国际商务习题005

Chapter 05 - International Trade Theory
Chapter 05
International Trade Theory

True / False Questions

1. (p. 154) Countries such as the U.S should not participate in free trade because it leads to a
migration of jobs oerseas and ultimately leads to lo!er liing standards.
FALSE

Difficulty: Medium

". (p. 154) # situation !here a goernment does not attempt to influence$ through %uotas or
duties$ !hat its citi&ens can buy from another country or !hat they can produce and sell to
another country is 'no!n as free trade.
TRUE

Difficulty: Easy

(. (p. 155) #ccording to the theories of Smith$ )icardo and *ec'scher-+hlin$ if a country can
produce a product itself it should not import that product.
FALSE

Difficulty: Medium

,. (p. 155) The theories of Smith$ )icardo and *ec'scher-+hlin tell us that a country-s economy
may gain if its citi&ens buy certain products from other nations that could be produced at
home.
TRUE

Difficulty: Medium

5-1
5. (p. 155) The *ec'scher-+hlin theory emphasi&es the interplay bet!een the proportions in
!hich the factors of production are aailable in different countries and the proportions in
!hich they are need for producing particular goods.
TRUE

Difficulty: Medium

.. (p. 155) The *ec'scher-+hlin theory has proen to be a po!erful e/planation of !orld trade
patterns.
FALSE

Difficulty: Medium

0. (p. 156) 1e! trade theory stresses that in some cases countries speciali&e in the production
and e/port of particular products not because of underlying differences in factor endo!ments$
but because in certain industries the !orld mar'et can only support a limited number of
firms.
TRUE

Difficulty: Medium

2. (p. 156) )icardo noted the importance of country factors such as domestic demand and
domestic rialry in e/plaining a nation-s dominance in the production and e/port of particular
products.
FALSE

Difficulty: Hard

3. (p. 156) The theory of absolute adantage !as the first theory of international trade.
FALSE

Difficulty: Easy

5-"
5-(
10. (p. 156) #ccording to the theory of comparatie adantage$ it is in a country-s best interest to
maintain a trade surplus and to e/port more than it imports.
FALSE

Difficulty: Medium

11. (p. 157) 4hen a gain by one country results in a loss by another$ there is a &ero-sum game.
TRUE

Difficulty: Medium

1". (p. 160) Smith-s theory of international trade suggests that !hen one country has an absolute
adantage in the production of all goods$ the country might not derie any benefit from
international trade.
TRUE

Difficulty: Medium

1(. (p. 160) #ccording to )icardo$ there may be cases !hen it ma'es sense for a country to buy
goods from another country that it can ma'e more efficiently itself.
TRUE

Difficulty: Hard

1,. (p. 162) 4hile popular in its time$ )icardo-s theory is no longer a major intellectual !eapon
for those !ho argue for free trade.
FALSE

Difficulty: Medium

5-,
15. (p. 162) )icardo-s theory of comparatie adantage proides a strong rationale for
encouraging free trade.
TRUE

Difficulty: Medium

1.. (p. 162) The theory of comparatie adantage suggests that trade is a positie-sum game in
!hich all countries that participate reali&e economic gains.
TRUE

Difficulty: Medium

10. (p. 163) 5olitical opposition to the adoption of a free trade regime typically comes from those
!hose jobs are most at ris'.
TRUE

Difficulty: Medium

12. (p. 164) 6ecause of diminishing returns$ it is not feasible for a country to speciali&e to the
degree suggested by the simple )icardian model.
TRUE

Difficulty: Medium

13. (p. 166) In general$ economic studies suggest that countries that adopt a more open stance
to!ard international trade enjoy higher gro!th rates than those !ho 'eep their economies
closed to trade.
TRUE

Difficulty: Medium

5-5
"0. (p. 16) The *ec'scher-+hlin theory argues that free trade is not beneficial to most nations.
FALSE

Difficulty: Easy

"1. (p. 16!) The *ec'scher-+hlin theory gains predictie po!er once the impact of differences
of technology on productiity is controlled for.
TRUE

Difficulty: Medium

"". (p. 16!) )ay 7ernon suggested the !ealth and si&e of the U.S. mar'et gae U.S. firms a
strong incentie to deelop ne! consumer products.
TRUE

Difficulty: Medium

"(. (p. 16!) # central point in 7ernon-s product life cycle !as that demand for ne! products
tends to be solely based on price factors.
FALSE

Difficulty: Medium

",. (p. 170) *istorically$ the product life cycle theory seems to be an accurate e/planation of
international trade patterns.
TRUE

Difficulty: Hard

5-.
"5. (p. 170"171) 6ecause a gro!ing number of ne! products are no! introduced simultaneously
in the U.S$ 8apan and the adanced 9uropean nations$ 7ernon-s product life cycle is limited in
e/plaining !orld trade patterns.
TRUE

Difficulty: Medium

".. (p. 172) 9conomies of scale are unit cost reductions associated !ith a large scale of output.
TRUE

Difficulty: Easy

"0. (p. 173) Trade is mutually beneficial$ according to ne! trade theory$ because it allo!s for the
speciali&ation of production$ the reali&ation of scale economies and the production of a greater
ariety of products at lo!er prices.
TRUE

Difficulty: Medium

"2. (p. 173) 1e! trade theory suggests that nations may benefit from trade een !hen they do
not differ in resource endo!ments or technology.
TRUE

Difficulty: Medium

"3. (p. 174) 1e! trade theory and the *ec'scher-+hlin theory are in complete agreement !ith
regard to !orld trade patterns.
FALSE

Difficulty: Hard

5-0
(0. (p. 175) #ccording to 5orter$ four broad attributes of a nation shape the enironment in
!hich local firms compete include. These are supply conditions$ factor endo!ments$
regulation and adanced factors.

FALSE

Difficulty: Medium

(1. (p. 175) 5orter argues that faorable demand conditions !ill result in competitie adantage
unless the state of rialry is sufficient to cause firms to respond to them.
FALSE

Difficulty: Hard

(". (p. 176) :actor endo!ments lie at the center of the *ec'scher;+hlin theory.
TRUE

Difficulty: Easy

((. (p. 176) #ccording to 5orter$ the characteristics of home demand are particularly important
in shaping the attributes of domestically made products and in creating pressures for
innoation and %uality.
TRUE

Difficulty: Easy

(,. (p. 177) 5orter suggests that different nations are characteri&ed by different management
ideologies$ !hich either help them or do not help them to build national competitie
adantage.
TRUE

Difficulty: Medium

5-2
5-3
(5. (p. 17!) 5orter-s diamond of competitie adantage has proen to be a po!erful predictor of
!orld trade patterns.
FALSE

Difficulty: Medium

(.. (p. 17!) :rom a profit perspectie$ it ma'es sense for a firm to disperse its productie
actiities to those countries !here$ according to the theory of international trade$ they can be
performed most efficiently.
TRUE

Difficulty: Easy

(0. (p. 10) #ssembly of electronic components is a relatiely labor-intensie process re%uiring
only lo!-s'illed labor and cost pressures are intense. #s a result$ final assembly may be
carried out in a country such as the United States.

FALSE

Difficulty: Easy

(2. (p. 10) #ccording to the ne! trade theory$ firms that establish a first-moer adantage !ith
regard to the production of a particular ne! product may subse%uently dominate global trade
in that product.
TRUE

Difficulty: Easy

5-10
(3. (p. 10) The theories of international trade claim that promoting free trade is generally in the
best interests of an indiidual firm$ although it may not al!ays be in the best interest of a
country.
FALSE

Difficulty: Medium

5-11
,0. (p. 11) 5orter-s theory of national competitie adantage suggests that it is in the best
interest of business for a firm to inest in upgrading adanced factors of production.
TRUE

Difficulty: Easy

Multiple Choice Questions

,1. (p. 154) 5ropagated in the 1.th and 10th centuries$ <<<<< adocated that countries should
simultaneously encourage e/ports and discourage imports.
#. 9thnocentrism
6. Capitalism
C. Collectiism
! =ercantilism

Difficulty: Easy

,". (p. 154) #ccording to <<<<<$ maintaining a laisse&-faire stance to!ard trade is to the best
interests of a country.
#. The mercantilist philosophy
"! #dam Smith
C. =ilton :riedman
>. 8ohn Stuart =ill

Difficulty: Medium

5-1"
,(. (p. 154) :ree trade
#. :ormed the basis for the mercantilist philosophy
6. Is in direct contrast to the notion of the inisible hand as adocated by Smith
C! )efers to a situation !here a goernment does not attempt to influence through %uotas or
duties !hat its citi&ens can buy from another country
>. )ejects the laisse&-faire stance to!ard trade and maintains that it is not in the best interests
of a country

Difficulty: Medium

,,. (p. 154) This theory$ proposed in 100.$ !as the first to e/plain !hy unrestricted free trade is
beneficial to a country.
#. =ercantilism
6. *ec'scher-+hlin
C. Comparatie adantage
! #bsolute adantage

Difficulty: Medium

,5. (p. 154) 4hich of the follo!ing scholars argued that the ?inisible hand? of the mar'et
mechanism$ rather than goernment policy$ should determine !hat a country imports and
!hat it e/ports@
#. =ilton :riedman
6. 8ohn Stuart =ill
C. Carl =ar/
! #dam Smith

Difficulty: Hard

5-1(
,.. (p. 154) This theory$ adanced by the 13th-century 9nglish economist >aid )icardo$ forms
the intellectual basis of the modern argument for unrestricted free trade.
#. *ec'scher-+hlin
6. =ercantilism
C! Comparatie adantage
>. #bsolute adantage

Difficulty: Medium

,0. (p. 155) #ll of the follo!ing theories sho! !hy it is beneficial for a country to engage in
international trade een for products it is able to produce for itself$ e/cept
A! =ercantilism.
6. *ec'scher-+hlin

Difficulty: Hard

,2. (p. 155) <<<<< suggests that international differences in labor productiity are 'ey to
understanding patterns of international trade.
#. =ercantilism
6. 7ernon
C. =ichael 5orter
! >aid )icardo

Difficulty: Hard

5-1,
,3. (p. 155) This theory e/plains the obsered patterns of international trade by emphasi&ing the
interplay bet!een the proportions in !hich the factors of production are aailable in different
countries and the proportions in !hich they are needed for producing particular goods.
#. =ercantilism
6. #bsolute adantage
C! *ec'scher-+hlin
>. Comparatie adantage

Difficulty: Medium

5-15
50. (p. 155) 4hich of the follo!ing is an assumption of the *ec'scher-+hlin theory@
A! Countries hae arying endo!ments of the arious factors of production
6. Aold and siler !ere the mainstays of national !ealth and essential to igorous commerce
C. It is in a country-s best interests to maintain a trade surplus
>. Trade is a &ero-sum game

Difficulty: Medium

51. (p. 155"156) The product life cycle theory !as deeloped by
#. #dam Smith
6. >aid )icardo
C! )aymond 7ernon
>. 9li *ec'scher

Difficulty: Hard

5". (p. 156) Identify the incorrect statement pertaining to )aymond 7ernon-s product life-cycle
theory.
#. 9arly in their life cycle$ most ne! products are produced in and e/ported from the country
in !hich they !ere deeloped
6. #s a ne! product becomes !idely accepted internationally production starts in other
countries
C! # product in the early stage of the product life cycle is imported by the country !here it
!as innoated
>. # product may ultimately be e/ported bac' to the country of its original innoation

Difficulty: Hard

5-1.
5(. (p. 156) 4hich theory stresses that in some cases countries speciali&e in the production and
e/port of particular products not because of underlying differences in factor endo!ments but
because in certain industries the !orld mar'et can support only a limited number of firms@
#. 6alanced trade
6. *ec'scher-+lin
C! 1e! trade
>. 5roduct life cycle

Difficulty: Medium

5,. (p. 156) The theory of <<<<<$ deeloped by =ichael 5orter$ focuses on the importance of
country factors$ in addition to factor endo!ments$ such as domestic demand and domestic
rialry in e/plaining a nation-s dominance in the production and e/port of particular products.
#. 1e! trade
! 1ational competitie adantage

Difficulty: Medium

55. (p. 156) The theory of <<<<< ma'es a crude case for goernment inolement in promoting
e/ports and limiting imports.
A! =ercantilism
6. :ree trade
C. #bsolute adantage
>. Comparatie adantage

Difficulty: Medium

5-10
5.. (p. 156) Identify the theory that can be interpreted as justifying some limited goernment
interention to support the deelopment of certain e/port-oriented industries.
A! Theory of national competitie adantage
6. *ec'scher-+hlin theory
C. Theory of comparatie adantage
>. Theory of absolute adantage

Difficulty: Medium

50. (p. 156) #ccording to the <<<<<$ U.S is a major player in the commercial jet aircraft industry
because U.S firms !ere first moers in the !orld mar'et.
#. 5roduct life cycle theory
6. Theory of mercantilism
C! 1e! trade theory
>. Theory of absolute adantage

Difficulty: Hard

52. (p. 156) The main tenet of mercantilism !as that it !as in a country-s best interest to
maintain a trade
#. 6alance
6. 9mbargo
C! Surplus
>. >eficit

Difficulty: Medium

53. (p. 156) Under mercantilism$ countries stried to maintain
A! *igh e/ports and lo! imports
6. Bo! e/ports and high imports
C. #n inflo! of gold and high imports
>. #n outflo! of gold$ high e/ports

Difficulty: Medium

5-12
.0. (p. 157) 4hen a goernment limits imports ia tariffs and %uotas and subsidi&es e/ports in
order to ma/imi&e e/ports and minimi&e imports$ the country is follo!ing

A! # mercantilist philosophy
6. The theory of absolute adantage
C. The theory of comparatie adantage
>. The *ec'scher-+hlin theory

Difficulty: Hard

.1. (p. 157) =ercantilism ie!ed trade as
A! # &ero-sum game
6. #n economic eil
C. # non essential economic actiity
>. # threat to a goernment-s independence

Difficulty: Easy

.". (p. 157) China$ deliberately 'eeping its currency alue lo! against the U.S. dollar in order to
sell more goods to the United States and thus amass a trade surplus and foreign e/change
reseres is ie!ed by critics as follo!ing a
#. Cero-sum game
"! 1eo-mercantilist policy
C. 5ositie-sum game
>. :ree trade policy

Difficulty: Medium

5-13
.(. (p. 157) #ccording to Smith$ countries should speciali&e in the production of goods for
!hich they hae an absolute adantage and then
#. )etain these goods for strictly domestic sales
"! Trade these goods for the goods produced by other countries
C. Sell these goods to the highest domestic or international bidder
>. 5rohibit the import of these goods from other countries

Difficulty: Medium

5-"0
.,. (p. 157) #ccording to #dam Smith$ if a country is more efficient than any other country in
producing a particular product$ the country has aDnE <<<<<< in the production of the product.
A! #bsolute adantage
6. Comparatie adantage
C. )elatie adantage
>. 5roportional adantage

Difficulty: Medium

.5. (p. 15) The different combinations of t!o goods that an economy could efficiently produce
!ith limited productie resources can be referred to as a country-s
#. 9conomic output
6. 9fficiency graph
C. 5roductiity cure
! 5roduction possibility frontier

Difficulty: Medium

... (p. 160) Trade produces net gains for all inoled and hence is a
#. Cero-sum game
6. 6alance of trade game
C! 5ositie-sum game
>. 9%uilibrium-gain game

Difficulty: Easy

5-"1
.0. (p. 160) #ccording to the theory of <<<<<$ it ma'es sense for a country to speciali&e in
producing the goods it produces most efficiently and buy the products it produces less
efficiently from other countries$ een if it could produce the good more efficiently itself.

#. Strategic trade
6. 5ertinent adantage
C! Comparatie adantage

Difficulty: Medium

5-""
.2. (p. 162) 4hat is the basic message of the theory of comparatie adantage@
#. Countries are similar in their ability to produce goods efficiently
6. International trade is rarely beneficial to a country
C! 5otential !orld production is greater !ith unrestricted free trade than it is !ith restricted
trade

Difficulty: Medium

.3. (p. 162) # basic tenet of )icardo-s theory is that
#. Consumers in those countries !ith an absolute adantage in the production of all goods
might derie no benefits from international trade
"! Consumers in all nations can consume more if there are no restrictions on trade
C. )estrictions on trade help consumers in countries that lac' an absolute adantage in the
production of a particular good

Difficulty: Medium

00. (p. 162) The comparatie adantage model of trade assumed that a country-s stoc' of
resource and the efficiency !ith !hich it utili&es those resources
A! )emains the same oer time
6. Increases oer time
C. >ecreases !ith time
>. :ollo!s a bell-shaped cure

Difficulty: Medium

5-"(
01. (p. 163) 9conomist <<<<< argued that in certain circumstances the theory of comparatie
adantage predicts that a rich country might actually be !orse off by s!itching to a free trade
regime !ith a poor nation.
#. >aid )icardo
6. =ichael 5orter
C. #dam Smith
! 5aul Samuelson

Difficulty: Hard

0". (p. 163) <<<<< means that the units of resources re%uired to produce a good are assumed to
remain unarying no matter !here one is on a country-s production possibility frontier.
#. 9conomies of scale
6. Ba! of diminishing returns
C! Constant returns to speciali&ation
>. Cero-sum game

Difficulty: Easy

0(. (p. 163) <<<<< occurDsE !hen more units of resources are re%uired to produce each additional
unit.
"! >iminishing returns to speciali&ation
C. # positie-sum game
>. Constant returns to speciali&ation

Difficulty: Easy

5-",
0,. (p. 164) The simple comparatie adantage model assumes constant returns to speciali&ation.
*o!eer$ it is more realistic to assume diminishing returns to speciali&ation because of all of
the follo!ing reasons e/cept
A! #ll resources are of the same %uality
6. >ifferent goods use resources in different proportions
C. #s a country tries to increase its output of a certain good$ it is more li'ely to dra! on more
marginal resources !hose productiity is not as great as those initially employed
>. If a country speciali&es to the degree suggested by the simple )icardian model$ the gains
from speciali&ation are li'ely to be e/hausted before speciali&ation is complete

Difficulty: Medium

05. (p. 164) 4hich of these suggest that the gains from speciali&ation are li'ely to be e/hausted
before speciali&ation is complete@

"! >iminishing returns to speciali&ation
C. 9conomies of scope
>. Constant returns to speciali&ation

Difficulty: Easy

0.. (p. 164) 9en if !e rela/ the assumptions of the simple )icardian model that there are
constant returns to scale and realistically assume diminishing returns to speciali&ation$ it can
still be concluded that
#. The benefits of unrestricted trade do not hold
"! :ree trade is beneficial but the gains may not be as great as in a constant returns case
C. Aoernments should interene in the mar'et to bring about a &ero-sum game
>. The benefits of free trade are comparatiely much less than goernment regulated trade

Difficulty: Medium

5-"5
00. (p. 164"165) The simple comparatie adantage model assumes that trade does not change a
country-s stoc' of resources or their utili&ation efficiency. If !e rela/ this assumption to ma'e
allo!ances for dynamic changes$ all of the follo!ing become apparent e/cept
#. +pening the economy to trade !ould be li'ely to generate dynamic gains
6. :ree trade may increase the country-s stoc' of resources.
C. :ree trade might increase the efficiency !ith !hich the country uses its resources
! >ynamic gains !ill cause the country-s 55: to shift in!ard

Difficulty: Hard

02. (p. 165"66) #ccording to the <<<<< model$ !hen a rich country such as the U.S enters into a
free trade agreement !ith a poor country that rapidly e/periences dynamic gains$ the rich
country is li'ely to not hae net gains.
#. #bsolute adantage
6. =ercantilist
C. *ec'scher-+hlin
! Samuelson

Difficulty: Medium

03. (p. 16) #ccording to *ec'scher and +hlin$ <<<<< meant the e/tent to !hich a country is
proided !ith such resources as land$ labor and capital.
#. :actors of production
6. 9conomic facilitators
C! :actor endo!ments
>. =anufacturing factors

Difficulty: Easy

5-".
20. (p. 16) 4hich theory predicts that countries !ill e/port those goods that ma'e intensie use
of those factors that are locally abundant$ !hile importing goods that ma'e intensie use of
factors that are locally scarce@
#. Comparatie adantage
C! *ec'scher-+lin
>. Samuelson

Difficulty: Easy

21. (p. 16) Contrary to !hat the *ec'scher-+hlin theory !ould predict$ the United States has
been a primary importer rather than an e/porter of capital goods. This phenomenon is referred
to as the <<<<< parado/.
#. Cero-sum
"! Beontief
C. 9mpirical
>. )icardo

Difficulty: Easy

2". (p. 16!) This theory$ initially proposed by )aymond 7ernon$ !as based on the obseration
that for most of the "0th century a ery large proportion of the !orld-s ne! products had been
deeloped by U.S. firms and sold first in the U.S. mar'et.
#. Competitie adantage
"! 5roduct life cycle
C. 1e! trade
>. Strategic trade

Difficulty: Medium

5-"0
2(. (p. 16!) )aymond 7ernon argued that ne! products !ere deeloped by U.S. firms and first
sold in the U.S. mar'et because
#. 9uropean competitors !ere not actie in product )F>
6. #merican firms !ere able to ta'e adantage of ta/ credits for product )F>
C! The !ealth and si&e of the U.S mar'et gae the firms an incentie to deelop ne! products
>. The lo! cost of U.S. labor gae U.S. firms an incentie to deelop costly process
innoations

Difficulty: Medium

2,. (p. 170) >uring the <<<<< stage of 7ernon-s product life cycle$ as the mar'et in the United
States and other adanced nations matures$ the product moes to!ard standardi&ation and
price becomes important.
#. Initial
6. 9arly middle
C. Bate middle
! Bate

Difficulty: Medium

25. (p. 170) #ccording to the product life cycle theory$ the locus of global production initially
s!itches from the U.S. to other adanced nations and then from those nations to deeloping
countries. The conse%uence of this trend for the pattern of !orld trade is that oer time the
U.S.
#. 6ecomes the sole producer of a product
"! S!itches from being an e/porter of the product to being an importer of the product
C. S!itches from being an importer of the product to being an e/porter of the product
>. 6ecomes the sole consumer of the product

Difficulty: Medium

5-"2
2.. (p. 171) The product life cycle theory
#. )emains a releant theory of e/plaining international trade in the modern !orld
"! 4as useful for e/plaining the pattern of trade during the brief period of #merican global
dominance
C. 5roed to be a poor e/planation of !orld trade patterns during the 13.0s and 1300s
>. 4as a strong predictor of trade patterns during the 1200s

Difficulty: Easy

20. (p. 172) <<<<< suggests that !hen nations trade$ each nation may be able to speciali&e in
producing a narro!er range of products than it !ould in the absence of trade and through
trade$ each nation can simultaneously increase the ariety of goods aailable to its consumers
and lo!er the costs of those goods.
#. The product life cycle theory
6. 5orter-s diamond of competitie adantage
C! 1e! trade theory
>. The theory of comparatie adantage

Difficulty: Easy

22. (p. 173) # firm that captures scale economies ahead of later entrants and conse%uently
benefits from a lo!er cost structure has
#. #n absolute adantage
6. # fi/ed adantage
C! # first moer adantage
>. # late moer adantage

Difficulty: Easy

5-"3
23. (p. 174) #ccording to the ne! trade theorists$ because early entrants are able to gain <<<<<$
the early entrants into an industry may get a loc' on the !orld mar'et that discourages
subse%uent entry.
#. Cero-sum adantage
6. *ighly s'illed employees
C. 5rocess e/pertise
! 9conomies of scale

Difficulty: Medium

30. (p. 174) <<<<< argues that scale economies and first moer adantages help e/plain trade
patterns.
A! 1e! trade theory
6. The theory of absolute adantage
C. The competitie adantage of nations
>. *ec'scher-+hlin theory

Difficulty: Easy

31. (p. 175) #ccording to 5orter all of the follo!ing are broad attributes of a nation that shape
the enironment in !hich local firms compete$ e/cept
#. :actor endo!ments
"! Supply fluctuations
C. )elating and supporting industries
>. :irm strategy$ structure and rialry

Difficulty: Medium

3". (p. 10) #ccording to 5orter$ !hich of the follo!ing is an e/ample of an adanced factor@
#. 1atural resources
"! S'illed labor
C. Bocation
>. >emographics

Difficulty: Easy

5-(0
5-(1
3(. (p. 176) #ccording to 5orter$ adanced factors
#. Include natural resources$ climate$ location and demographics
6. #re the least significant for competitie adantage
C. #re naturally endo!ed
! #re a product of inestment by indiiduals$ companies and goernments

Difficulty: Medium

3,. (p. 177) 5orter e/plains the U.S- loss of competitieness in engineering-based industries
!here manufacturing processes and product design issues are critical as a conse%uence of
A! >iffering management ideologies
6. >iffering factor endo!ments
C. >iffering demand conditions
>. Chance

Difficulty: Hard

35. (p. 11) Identify the theory that suggests that it is in the best interest of business for a firm to
inest in upgrading adanced factors of production.
#. Theory of competitie adantage
6. 5roduct life cycle theory
C. 1e! trade theory
! 1ational competitie adantage theory

Difficulty: Medium

5-("

Essay Questions

3.. (p. 154"155) 4hat are the benefits of free trade@
:ree trade refers to a situation !here a goernment does not attempt to influence through
%uotas or duties !hat its citi&ens can buy from another country or !hat they can produce and
sell to another country. Common sense suggests that some international trade is beneficial.
Theories by Smith$ )icardo and *ec'scher-+hlin suggest that a country-s economy may gain
if its citi&ens buy certain products from other nations that could be produced at home. The
gains arise because international trade allo!s a country to speciali&e in the manufacture and
e/port of products that can be produced most efficiently in that country$ !hile importing
products that can be produced more efficiently in other countries.

Difficulty: Medium

30. (p. 156"157) >iscuss the mercantilist philosophy. 4hat !as the theory-s main fla!@
=ercantilism !as the first theory of international trade. The main tenet of mercantilism is that
it is in a country-s best interests to maintain a trade surplus by e/porting more than it imports.
6y doing so$ a country !ould accumulate gold and siler and conse%uently$ increase its
national !ealth$ prestige and po!er. Consistent !ith this belief$ the mercantilist doctrine
adocated goernment interention to achiee a surplus in the balance of trade. The fla! !ith
mercantilism !as that it ie!ed trade as a &ero-sum game in !hich a gain by one country
resulted in a loss by another country.

Difficulty: Medium

5-((
32. (p. 157"160) 4hat !as #dams Smith-s contribution to the theory of !hy nations trade@ 4hat
is the theory of absolute adantage@
#dam Smith attac'ed the mercantilist philosophy in his 100. landmar' boo'$ the 4ealth of
1ations. Smith argued that countries differ in their ability to produce good efficiently. Smith
suggested that !hen a country !as more efficient at producing a particular good than any
other country$ the country had an absolute adantage in the production of that good.
#ccording to Smith$ countries should speciali&e in the production of goods for !hich they
hae an absolute adantage and then trade those goods for the goods produced by other
countries.
Smith-s basic argument !as that a country should neer produce goods at home that it can buy
at a lo!er cost from other countries. =oreoer$ Smith argued that by speciali&ing in the
production of goods in !hich each has an absolute adantage$ both countries benefit by
engaging in trade.

Difficulty: Medium

33. (p. 160"162) *o! did >aid )icardo e/tend #dam Smith-s !or'@ 9/plain the theory of
comparatie adantage.
>aid )icardo too' #dam-s Smith-s theory of absolute adantage one step further by
e/ploring !hat might happen !hen one country has an absolute adantage in the production
of all goods. Smith-s theory suggests that such a country might not benefit from trade$
ho!eer )icardo suggested that it ma'es sense for a country to speciali&e in the production of
those goods that it produces most efficiently or has a comparatie adantage in and to buy the
goods that it produces less efficiently from other countries. #ccording to )icardo$ potential
!orld production is greater !ith unrestricted free trade than it is !ith restricted free trade.
)icardo-s theory remains a popular !eapon for free trade supporters.

5-(,
Difficulty: Medium

100. (p. 166"167) >iscuss the lin' bet!een trade and economic gro!th.
)esearch sho!s that in general$ countries that adopt a more open stance to!ard international
trade enjoy higher gro!th rates than those that close their economies to trade. *igher gro!th
should in turn$ raise income leel and liing standards.

Difficulty: Medium

101. (p. 16) 9/plain the *ec'scher-+hlin theory. 4hat is the relationship bet!een *ec'scher-
+hlin-s !or' and the theory of comparatie adantage@
*ec'scher and +hlin suggested that comparatie adantage arises from differences in national
factor endo!ments. The *ec'scher-+hlin theory predicts that countries !ill e/port those
goods that ma'e intensie use of factors that are locally abundant$ !hile importing goods that
ma'e use of factors that are locally scarce. Thus$ *ec'scher and +hlin suggest that free trade
is beneficial$ but argue that the pattern of trade is determined by differences in factor
endo!ments$ rather than differences in productiity.

Difficulty: Medium

10". (p. 16) 4hat is the Beontief 5arado/@
4assily Beontief tested the *ec'scher-+hlin theory. Beontief postulated that since the U.S
!as relatiely abundant in capital compared to other nations$ the U.S !ould be an e/porter of
capital-intensie goods and an importer of labor-intensie goods. *o!eer$ Beontief found
that U.S e/ports !ere less capital intensie than U.S imports. 6ecause this result !as at
ariance !ith the predictions of *ec'scher-+hlin$ it has become 'no!n as the Beontief
parado/.

Difficulty: Medium

5-(5
10(. (p. 16!) 9/plain the product life cycle theory.
The product life cycle theory$ proposed by )aymond 7ernon in the mid-13.0s$ !as based on
the obseration that for most of the "0th century a ery large proportion of the !orld-s ne!
products had been deeloped by U.S. firms and sold first in the U.S. mar'et. It suggests that
the !ealth and si&e of the U.S mar'et gae #merican firms a strong incentie to deelop ne!
consumer products. 7ernon argued that most ne! products !ere initially produced in the U.S.
#ccording to 7ernon$ early in the life cycle of a product most ne! products are produced and
are e/ported from the country in !hich they !ere deeloped. #s a ne! product becomes
!idely accepted internationally$ production starts in other countries. #s a result$ the theory
suggests$ the product may ultimately be e/ported bac' to the country of its innoation.

Difficulty: Medium

10,. (p. 170"171) 9aluate the product life cycle. *o! !ell does the theory hold up@ 4hat are the
theory-s !ea'nesses@
4hen ie!ed historically$ the product lie cycle theory appears to be an accurate e/planation
of international trade patterns. *o!eer$ from an #sian or a 9uropean perspectie the theory
is ethnocentric. =any ne! products are no! introduced in 8apan or 9urope or een
simultaneously in the U.S$ 9urope and 8apan. In general$ !hile 7ernon-s theory !as useful for
e/plaining trade during the brief period of #merican dominance$ it is not particularly releant
in today-s global economy.

Difficulty: Medium

105. (p. 172) 4hat are economies of scale@ 4hy are they important in understanding trade
patterns@
9conomies of scale are unit cost reductions associated !ith a large olume of output.
9conomies of scale are a major source of cost reductions in many industries. 6ecause of the
need to achiee economies of scale$ some global industries may only be able to support a
small number of firms. 4orld trade patterns !ould reflect this phenomenon.

Difficulty: Easy

5-(.
10.. (p. 172"173) 9/plain the ne! trade theory. 4hat is the role of economies of scale in this
theory@
The ne! trade theory emerged in the 1300s !hen seeral economists suggested that
economies of scale might play a role in !orld trade. 1e! trade theory suggests that D1E
through its impact on economies of scale$ trade can increase the ariety of goods aailable to
consumers and decrease aerage costs of those goods and D"E in those industries !hen the
output re%uired to attain economies of scale represents a significant proportion of total !orld
demand$ the global mar'et may only be able to support a small number of enterprises.

Difficulty: Medium

100. (p. 173) 9/plain the connections bet!een economies of scale$ first-moer adantages and
trade patterns@
:irst moer adantages are the economic and strategic adantages that accrue to early entrants
into an industry. 6ecause they are able to gain economies of scale$ early entrants may get a
loc' on the !orld mar'et that discourages subse%uent entry. In other !ords$ the ability of
first-moers to reap economies of scale creates a barrier to entry. Countries may dominate in
the e/port of certain goods because economies of scale are important to their production and
because firms located in those countries !ere first to capture scale economies$ giing them a
first moer adantage.

Difficulty: Medium

102. (p. 173"174) >iscuss the implications of the ne! trade theory.
The ne! trade theory suggests that countries may benefit from trade een !hen they do not
differ in resource endo!ments or technology. Through trade$ a country can speciali&e in the
production of certain products and achiee scale economies and thus$ lo!er production costs
and trade for other products. Consumers should benefit from lo!er prices. 1e! trade theory
also suggests that a company may dominate a certain industry simply because it got there
first. If the firm can achiee economies of scale$ they may act as a barrier to entry to other
firms.

Difficulty: Medium

5-(0
103. (p. 174) >oes ne! trade theory support the !or' of *ec'scher and +hlin@ Is the theory at
ariance !ith the theory of comparatie adantage@
1e! trade theory does not support *ec'scher and +hlin-s !or'. In fact$ ne! trade theorists
argue that the U.S is a major e/porter of commercial jet aircraft not because the country is
better endo!ed !ith the factors of production re%uired to ma'e a plane$ but because 6oeing$
an #merican firm$ !as one of the first moers in the industry. In contrast$ the theory does
support the theory of comparatie adantage.

Difficulty: Medium

110. (p. 174) >oes ne! trade theory support goernment interention and strategic trade policy@
9/plain.
#ccording to ne! trade theorists$ luc'$ entrepreneurship and innoation are all important in
giing a firm first moer adantages. Therefore$ ne! trade theory supports the notion of
goernment interention on the basis that a goernment$ through the judicious use of
subsidies$ could increase the chances of its domestic firms becoming first moers in ne!ly
emerging industries.

Difficulty: Medium

111. (p. 175) 4hat are the four attributes identified by 5orter as being important in determining
!hy a nation achiees success in a particular industry@
The four attributes identified by 5orter include factor endo!mentsG demand conditions or the
nature of home demand for the industry-s product or sericeG related and supporting industries
or the presence or absence in a nation of supplier industries and related industries that are
internationally competitie and firm strategy$ structure and rialry or the conditions in the
nation goerning ho! companies are created$ organi&ed and managed and the nature of
domestic rialry.

Difficulty: Medium

5-(2
11". (p. 176) 4hat is the difference bet!een basic factors and adanced factors in 5orter-s
>iamond@
5orter differentiates bet!een factors of production. #ccording to 5orter$ there are basic factors
such as natural resources$ climate and demographics and adanced factors such as
infrastructure$ s'illed labor and research facilities. #danced factors are a product of
inestment by indiiduals.
5orter suggests that adanced factors are most important for competitie adantage.

Difficulty: Medium

11(. (p. 176) 5orter has stated that a nation-s firms gain competitie adantage if their domestic
consumers are sophisticated and demanding. 9/plain this statement.
:irms are typically most sensitie to the needs of their closest customers. Therefore$
according to 5orter$ the characteristics of home country demand !ill shape the attributes of
domestically made products and create pressure for innoation and %uality. 5orter suggests
that if a nation-s domestic consumers are sophisticated and demanding$ the nation-s firms !ill
gain a competitie adantage.

Difficulty: Medium

11,. (p. 177"17!) 4hat is the role of goernment in 5orter-s theory@
#ccording to 5orter$ goernment can influence each of the four main attributes of his model.
:or e/ample$ factor endo!ments can be affected by subsidies or policies to!ard education$
domestic demand can be shaped through local product standards$ regulations can influence
supporting and related industries and firm rialry can be affected by ta/ policies and anti trust
regulations.

Difficulty: Medium

5-(3
115. (p. 17!"11) >iscuss the implications of international trade theory for a firm.
The implications of trade theory for a firm are reflected in location implications$ firms can
capitali&e on the differences bet!een countries by dispersing their production actiities
around the globe to !hereer a product can be produced the most efficientlyG in first-moer
implications$ it pays to inest substantial financial resources in trying to build a first moer
adantage and in policy implications$ it is in the best interests of a firm to inest in upgrading
adanced factors of production and to lobby the goernment to adopt policies that hae a
faorable impact on 5orter-s >iamond.

Difficulty: Medium

5-,0

国际商务习题005

Caricato da

Informazioni sul documento

Descrizione originale:

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

国际商务习题005

Caricato da

Copyright:

Formati disponibili

Chapter 05 - International Trade Theory

Potrebbero piacerti anche