Q&A Hero

Q: Which of the following components of Porters 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. Disadvantage in basic factors can create pressures to invest in advanced factors. E. Advanced factors include climate, location, and demographics.

Q: Porter argued that in terms of factor endowments, _____ factors are the most significant for competitive advantage. A. constant B. basic C. advanced D. complementary E. comparative

Q: Which of the following factor endowments would be classified as an advanced factor by Michael Porter? A. Demographics B. Climate C. Natural resources D. Skilled labor E. Location

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 Porters 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 Porters diamond. E. Only in the absence of one of the four attributes, government policies can influence Porters 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 industrys product or service E. The economic and strategic advantages that accrue to early entrants into an industry

Q: Which of the following is a component of Porter's diamond? A. First-mover advantages B. Comparative advantages C. Constant returns to specialization D. Demand conditions E. Economies of scale

Q: Which of the following formed the crux of Porter's 1990 study of national competitive advantage? A. Identifying the various stages of the lifecycle of a product B. Determining how 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 existing trade theories predict international trade patterns E. Determining the relationship between factor endowments and economies of scale

Q: Which of the following was being determined by the research that led to the development of the theory of national competitive advantage? A. How government intervention and trade policies affect international trade B. How economies of scale impact the variety of goods and scale of production C. How technological advances impact first mover advantages D. Why some countries succeed and others fail in international competition E. How trade increases the variety of goods and decrease the cost of these goods

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

Q: Which of the following theories generates for 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 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 the _____ theory, 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 allows 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: Which of the following is true of a world without trade that has industries where economies of scale are important? A. The variety of goods that a country can produce and the scale of production are limited by the size of the market. B. Each nation will specialize in producing a narrower range of products than it would in the presence of trade. C. Each nation can simultaneously increase the variety of goods available to its consumers and lower the costs of those goods. D. The absence of trade is mutually beneficial because it allows for the specialization of production. 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. only benefit 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: The _____ theory 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: _____ 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: The _____ theory 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 get affected by differences in factor endowments rather than differences in productivity. C. Over time, the U.S. 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 U.S. and other advanced nations matures: A. it necessitates exports from the United States to those countries. B. it becomes worthwhile for foreign producers to begin producing 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 resource used in the 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 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. eventually 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: One of the key assumptions of the Heckscher-Ohlin theory is that: A. technologies are the same across countries. B. the prices of resources in different countries are similar. C. resources can move freely from the production of one good to another within a country. D. trade has no effect on income distribution in a country. E. trade patterns are largely driven by international differences in productivity.

Q: One of the drawbacks of the Heckscher-Ohlin theory is that: A. it does not explain the differences in national factor endowments. B. it argues that comparative advantage arises from differences in the countries' labor productivity. C. it lacks commonsense appeal. D. it is a relatively poor predictor of real-world international trade patterns. E. it cannot be subjected to many empirical tests.

Q: Which of the following is most likely to be a possible explanation for the Leontief paradox observed in the case of the United States? A. U.S. imports goods that heavily use skilled labor and innovative entrepreneurship. B. U.S. has a special advantage in producing new products made with innovative technologies. C. U.S. exports heavy manufacturing products that use large amounts of capital. D. U.S. has a strong absolute advantage over other nations because of its advantageous factor endowments. E. U.S. 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. This phenomenon that runs contrary to the prediction of the Heckscher-Ohlin theory is termed as _____. A. zero-sum game B. the Leontief paradox C. positive-sum game D. Samuelson's critique E. first-mover advantage

Q: Most economists prefer the Heckscher-Ohlin theory to Ricardo's theory because: A. it makes fewer simplifying assumptions. B. it predicts real-world international trade patterns with greater accuracy. C. it suggests that nations may benefit from trade even when they do not differ in resource endowments or technology. D. ricardo's theory is too complicated to be applied to real-world scenarios. E. it states that economies of scale have important implications for international trade.

Q: _____ 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: Nations have varying factor endowments, and different factor endowments explain differences in _____. A. labor productivity B. the returns obtained from the factors C. diminishing returns D. factor costs E. trade barriers

Q: Meitneria and Seaboria specialize in the production of heavy machinery and textiles respectively. While Meitneria doesnt 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 worksmen 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 third world 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 countrys stock of resources and the efficiency with which it utilizes those resources.

Q: Dynamic gains in both the stock of a country's resources and the efficiency with which resources are utilized will: A. cause the country's production possibility frontier to assume a bell-shaped curve. B. enable the country to produce more goods than it did before the introduction of free trade. C. cause the country's production possibility frontier to shift inward. D. enable the country to achieve constant returns to specialization. E. diminish static gains that stagnate economic growth.

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: It more realistic to assume diminishing returns to specialization when applying the theory of comparative advantage to a simplified model with two nations because: A. there exist differences in the prices of resources in different countries. B. resources can move freely from the production of one good to another within a country. C. all resources are not of the same quality. D. different goods use resources in the same proportions. E. trade does not affect the income distribution within a country.

Q: Diminishing returns to specialization occurs 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 pain caused by the movement toward a free trade regime is a long-term phenomenon.

Q: _____ means that the units of resources required to produce a good are assumed to remain constant no matter where one is on a country's production possibility frontier. A. Zero-sum game B. Positive-sum game C. Constant returns to specialization D. Diminishing returns E. Economies of scale

Q: _____ argued that in certain circumstances the theory of comparative advantage predicts that a rich country might be worse off by switching to a free trade regime with a poor nation. A. Raymond Vernon B. Andrew Warner C. Paul Samuelson D. Jeffery Sachs E. David Ricardo

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 that each country has a fixed stock of resources. C. We have assumed that Daria and Atlantis do not engage in freed trade with other countries. D. We have assumed that agrarian nations do not specialize in producing fertilizers. E. We have assumed that industrial nations do not have arable land.

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. 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: _____ 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: _____ 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 support 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: Who is the proponent of the theory of comparative advantage? A. Adam Smith B. David Ricardo C. Paul Samuelson D. Eli Heckscher E. Bertil Ohlin

Q: Which of the following is a correct inference from Adam Smith's theory of absolute advantage? A. There is no virtue in a large volume of trade. Rather, policies should be implemented to maximize exports and minimize imports. B. It is in a countrys best interests to maintain a trade surplus, to export more than it imports. C. Trade is a zero-sum game in which a gain by one country results in a loss by another. D. A country that has an absolute advantage in the production of all goods might derive no benefits from international trade. E. Trade is a positive-sum game in which all countries that participate realize economic gains.

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: According to Adam Smith, countries should specialize in the production of goods for which they have an absolute advantage and then: A. retain these goods for strict domestic sales. B. trade these goods for goods produced by other countries. C. sell these products domestically at prices which are much below the cost price. D. sell these products at a price, which is lower than the cost price, in developing countries so as to help them achieve economic progress. E. devote all available resources to produce only those goods.

Q: A country is said to have a(n) _____ in the production of a product when it is more efficient than any other country in producing that product. A. comparative advantage B. relative advantage C. differential advantage D. absolute advantage E. conditional advantage

Q: In his 1776 landmark book The Wealth of Nations, Adam Smith attacked _____ by criticizing its assumption that trade is a zero-sum game. A. mercantalism B. capitalism C. the new trade theory D. the product life-cycle theory E. the theory of factor endowments

Q: According to Adam Smith and David Ricardo, trade is _____. A. a zero-sum game B. a threat to a nation's sovereignty C. a threat to a nation's economy D. a positive-sum game E. harmful for all developed nations

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

Q: What is a zero-sum game? A. A situation in which the market mechanism determines what a country imports and what it exports. B. A situation in which a country engages in international trade even for products it is able to produce for itself. C. A situation in which a gain by one country results in a loss by another. D. A situation in which limits on imports are often in the interests of domestic producers, but not domestic consumers. E. A situation in which one country has an absolute advantage in the production of all goods.

Q: The flaw with mercantilism was that it viewed trade as a: A. zero-sum game. B. mutually beneficial activity. C. positive-sum game. D. threat to a nation's sovereignty. E. threat to a nation's economy.

Q: An inconsistency in the mercantilist doctrine, as pointed out by David Hume, is that: A. the volume of a country's imports increase as an indirect consequence of mercantilism. B. the exclusion of government influence in matters pertaining to trade is not ideal. C. in the long run, no country could sustain a surplus on the balance of trade. D. it was not backed by either sound political principles or social ideologies. E. trade is a zero-sum game rather than a positive-sum game as postulated by the theory.

Q: The Republic of Argonia, owing to it's 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 what it gains from exports. Which of the following theories prohibits such international trade? A. New trade theory B. Product life-cycle theory C. Mercantilism D. Heckscher-Ohlin theory E. Theory of national competitive advantage

Q: Which of the following is consistent with the central beliefs of mercantilism? A. A country's government should intervene to achieve a surplus in the balance of trade. B. A large volume of trade is essential regardless of whether it comes from imports or exports. C. Trade is a positive-sum game in which all countries benefit from trading with each other. D. A country that has an absolute advantage in the production of all goods derives no benefits from international trade. E. Potential world production is greater with unrestricted free trade than it is with restricted trade.

Q: Considered to be the first theory of international trade, the principal assertion of mercantilism is that: A. countries differ in their ability to produce goods efficiently. B. gold and silver are the mainstays of a country's wealth and essential to vigorous commerce. C. countries should specialize in the production of goods for which they have an absolute advantage. D. differences in labor productivity between nations underlie the notion of comparative advantage. E. resources can move freely from the production of one good to another within a nation.

Q: Which of the following is in a country's best interests according to the main tenet of mercantilism? A. Importing products from developing rather than developed countries B. Importing products even if they are efficiently produced at home C. Importing less specialized goods rather than attempting to make them at home D. Minimizing exports and maximizing imports E. Maintaining a trade surplus

Q: _____ advocated that countries should simultaneously encourage exports and discourage imports. A. Ethnocentrism B. Capitalism C. Collectivism D. Mercantilism E. Socialism