DAVIS D270 FINAL – Official International
Business Final Exam Blueprint Replica – 80
Questions
SECTION 1: Globalization & International Business Theories (Questions 1–15)
Q1: According to Adam Smith's theory of absolute advantage, a country should
specialize in producing goods in which it:
A. Has the lowest opportunity cost relative to other countries
B. Is the most efficient producer using fewer resources than any other country
[CORRECT]
C. Possesses the most abundant factors of production
D. Achieves the highest level of product differentiation
Correct Answer: B
Rationale: Absolute advantage, as proposed by Adam Smith in The Wealth of Nations,
holds that a country should specialize in and export goods it produces more
efficiently than any other nation, using fewer resources per unit of output.
Q2: David Ricardo's theory of comparative advantage differs from absolute advantage
because comparative advantage focuses on:
A. Total production efficiency across all goods
B. Opportunity cost and relative productivity differences between countries
[CORRECT]
C. The role of government subsidies in promoting exports
D. Economies of scale in manufacturing industries
Correct Answer: B
Rationale: Comparative advantage, developed by David Ricardo, demonstrates that
mutually beneficial trade occurs when countries specialize in goods where they have
a lower opportunity cost of production, even if one country has an absolute
advantage in all goods.
Q3: Under the Heckscher-Ohlin factor proportions theory, Country A is labor-
abundant and Country B is capital-abundant. According to this theory:
,A. Country A will export capital-intensive goods and import labor-intensive goods
B. Country B will export labor-intensive goods to exploit its capital reserves
C. Country A will export labor-intensive goods and import capital-intensive goods
[CORRECT]
D. Both countries will export goods requiring their scarce factors of production
Correct Answer: C
Rationale: Heckscher-Ohlin predicts that countries export products that intensively
use their abundant factors of production; a labor-abundant country exports labor-
intensive goods and imports capital-intensive goods from capital-abundant nations.
Q4: Raymond Vernon's international product life cycle theory suggests that during
the "new product stage," production is typically located in:
A. Developing countries with low labor costs
B. The country where the product was innovated, primarily to serve the domestic
market [CORRECT]
C. Multiple countries simultaneously to maximize market coverage
D. Countries with the highest demand elasticity
Correct Answer: B
Rationale: Vernon's product life cycle theory posits that during the new product
stage, production remains in the innovating country to serve domestic demand and
respond quickly to product modifications, before shifting to other countries as the
product matures and standardizes.
Q5: New trade theory explains why countries with similar factor endowments trade
similar products primarily through:
A. Differences in comparative advantage based on opportunity costs
B. Economies of scale, first-mover advantages, and network effects [CORRECT]
C. Government-imposed tariffs and quotas on differentiated goods
D. The law of one price across international markets
Correct Answer: B
Rationale: New trade theory, associated with Paul Krugman, explains intra-industry
trade between similar economies through economies of scale that lower average
,costs, first-mover advantages that create dominant positions, and network effects
that reinforce market leadership.
Q6: In Porter's diamond of national competitive advantage, "demand conditions"
refer to:
A. The availability of raw materials and natural resources within a country
B. The nature and sophistication of domestic customer preferences and expectations
[CORRECT]
C. Government regulations that protect domestic industries from foreign competition
D. The cost of capital and labor in the domestic market
Correct Answer: B
Rationale: Porter's diamond identifies demand conditions as the nature of home-
market buyer needs; sophisticated and demanding domestic customers pressure
firms to innovate and upgrade, creating competitive advantages that transfer to
global markets.
Q7: Which element of Porter's diamond describes the presence of supplier industries
and related industries that are internationally competitive?
A. Factor conditions
B. Demand conditions
C. Related and supporting industries [CORRECT]
D. Firm strategy, structure, and rivalry
Correct Answer: C
Rationale: Related and supporting industries in Porter's diamond refer to the
presence of internationally competitive supplier industries and related sectors that
provide efficient inputs, facilitate coordination, and stimulate innovation through
geographic clustering.
Q8: A country possesses world-class universities, advanced telecommunications
infrastructure, and a skilled engineering workforce. In Porter's diamond framework,
these represent:
A. Basic factor conditions
B. Advanced factor conditions [CORRECT]
C. Demand conditions
, D. Related and supporting industries
Correct Answer: B
Rationale: Porter distinguishes basic factors (natural resources, unskilled labor)
from advanced factors (specialized infrastructure, skilled human capital, research
institutions); advanced factors are created through investment and are more
sustainable sources of competitive advantage.
Q9: According to new trade theory, a firm that achieves first-mover advantage in an
industry characterized by significant economies of scale will likely:
A. Face increasing marginal costs as output expands
B. Establish a dominant global market position that creates barriers to entry
[CORRECT]
C. Be forced to license its technology to competitors under WTO rules
D. Experience rapid erosion of its cost advantage due to technology diffusion
Correct Answer: B
Rationale: New trade theory demonstrates that in industries with substantial
economies of scale, the first firm to achieve large-scale production gains a cost
advantage that creates formidable barriers to entry, enabling sustained global
market dominance.
Q10: The theory of comparative advantage suggests that even if a country has an
absolute advantage in producing all goods, it should still engage in international
trade because:
A. Trade restrictions always reduce domestic employment
B. Specialization based on relative efficiency creates gains from trade for all
participating countries [CORRECT]
C. Foreign exchange reserves must be maintained for currency stability
D. Domestic consumers prefer imported goods over domestically produced goods
Correct Answer: B
Rationale: Ricardo's comparative advantage demonstrates that even when one
country is more efficient in all goods, both nations gain from trade by specializing in
products where their relative efficiency is greatest, maximizing total world output.
Q11: Which of the following is NOT one of the four major globalization drivers?
Business Final Exam Blueprint Replica – 80
Questions
SECTION 1: Globalization & International Business Theories (Questions 1–15)
Q1: According to Adam Smith's theory of absolute advantage, a country should
specialize in producing goods in which it:
A. Has the lowest opportunity cost relative to other countries
B. Is the most efficient producer using fewer resources than any other country
[CORRECT]
C. Possesses the most abundant factors of production
D. Achieves the highest level of product differentiation
Correct Answer: B
Rationale: Absolute advantage, as proposed by Adam Smith in The Wealth of Nations,
holds that a country should specialize in and export goods it produces more
efficiently than any other nation, using fewer resources per unit of output.
Q2: David Ricardo's theory of comparative advantage differs from absolute advantage
because comparative advantage focuses on:
A. Total production efficiency across all goods
B. Opportunity cost and relative productivity differences between countries
[CORRECT]
C. The role of government subsidies in promoting exports
D. Economies of scale in manufacturing industries
Correct Answer: B
Rationale: Comparative advantage, developed by David Ricardo, demonstrates that
mutually beneficial trade occurs when countries specialize in goods where they have
a lower opportunity cost of production, even if one country has an absolute
advantage in all goods.
Q3: Under the Heckscher-Ohlin factor proportions theory, Country A is labor-
abundant and Country B is capital-abundant. According to this theory:
,A. Country A will export capital-intensive goods and import labor-intensive goods
B. Country B will export labor-intensive goods to exploit its capital reserves
C. Country A will export labor-intensive goods and import capital-intensive goods
[CORRECT]
D. Both countries will export goods requiring their scarce factors of production
Correct Answer: C
Rationale: Heckscher-Ohlin predicts that countries export products that intensively
use their abundant factors of production; a labor-abundant country exports labor-
intensive goods and imports capital-intensive goods from capital-abundant nations.
Q4: Raymond Vernon's international product life cycle theory suggests that during
the "new product stage," production is typically located in:
A. Developing countries with low labor costs
B. The country where the product was innovated, primarily to serve the domestic
market [CORRECT]
C. Multiple countries simultaneously to maximize market coverage
D. Countries with the highest demand elasticity
Correct Answer: B
Rationale: Vernon's product life cycle theory posits that during the new product
stage, production remains in the innovating country to serve domestic demand and
respond quickly to product modifications, before shifting to other countries as the
product matures and standardizes.
Q5: New trade theory explains why countries with similar factor endowments trade
similar products primarily through:
A. Differences in comparative advantage based on opportunity costs
B. Economies of scale, first-mover advantages, and network effects [CORRECT]
C. Government-imposed tariffs and quotas on differentiated goods
D. The law of one price across international markets
Correct Answer: B
Rationale: New trade theory, associated with Paul Krugman, explains intra-industry
trade between similar economies through economies of scale that lower average
,costs, first-mover advantages that create dominant positions, and network effects
that reinforce market leadership.
Q6: In Porter's diamond of national competitive advantage, "demand conditions"
refer to:
A. The availability of raw materials and natural resources within a country
B. The nature and sophistication of domestic customer preferences and expectations
[CORRECT]
C. Government regulations that protect domestic industries from foreign competition
D. The cost of capital and labor in the domestic market
Correct Answer: B
Rationale: Porter's diamond identifies demand conditions as the nature of home-
market buyer needs; sophisticated and demanding domestic customers pressure
firms to innovate and upgrade, creating competitive advantages that transfer to
global markets.
Q7: Which element of Porter's diamond describes the presence of supplier industries
and related industries that are internationally competitive?
A. Factor conditions
B. Demand conditions
C. Related and supporting industries [CORRECT]
D. Firm strategy, structure, and rivalry
Correct Answer: C
Rationale: Related and supporting industries in Porter's diamond refer to the
presence of internationally competitive supplier industries and related sectors that
provide efficient inputs, facilitate coordination, and stimulate innovation through
geographic clustering.
Q8: A country possesses world-class universities, advanced telecommunications
infrastructure, and a skilled engineering workforce. In Porter's diamond framework,
these represent:
A. Basic factor conditions
B. Advanced factor conditions [CORRECT]
C. Demand conditions
, D. Related and supporting industries
Correct Answer: B
Rationale: Porter distinguishes basic factors (natural resources, unskilled labor)
from advanced factors (specialized infrastructure, skilled human capital, research
institutions); advanced factors are created through investment and are more
sustainable sources of competitive advantage.
Q9: According to new trade theory, a firm that achieves first-mover advantage in an
industry characterized by significant economies of scale will likely:
A. Face increasing marginal costs as output expands
B. Establish a dominant global market position that creates barriers to entry
[CORRECT]
C. Be forced to license its technology to competitors under WTO rules
D. Experience rapid erosion of its cost advantage due to technology diffusion
Correct Answer: B
Rationale: New trade theory demonstrates that in industries with substantial
economies of scale, the first firm to achieve large-scale production gains a cost
advantage that creates formidable barriers to entry, enabling sustained global
market dominance.
Q10: The theory of comparative advantage suggests that even if a country has an
absolute advantage in producing all goods, it should still engage in international
trade because:
A. Trade restrictions always reduce domestic employment
B. Specialization based on relative efficiency creates gains from trade for all
participating countries [CORRECT]
C. Foreign exchange reserves must be maintained for currency stability
D. Domestic consumers prefer imported goods over domestically produced goods
Correct Answer: B
Rationale: Ricardo's comparative advantage demonstrates that even when one
country is more efficient in all goods, both nations gain from trade by specializing in
products where their relative efficiency is greatest, maximizing total world output.
Q11: Which of the following is NOT one of the four major globalization drivers?
