Hill12e Chapter 06 TB Answer Key PDF

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1 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the priorInternational Business, 12e (Hill)Chapter 6 International Trade Theory The theories of Smith and Ricardo show that a country should engage in international trade, even for products that it...

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International Business, 12e (Hill) Chapter 6

International Trade Theory

1) The theories of Smith and Ricardo show that a country should engage in international trade, even for products that it is able to produce for itself. Answer: TRUE Explanation: The theories of Smith, Ricardo, and Heckscher-Ohlin show why it is beneficial for a country to engage in international trade even for products it is able to produce for itself. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation 2) Porter's theory of national competitive advantage recommends unrestricted free trade between countries. Answer: FALSE Explanation: Porter's theory of national competitive advantage can be interpreted as justifying some limited government intervention to support the development of certain export-oriented industries. Difficulty: 1 Easy Topic: Porters Diamond Model Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation 3) Heckscher-Ohlin theory supports the case for unrestricted free trade between nations. Answer: TRUE Explanation: The theories of Smith, Ricardo, and Heckscher-Ohlin support the case for unrestricted free trade. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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4) Mercantilist doctrine advocates unrestricted free trade between countries. Answer: FALSE Explanation: Mercantilist doctrine advocates government intervention to achieve a surplus in the balance of trade. Difficulty: 1 Easy Topic: Mercantilism Learning Objective: 06-02 Summarize the different theories explaining trade flows between nations. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation 5) A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. Answer: TRUE Explanation: A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. Difficulty: 1 Easy Topic: Mercantilism Learning Objective: 06-02 Summarize the different theories explaining trade flows between nations. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 6) Factor endowments refer to the extent to which a country is gifted with such resources as land, labor, and capital. Answer: TRUE Explanation: Factor endowments refer to the extent to which a country is endowed with such resources as land, labor, and capital. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-02 Summarize the different theories explaining trade flows between nations. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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7) Heckscher-Ohlin theory stresses that comparative advantage arises from differences in productivity. Answer: FALSE Explanation: Unlike Ricardo's theory, the Heckscher-Ohlin theory argues that the pattern of international trade is determined by differences in factor endowments, rather than differences in productivity. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-02 Summarize the different theories explaining trade flows between nations. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation 8) Ricardo's theory makes fewer simplifying assumptions compared to Heckscher-Ohlin theory. Answer: FALSE Explanation: Most economists prefer the Heckscher-Ohlin theory to Ricardo's theory because it makes fewer simplifying assumptions. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-02 Summarize the different theories explaining trade flows between nations. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 9) A key assumption in the Heckscher-Ohlin theory is that technologies are the same across countries. Answer: TRUE Explanation: A key assumption in the Heckscher-Ohlin theory is that technologies are the same across countries. Difficulty: 2 Medium Topic: Trade Theories and Their Implications Learning Objective: 06-02 Summarize the different theories explaining trade flows between nations. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation

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10) Some of the arguments made by the product life-cycle theory seem ethnocentric and increasingly dated when viewed from an Asian or European perspective. Answer: TRUE Explanation: Viewed from an Asian or European perspective, the theory's argument that most new products are developed and introduced in the United States seems ethnocentric and increasingly dated. Difficulty: 1 Easy Topic: Factor Proportions and International Product Life Cycle Theories Learning Objective: 06-02 Summarize the different theories explaining trade flows between nations. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 11) XYZ Toys manufactures and sells small quantities of each of its products, but it can still benefit from economies of scale. Answer: FALSE Explanation: Economies of scale are unit cost reductions associated with a large scale of output. This means that companies that trade in large volumes benefit from the economies of scale. Difficulty: 2 Medium Topic: Trade Theories and Their Implications Learning Objective: 06-02 Summarize the different theories explaining trade flows between nations. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation 12) The simple model of free trade assumed away transportation costs between countries. Answer: TRUE Explanation: The simple model of free trade assumed away transportation costs between countries. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-03 Recognize why many economists believe that unrestricted free trade between nations will raise the economic welfare of countries that participate in a free trade system. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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13) Resources always move easily from one economic activity to another. Answer: FALSE Explanation: Resources do not always move easily from one economic activity to another. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-03 Recognize why many economists believe that unrestricted free trade between nations will raise the economic welfare of countries that participate in a free trade system. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation 14) Diminishing returns show that it is feasible for a country to specialize to the degree suggested by the simple Ricardian model. Answer: FALSE Explanation: Diminishing returns show that it is not feasible for a country to specialize to the degree suggested by the simple Ricardian model. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-03 Recognize why many economists believe that unrestricted free trade between nations will raise the economic welfare of countries that participate in a free trade system. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation 15) According to Paul Samuelson's critique, a poor country will rapidly improve its productivity if a rich country enters into a free trade agreement with it. Answer: TRUE Explanation: Paul Samuelson's critique argues that when a rich country enters into a free trade agreement with a poor country, there will be a dynamic gain in the efficiency with which resources are used in the poor country. The poor country's productivity will improve rapidly. Difficulty: 2 Medium Topic: Trade Theories and Their Implications Learning Objective: 06-03 Recognize why many economists believe that unrestricted free trade between nations will raise the economic welfare of countries that participate in a free trade system. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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16) Apple's iPhone was unique when it first came out, with many features that no other phones had. As such, it enjoyed great success and dominated the cell phone market. This demonstrates the first-mover advantage. Answer: TRUE Explanation: First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-03 Recognize why many economists believe that unrestricted free trade between nations will raise the economic welfare of countries that participate in a free trade system. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 17) New trade theorists stress the role of luck in giving a firm first-mover advantages. Answer: TRUE Explanation: New trade theorists stress the role of luck, entrepreneurship, and innovation in giving a firm first-mover advantages. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-04 Explain the arguments of those who maintain that government can play a proactive role in promoting national competitive advantage in certain industries. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 18) According to the new trade theory, firms that establish a first-mover advantage with regard to the production of a particular new product may subsequently dominate global trade in that product. Answer: TRUE Explanation: According to the new trade theory, firms that establish a first-mover advantage with regard to the production of a particular new product may subsequently dominate global trade in that product. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-05 Understand the important implications that international trade theory holds for business practice. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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19) From a profit perspective, it makes sense for firms to disperse their productive activities to those countries where they can be performed most efficiently. Answer: TRUE Explanation: Underlying most trade theories is the notion that different countries have particular advantages in different productive activities. Thus, from a profit perspective, it makes sense for a firm to disperse its productive activities to those countries where, according to the theory of international trade, they can be performed most efficiently. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-05 Understand the important implications that international trade theory holds for business practice. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 20) ________ refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country. A) Fair trade B) Trade theory C) Free trade D) Mercantilism Answer: C Explanation: Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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21) Identify the theory that supports the view that, in some cases, countries export for the reason that the world market can support only a limited number of firms. A) Heckscher-Ohlin theory B) Smith's theory C) Ricardo's theory D) new trade theory Answer: D Explanation: New trade theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 22) Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly? A) comparative advantage theory B) new trade theory C) Ricardo's theory D) Smith's theory Answer: B Explanation: New trade theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms. Difficulty: 2 Medium Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

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23) Which of the following observations is consistent with Michael Porter's theory of national competitive advantage? A) Factors such as domestic demand and domestic rivalry explain nations' dominance in production. B) Countries should produce only those goods for which they have a comparative advantage. C) Interplay between the factors of production cause international marketing decisions. D) International differences in labor productivity determine nations' supremacy in production. Answer: A Explanation: Michael Porter's theory of national competitive advantage attempts to explain why particular nations achieve international success in particular industries. In addition to factor endowments, Porter points out the importance of country factors such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products. Difficulty: 2 Medium Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation 24) Which of the following is a theory that can be used to justify limited government intervention to support the development of certain export-oriented industries? A) comparative advantage theory B) Ricardo's theory C) new trade theory D) Heckscher-Ohlin theory Answer: C Explanation: Both the new trade theory and Porter's theory of national competitive advantage can be interpreted as justifying some limited government intervention to support the development of certain export-oriented industries. Difficulty: 2 Medium Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Apply AACSB: Knowledge Application Accessibility: Keyboard Navigation

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25) Which of the following refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country? A) economic patriotism B) protectionism C) free trade D) offshoring Answer: C Explanation: Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 26) Which of the following is a major benefit of engaging in free trade? A) It helps to reduce the financial volatility in global markets. B) It helps countries protect the jobs that are available to their citizens. C) It gives countries access to products that they cannot produce. D) It allows governments to exert more control on businesses. Answer: C Explanation: Countries can benefit from exchanging goods that they can produce efficiently to obtain products that they cannot produce. Difficulty: 2 Medium Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Apply AACSB: Knowledge Application Accessibility: Keyboard Navigation

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27) David Ricardo's theory of comparative advantage explains global trade in terms of the A) first-mover advantage that certain countries and firms enjoy. B) geographical differences between various countries. C) international differences in labor productivity. D) late-mover advantage that certain countries and firms possess. Answer: C Explanation: David Ricardo's theory of comparative advantage offers an explanation in terms of international differences in labor productivity. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation 28) Which of the following theories emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods? A) Porter's theory B) Smith's theory C) Ricardo's theory D) Heckscher-Ohlin theory Answer: D Explanation: The Heckscher-Ohlin theory emphasizes the interplay between the proportions in which the factors of production (such as land, labor, and capital) are available in different countries and the proportions in which they are needed for producing particular goods. Difficulty: 1 Easy Topic: Trade Theories and Their Implications Learning Objective: 06-01 Understand why nations trade with each other. Bloom's: Understand AACSB: Knowledge Application Accessibility: Keyboard Navigation

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29) ________ stresses that in some cases countries specialize in the production and export of particular products because the world market can support only a limited number of firms. A) New trade theory B) Absolute advantage C) The world market theory D) Mercantilism

Answer: A Explanation: New trade theory stresses that in some cases countries specialize in the production and export of particular products not because of...