The argument for unrestricted free trade is that both import controls and export incentives:
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are self-defeating and result in wasted resources.
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Which of the following formed the crux of Porter's 1990 study of national competitive advantage?
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Determining how a country achieves international success in a particular industry
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Which of the following is an empirically supported prediction of the new trade theory?
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Trade increases the specialization of production within an industry.
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Which of the following statements best indicates Samuelson's criticism of free trade?
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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.
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Does Porter's model of competitive advantage predict the pattern of international trade that we observe in the real world?
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No. Porter's model has not been subjected to detailed empirical testing.
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Which of the following is consistent with the central beliefs of mercantilism?
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A country's government should intervene to achieve a surplus in the balance of trade.
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Which of the following is true of factor endowments according to Porter?
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Disadvantage in basic factors can create pressures to invest in advanced factors.
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Diminishing returns to specialization
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occurs when more units of resources are required to produce each additional unit.
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Which of the following is true of the four attributes that make Porter's diamond?
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The effect of one attribute is contingent on the state of others.
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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?
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It would disperse its productive activities to those countries where they can be performed most efficiently.
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One of the key assumptions of the Heckscher-Ohlin theory is that:
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technologies are the same across countries.
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Nations have varying factor endowments, and different factor endowments explain differences in _____.
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factor costs
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Porter argues that a nation's firms gain competitive advantage if their domestic consumers are:
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sophisticated and demanding.
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According to the new trade theory, which of the following is most likely to be a result of market expansion due to trade?
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Each nation may specialize in producing a narrower range of products, importing goods that it does not make.
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According to the new trade theory, trade, through its impact on economies of scale, is most likely to:
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decrease the average costs of goods.
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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?
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Firms can charge relatively high prices for new products.
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Which of the following is one of the four factors included in Porter's diamond?
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Firm strategy, structure, and rivalry
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It more realistic to assume diminishing returns to specialization when applying the theory of comparative advantage to a simplified model with two nations because:
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all resources are not of the same quality.
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Vernon predicts that as the demand for a new product starts to grow in other advanced countries, in the long run,:
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it begins to limit the potential for exports from the United States.
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According to Vernon, which of the following influences the movement of the locus of global production from advanced countries to developing countries?
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cost considerations
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Vernon argues that pioneering firms in the United States kept production facilities closer to the market and centers of decision making because:
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of the uncertainty and risks inherent in introducing new products.
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Porter argued that in terms of factor endowments, _____ factors are the most significant for competitive advantage.
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advanced
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The new trade theory states that:
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world trade in certain products may be dominated by countries whose firms were first movers in their production.
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Which of the following was being determined by the research that led to the development of the theory of national competitive advantage?
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Why some countries succeed and others fail in international competition
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According to Adam Smith, countries should specialize in the production of goods for which they have an absolute advantage and then:
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trade these goods for goods produced by other countries.
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constant returns to specialization
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The units of resources require to produce a good are assumed to remain constant no matter where one is on a country's production possibility frontier.
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Factor Endowments
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A country's endowment with resources such as land, labor, and capital
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economies of scale
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cost advantages associated with large scale production
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first-mover advantages
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Advantages accruing to the first to enter a market.
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absolute advantage
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An advantage in the production of a product when it is more efficient than any other country at producing it.
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new trade theory
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The observed pattern of trade in the world economy may be due in part to the ability of a firm in a given market to capture first-mover advantages.
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free trade
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The absence of barriers to the free flow of goods and services between countries.
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