of their workforce rapidly enough. E.the developing nations are unlikely to run into diminishing returns in a near future.

Q: Which of the following statements best indicates Samuelson's criticism of free trade? A.Dynamic gains lead to a universally beneficial outcome for all countries. B.Offshoring service jobs that were traditionally mobile will increase the market clearing wage rate. C.Free trade has historically been beneficial only to developing countries. D.By importing cheap goods from a poor country a rich country may not be able to produce a net gain if the dynamic effect of free trade is to lower real wage rates in the rich country. E.Trade changes a country's stock of resources and the efficiency with which it utilizes those resources.

Q: Which of the following is a reason for diminishing rather than constant returns to specialization? A.All resources are of the same quality. B.Resources can shift from the production of one good to another seamlessly. C.Each country has a fixed stock of resources. D.Different goods use different resources in different proportions. E.Trade does not affect the distribution of income within a country.

Q: Diminishing returns to specialization occur when: A.resources can move freely from the production of one good to another within a country. B.more units of resources are required to produce each additional unit. C.the cost of producing goods reduces substantially with increase in number of goods produced. D.the quality of resources comes down as a result of producing more goods. E.the quality of goods produced per unit of resource begins to improve.

Q: Consider two countries Daria and Atlantis. Daria is a major producer of wheat and rice while Atlantis specializes in the production of fertilizers and manufacturing equipment. Engaging in free trade benefits both countries since Daria is an agrarian nation and Atlantis lacks arable land. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it. Which of the following is an inaccurate assumption on which this conclusion is based? A.We have assumed a simple world in which there are only two countries. B.We have assumed the prices of resources and exchange rates in the two countries are dynamic. C.We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. D.We have assumed that agrarian nations do not specialize in producing fertilizers. E.We have assumed diminishing returns to specialization.

Q: Argonia and Selenia have specialized in the production of industrial equipment and pharmaceuticals respectively. Argonia exports industrial equipment to Selenia, which in turn exports chemicals and medicines to Argonia. According to the theory of comparative advantage, this mutually beneficial trade relationship best illustrates: A.the significance of trade barriers. B.a positive-sum game. C.a first-mover advantage. D.the advantages of mercantilism. E.a zero-sum game.

Q: Which of the following suggests that trade is a positive-sum game in which all participating countries fetch economic gains? A.The Heckscher-Ohlin theory B.Mercantilism C.The theory of comparative advantage D.Leontief's paradox E.The Samuelson critique

Q: Which of the following suggests that consumers in all nations can consume more if there are no restrictions on trade? A.The Heckscher-Ohlin theory B.Mercantilism C.Leontief's paradox D.Ricardo's theory of comparative advantage E.The Samuelson critique

Q: Palladia specializes in the production of beef and produces beef more efficiently than any other country. It buys wheat, which it produces less efficiently than beef, from Rhodia, even though it produces wheat more efficiently than Rhodia. Which of the following theories of international trade supports Palladia's decision to buy wheat from Rhodia? A.The Samuelson critique B.Mercantilism C.Ricardo's theory of comparative advantage D.Adam Smith's theory of absolute advantage E.The Leontief paradox

Q: Cadmia and Rhodia specialize in the production of textiles and agricultural products respectively. They are the best at their respective specializations. Cadmia trades textiles with Rhodia in exchange for agricultural products. Which of the following is illustrated by this form of trade between Cadmia and Rhodia? A.Product life-cycle theory B.Heckscher-Ohlin theory C.The concept of absolute advantage D.Mercantilism E.Theory of national competitive advantage

Q: Australia is a major producer of agricultural and dairy products and exports coffee, tea, spices, and milk products to the United States. United States is the world's third largest supplier of machinery and exports heavy machinery to Australia. What explains the trade equation between Australia and the United States? A.Tariff barriers determine the flow of goods and services between nations. B.Countries are simultaneously encouraging exports and discouraging imports. C.First entrants to the industry ensure their nations have the first-mover advantages. D.Nations with an absolute advantage in producing certain goods trade them for goods produced by other countries. E.Gold and silver are the mainstays of national wealth and essential to vigorous commerce.

Q: Neo-mercantilists equate political power with economic power and economic power with: A.corruption. B.a balance-of-trade surplus. C.regional dominance. D.a trade monopoly. E.capitalism.