MGCR 382: International Business Quiz
Study Set questions well answered
passed
Trade - correct answer ✔✔voluntary exchange of goods, services, assets, or money between
one person or organization and another
International Trade - correct answer ✔✔trade between residents of two countries
Why does international trade occur? - correct answer ✔✔- Both parties to the transaction
benefit.
- Imports provide 1) Higher quality and/or 2) Less expensive products and/or 3) More quantity
- Exports spark additional economic activity
- Improve competitiveness
Early Country Based Theories are... - correct answer ✔✔- Focused on the individual country
- Useful for describing trade in commodities
- Price is an important component of the customer's purchase decision
Modern firm-based theories are... - correct answer ✔✔- Focus on the firm's role in promoting
international trade
- Useful in describing patterns of trade in differentiated goods
- Brand Name is an important component of the customer's purchase decision
Types of Country-Based Trade Theories - correct answer ✔✔1) Mercantilism
2) Absolute Advantage
,3) Comparative Advantage
4) Relative factor endowments (Heckscher-Ohlin)
Types of Modern Firm-Based Theories - correct answer ✔✔1) Linder's country similarity theory
2) New trade theory
Mercantilism - correct answer ✔✔- Mercantilism is a sixteenth-century economic philosophy
that maintains that a country's wealth is measured by its holdings of gold and silver
- According to mercantilists, a country's goal should be to enlarge these holdings by promoting
exports and discouraging imports•
- Because mercantilism does benefit certain members of society, mercantilist policies are still
politically attractive to some firms and their workers
- Modern supporters of such policies are called neo- mercantilists or protectionist
Absolute Advantage - correct answer ✔✔Adam Smith attacked the intellectual basis of
mercantilism
- Weakens a country
- In the process of avoiding imports at all costs, it squanders a country's resources producing
goods it is not suited to produce
Smith advocated free trade among countries
- Enlarges a country's wealth
- Free trade enables a country to expand the amount of goods and services available to it by
specializing in the production of some goods and services and trading for others
Comparative Advantage - correct answer ✔✔What if one country has an absolute advantage
inboth products?
- Theory of Absolute Advantage: No Trade Would Occur
, - Theory of Comparative Advantage: Trade Should Still Occur• David Ricardo's Comparative
Advantage Theory
- Relative Productivity Differences
- The difference between absolute and comparative advantage occurs because comparative
advantage incorporates the concept of opportunity cost in determining which good a country
should produce
The opportunity cost of a good is the value of what is given up to get the good.
Lessons of the theory of comparative advantage:
- You are better off specializing in what you do relatively best
- Produce (and export) those goods and services you are relatively best able to produce
- Buy other goods and services from people who arerelatively better at producing them than
you are
Relative Factor Endowments - correct answer ✔✔Heckscher-Ohlin Theory: A country will have a
comparative advantage in producing products that intensively use resources (factors of
production) it has in abundance
- Factor endowments (or types of resources) vary among countries
- Goods differ according to the types of factors that are used to produce them
Pattern of Comparative Advantage
- Export products that use relatively abundant factors of production
- Import products that need relatively scarce factors of production
Heckscher-Ohlin - Leontief Paradox - correct answer ✔✔Heckscher-Ohlin theory was tested
empirically after World War II by economist Wassily Leontief
- Leontief believed the United States was a capital-abundant and labor-scarce economy
Study Set questions well answered
passed
Trade - correct answer ✔✔voluntary exchange of goods, services, assets, or money between
one person or organization and another
International Trade - correct answer ✔✔trade between residents of two countries
Why does international trade occur? - correct answer ✔✔- Both parties to the transaction
benefit.
- Imports provide 1) Higher quality and/or 2) Less expensive products and/or 3) More quantity
- Exports spark additional economic activity
- Improve competitiveness
Early Country Based Theories are... - correct answer ✔✔- Focused on the individual country
- Useful for describing trade in commodities
- Price is an important component of the customer's purchase decision
Modern firm-based theories are... - correct answer ✔✔- Focus on the firm's role in promoting
international trade
- Useful in describing patterns of trade in differentiated goods
- Brand Name is an important component of the customer's purchase decision
Types of Country-Based Trade Theories - correct answer ✔✔1) Mercantilism
2) Absolute Advantage
,3) Comparative Advantage
4) Relative factor endowments (Heckscher-Ohlin)
Types of Modern Firm-Based Theories - correct answer ✔✔1) Linder's country similarity theory
2) New trade theory
Mercantilism - correct answer ✔✔- Mercantilism is a sixteenth-century economic philosophy
that maintains that a country's wealth is measured by its holdings of gold and silver
- According to mercantilists, a country's goal should be to enlarge these holdings by promoting
exports and discouraging imports•
- Because mercantilism does benefit certain members of society, mercantilist policies are still
politically attractive to some firms and their workers
- Modern supporters of such policies are called neo- mercantilists or protectionist
Absolute Advantage - correct answer ✔✔Adam Smith attacked the intellectual basis of
mercantilism
- Weakens a country
- In the process of avoiding imports at all costs, it squanders a country's resources producing
goods it is not suited to produce
Smith advocated free trade among countries
- Enlarges a country's wealth
- Free trade enables a country to expand the amount of goods and services available to it by
specializing in the production of some goods and services and trading for others
Comparative Advantage - correct answer ✔✔What if one country has an absolute advantage
inboth products?
- Theory of Absolute Advantage: No Trade Would Occur
, - Theory of Comparative Advantage: Trade Should Still Occur• David Ricardo's Comparative
Advantage Theory
- Relative Productivity Differences
- The difference between absolute and comparative advantage occurs because comparative
advantage incorporates the concept of opportunity cost in determining which good a country
should produce
The opportunity cost of a good is the value of what is given up to get the good.
Lessons of the theory of comparative advantage:
- You are better off specializing in what you do relatively best
- Produce (and export) those goods and services you are relatively best able to produce
- Buy other goods and services from people who arerelatively better at producing them than
you are
Relative Factor Endowments - correct answer ✔✔Heckscher-Ohlin Theory: A country will have a
comparative advantage in producing products that intensively use resources (factors of
production) it has in abundance
- Factor endowments (or types of resources) vary among countries
- Goods differ according to the types of factors that are used to produce them
Pattern of Comparative Advantage
- Export products that use relatively abundant factors of production
- Import products that need relatively scarce factors of production
Heckscher-Ohlin - Leontief Paradox - correct answer ✔✔Heckscher-Ohlin theory was tested
empirically after World War II by economist Wassily Leontief
- Leontief believed the United States was a capital-abundant and labor-scarce economy
