FINAL 3 2020, questions and answers PDF

Preview

Summary

Download FINAL 3 2020, questions and answers PDF

Description

International Business: The New Realities, 4e (Cavusgil) Chapter 5 Theories of International Trade and Investment 1) ________ refers to the superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or deliberate national policies. A) Comparative advantage B) Competitive advantage C) Absolute advantage D) Industrial cluster Answer: A Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 2) Competitive advantage refers to the ________. A) belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports B) superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or deliberate national policies C) distinctive assets or competencies of a firm that are difficult for competitors to imitate and are typically derived from specific knowledge, capabilities, skills, or superior strategies D) relative absence of restrictions to the flow of goods and services between nations Answer: C Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 3) Which of the following comparative advantages is acquired over time? A) labor B) innovative capacity C) arable land D) petroleum reserves Answer: B Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking

1 Copyright © 2017 Pearson Education, Inc.

4) Which of the following is a comparative advantage? A) close relationships with suppliers B) superior strategies of an organization C) entrepreneurial orientation D) the distinct capabilities of an organization Answer: C Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 5) Which of the following is true with regard to competitive advantage? A) Competitive advantages are typically derived from deliberate national policies. B) A competitive advantage is difficult for competitors to imitate. C) A competitive advantage is also known as a country-specific advantage. D) Competitive advantage includes inherited resources, such as arable land. Answer: B Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 6) The Gulf nations benefit economically from rich petroleum reserves in the region. This is an example of ________. A) comparative advantage B) competitive advantage C) ownership-specific advantage D) cost advantage Answer: A Diff: 1: Easy Skill: Application Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 7) In recent years, business executives and scholars have used ________ to refer to the advantages possessed by nations and individual firms in international trade and investment. A) comparative advantage B) country-specific advantage C) competitive advantage D) cost advantage Answer: C Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking

2 Copyright © 2017 Pearson Education, Inc.

8) Which of the following is true with regard to firm-level theories? A) Firm-level theories are classical theories, widely accepted since the sixteenth century. B) Firm-level explanations address the question: "How can internationalizing firms gain and sustain competitive advantage?" C) Firm-level explanations address the question: "Why do nations trade?" D) Firm-level theories do not address the issue of organizational performance. Answer: B Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 9) ________ is the belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports. A) Positivism B) Imperialism C) Communism D) Mercantilism Answer: D Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 10) Which of the following is true with regard to mercantilism? A) Mercantilism does not harm consumers. B) Mercantilism helps curb inflation. C) Mercantilism is superior to free trade. D) Mercantilism tends to harm firms that import. Answer: D Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 11) Nations running a trade surplus ________. A) rely solely on imports B) openly discourage export C) export more goods than they import D) import more goods than they export Answer: C Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking

3 Copyright © 2017 Pearson Education, Inc.

12) Which of the following is a typical outcome of free trade? A) Unrestricted international trade generally increases the overall prosperity of poor countries. B) Free trade sustains inflation in developing economies. C) Domestically produced products tend to be cheaper than imported products. D) Lower-cost imports cause living standards to deteriorate. Answer: A Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking Mercantilism Assignment (Scenario) The final assignment for Daniel Parilla's international business class involves taking an in-depth look at one of the six classical perspectives that explain the rationale for international trade. Daniel plans to present an argument in favor of mercantilism. Daniel will be attempting to convince his classmates that mercantilism leads to national prosperity. Daniel's peers will be given the opportunity to counter his argument. 13) Which of the following, if true, weakens Daniel's proposition? A) Mercantilism helps curb inflation. B) Running a trade surplus is beneficial for nations. C) Restricting imports reduces the choice of products consumers can buy. D) Mercantilism tends to benefit firms that import. Answer: C Diff: 2: Moderate Skill: Critical Thinking Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking; Environments and Reflective Thinking 14) Which of the following statements strengthens the proposition that free trade is beneficial to nations? A) Free trade increases the standard of living by reducing consumer expenses. B) Imported products tend to be more expensive than domestically produced products. C) Unrestricted international trade generally lowers the overall prosperity of poor countries. D) Unrestricted international trade generally boosts inflation in developed economies. Answer: A Diff: 2: Moderate Skill: Critical Thinking Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking; Environments and Reflective Thinking

4 Copyright © 2017 Pearson Education, Inc.

15) According to the ________, a country benefits by producing only those products in which it has complete advantage or that it can produce using fewer resources than another country. A) absolute advantage principle B) comparative advantage principle C) factor proportions theory D) international product cycle theory Answer: A Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 16) Which of the following is true about absolute advantage principle? A) According to this approach, enhanced product specialization adversely affects communal welfare. B) This approach allows the nation to consume more than it otherwise could, generally at lower cost. C) This is the only approach that can be used to explain why nations attempt to run a trade surplus. D) This approach explains the process by which firms acquire and retain one or more valuechain activities inside the firm. Answer: B Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 17) The ________ states that it can be beneficial for two countries to trade without barriers as long as one is relatively more efficient at producing goods or services needed by the other. A) monopolistic advantage theory B) internalization theory C) absolute advantage principle D) comparative advantage principle Answer: D Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking

5 Copyright © 2017 Pearson Education, Inc.

18) Which of the following is an element of the comparative advantage principle? A) per unit cost advantage B) relative efficiency of production C) absolute cost of production D) negative balance of trade Answer: B Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 19) The ________ rests on the premise that countries differ in the type and quantity of production factors they possess. A) cost-advantage theory B) competitive advantage theory C) factor proportions theory D) comparative advantage theory Answer: C Diff: 2: Moderate Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 20) Which of the following was the analysis revealed by the "Leontief paradox"? A) that despite having an abundant pool of labor, the U.S. was exporting capital-intensive goods B) that the U.S. often exported labor-intensive goods and imported more capital-intensive goods C) that international trade was simpler than perceived D) that contrary to the popular belief, new products are more likely to originate in developing economies Answer: B Diff: 2: Moderate Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 21) In his International Product Life Cycle (IPLC) Theory, Raymond Vernon observed that each product and its manufacturing technologies go through three stages of evolution: introduction, maturity, and ________. A) decline B) standardization C) growth D) diversification Answer: B Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 6 Copyright © 2017 Pearson Education, Inc.

22) Which of the following is true about the first stage of evolution in the international product life cycle theory? A) The product enjoys a temporary monopoly at this stage. B) The product's inventors mass-produce it and seek to export it. C) The knowledge about how to produce the product is widespread. D) The competition intensifies at this stage and export orders begin to come from lower-income countries. Answer: A Diff: 2: Moderate Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 23) Which of the following is the last stage of evolution in the international product life cycle theory? A) temporary monopoly B) standardization C) decline D) diversification Answer: B Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 24) In the ________ phase of international product life cycle theory, knowledge about how to produce the product is widespread and manufacturing becomes straightforward. A) temporary monopoly B) introduction C) standardization D) maturity Answer: C Diff: 2: Moderate Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking

7 Copyright © 2017 Pearson Education, Inc.

25) ________ argues that increasing returns to scale, especially economies of scale, are important for superior international performance in industries that succeed best as their production volume increases. A) Comparative theory B) Competitive theory C) Cost-advantage theory D) New trade theory Answer: D Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 26) Which of the following is true with regard to new trade theory? A) According to new trade theory, achieving economies of scale is not necessary for superior international performance. B) According to new trade theory, trade is beneficial even for countries that produce only a limited variety of products. C) New trade theory suggests that export is less beneficial to firms than commonly believed. D) New trade theory rests solely on the premise that countries differ in the type and quantity of production factors they possess. Answer: B Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking; Environments and Reflective Thinking 27) Comparative advantage includes inherited resources, such as labor, climate, arable land, and petroleum reserves. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 28) Modern business executives use the term comparative advantage when referring to the assets of individual firms. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking

8 Copyright © 2017 Pearson Education, Inc.

29) Mercantilism benefits consumers because restricting imports increases the choice of domestic products they can buy. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 30) Adam Smith attacked the mercantilist view by suggesting that nations benefit most from free trade. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 31) Free trade produces lower-cost imports that help consumers save money, thereby increasing their living standards. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 32) According to the absolute advantage principle, national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 33) David Ricardo advanced the absolute advantage theory. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 34) According to the comparative advantage principle, what matters most is the absolute cost of production of the product and not the relative efficiency with which a country can produce the product. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 9 Copyright © 2017 Pearson Education, Inc.

35) Countries cannot create or acquire comparative advantage. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 36) Early trade theories failed to consider the fact that the primary participants in international trade are individual firms that differ in significant ways from each other. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 37) According to the factor proportions theory, differences in the quantity of factors of production held by countries do not determine international trade patterns. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking 38) Distinguish between comparative and competitive advantages. Provide examples. Answer: Comparative advantage describes superior features of a nation that provide unique benefits in global competition. The features typically are derived from either natural endowments or deliberate national policies. Also known as country-specific advantage, comparative advantage includes inherited resources, such as labor, climate, arable land, and petroleum reserves, such as those enjoyed by countries in the Middle East. Other types of comparative advantages are acquired over time, such as entrepreneurial orientation, availability of venture capital, and innovative capacity. Competitive advantage refers to assets and capabilities of a company that are difficult for competitors to imitate. Such advantages help the firm enter and succeed in foreign markets. These capabilities take various forms, such as specific knowledge, competencies, innovativeness, superior strategies, or close relationships with suppliers. Competitive advantage is also known as firm-specific advantage. Diff: 3: Hard Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking; Information Technology

10 Copyright © 2017 Pearson Education, Inc.

39) Why do nations trade? What would the world be like without international trade? Answer: Trade enables countries to use their national resources more efficiently through specialization. Trade allows industries and workers to be more productive. These outcomes help keep the cost of many everyday products low, which translates into higher living standards. Without international trade, most nations would be unable to feed, clothe, and house their citizens at current levels. Even resource-rich countries like the United States would suffer greatly without trade. Some types of food would become unavailable or very expensive. Coffee and sugar would be luxury items. Petroleum-based energy sources would dwindle. Vehicles would stop running, freight would go undelivered, and people would not be able to heat their homes in winter. In short, not only do nations, companies, and citizens benefit from international trade, modern life would be nearly impossible without it. Diff: 1: Easy Skill: Concept Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking; Environments and Reflective Thinking 40) In a short essay, explain the absolute advantage principle. Provide an example of the principle at work. Answer: Smith's absolute advantage principle states that a country benefits by producing primarily those products in which it has an absolute advantage-those that it can produce using fewer resources than any other country. Each country can increase its wealth by specializing in the production of goods in which it has unique advantages, exporting those goods, and then importing other goods in which it has no particular advantage. If every nation follows this practice, each can consume more than it otherwise could, generally at lower cost. A modern example of the principle at work involves the nations of Japan and Saudi Arabia. Japan has no natural holdings of oil, but it manufactures some of the best automobiles in the world. On the other hand, Saudi Arabia produces much oil, but it lacks a substantial car industry. Given the state of their resources, it would be wasteful for each of these countries to attempt to produce both oil and cars. By trading with each other, Japan and Saudi Arabia each employs its respective resources efficiently in a mutually beneficial relationship. Japan gets oil that it refines to power its cars, and Saudi Arabia gets the cars needed by its citizens. Because each country uses its own resources with optimum efficiency and engages in trade, living standards for its citizens are higher than they would be if they had not engaged in trade. Diff: 2: Moderate Skill: Application Objective: 5-1: Appreciate why nations trade AACSB: Analytical Thinking

11 Copyright © 2017 Pearson Education, Inc.

41) In a short essay, explain the factor proportions theory. How does the theory differ from other theories? Answer: The factor proportions theory suggests that each country should export products that intensively use relatively abundant factors of production and import goods that intensively use relatively scarce factors of production. For example, the United States produces and exports capital-intensive products, such as pharmaceuticals and commercial aircraft. Argentina produces land-intensive products, such as wine and sunflower seeds. This view rests on two premises: • Products differ in the types and quantities of factors (labor, natural resources, and capital) required for their production; and • Countries differ in the type and quantity of production factors that they possess. Factor proportions theory differs somewhat from earlier theories by emphasizing the importance of each nation's factors of production. The theory states that, in addition to differences in the efficiency of production, differences in the quantity of production factors held by countries also determine international trade patterns. In this way, a country that possesses an abundance of a given production factor (e.g., labor, land) obtains a per-unit-cost advantage in the production of goods that ...