HTM EXAM 2: Units 6-9

Sentoria is an island nation in the Pacific Ocean. Its geographical location is advantageous since it has access to a variety of aquatic life forms and also a number of freshwater sources that provide for fisheries. The lack of arable land drives local demand for seafood, and Sentoria is one of the world's major exporters of this product. Which theory of international trade best explains Sentoria's dominance as an exporter of seafood?

A. new trade theory

B. mercantilism

C. Heckscher-Ohlin theory

D. theory of national competitive advantage

D. theory of national competitive advantage

As a trade theory, mercantilism was based on the idea that a trade surplus would lead to

Group of answer choices

absolute advantage among all trading partners.

first-mover advantages.

lower levels of inflation and a steady economy.

accumulations of gold and silver.

lower levels of national wealth.

A. absolute advantage among all trading partners.

B. first-mover advantages.

C. lower levels of inflation and a steady economy

D. accumulations of gold and silver.

E. lower levels of national wealth.

D. accumulations of gold and silver.

In Appellia, it takes 10 units of resources to increase its output of sugar from 12 tons to 13 tons, but 11 units of resources to increase output from 13 tons to 14 tons, and 12 units of resources to increase output from 14 tons and 15 tons, and so on. The need for increasing resources is an example of

A. comparative advantage.

B. diminishing returns to specialization.

C. absolute advantage.

D. mercantilism

E. Porter's diamond model.

B. diminishing returns to specialization.

Which theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce?

A. mercantilism

B. theory of absolute advantage

C. Heckscher-Ohlin theory

D. theory of comparative advantage

E. Samuelson's critique

C. Heckscher-Ohlin theory

According to Vernon, what eliminates the need for pioneering U.S. firms to look for low-cost production sites in other countries?

A. The uncertainties and risks inherent in introducing new products are very low.

B. The demand for most new products tends to be based mainly on price.

C. U.S. labor costs are relatively low compared to global standards.

D. Firms can charge relatively high prices for new products.

E. The production of innovative products in other advanced countries limits the potential for exports from the United States.

D. Firms can charge relatively high prices for new products.

Intel spreads the huge fixed costs of developing new generation chips over the nearly 2 billion chips it sells to computer makers. Intel benefits from

A. comparative advantages

B. factor endowments.

C. economies of scale.

D. diminishing returns.

E. absolute advantages.

C. economies of scale.

What might result in the absence of trade, if certain products have small national markets?

A. The variety of products available to consumers increases.

B. Limited demand for such products leads to non-realization of economies of scale.

C. Each nation will specialize in producing a narrower range of products than it would in the presence of trade.

D. At low volumes of production, unit costs and prices would be lowered.

E. The first movers in an industry may get a lock on the world market that discourages subsequent entry.

B. Limited demand for such products leads to non-realization of economies of scale.

New trade theory dictates that trade offers an opportunity for mutual gain when countries do not differ in their resource endowments or technology because trade

A. results in a contraction of the size of the markets of individual firms.

B. allows for production of products at higher prices.

C. increases the variety of goods available to consumers and lowers the costs of those goods

D. allows countries to attain self-sufficiency in the production of all goods.

E. guarantees first-mover advantages to all the countries that engage in trade.

C. increases the variety of goods available to consumers and lowers the costs of those goods

What is an advantage that is realized by a company as a part of first-mover advantages?

A. increasing returns to specialization

B. positive-sum game due to lack of competition

C. ability to capture scale economies ahead of later entrants

D. absolute advantage and higher efficiency

E. ability to specialize in the production of a particular product

C. ability to capture scale economies ahead of later entrants

In his theory of absolute advantage, Adam Smith advocated that ________ should determine what a country imports and what it exports.

A. government policy

B. the market mechanism

C. social mores

D. political parties

E. foreign entities

B. the market mechanism

Alana lives in a country in which the government does not impose quotas on what can be imported or on what businesses can produce and sell to another country. What type of situation does this describe?

A. a positive-sum game

B. dumping

C. free trade

D. protectionism

E. a zero-sum game

C. free trade

Which 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?

A. new trade theory

B. Heckscher-Ohlin theory

C. mercantilism

D. theory of comparative advantage

E. theory of absolute advantage

A. new trade theory

________ justifies some limited government intervention to support the development of certain export-oriented industries.

A. Heckscher-Ohlin theory

B. Mercantilism

C. Theory of comparative advantage

D. New trade theory

E. Theory of absolute advantage

D. New trade theory

Kevin lives in a nation that encourages the production of goods for exporting and to satisfy the needs of the nation's citizens so fewer imports are needed. Which trade theory does this reflect?

A. new trade theory

B. mercantilism

C. theory of comparative advantage

D. theory of absolute advantage

E. Heckscher-Ohlin theory

B. mercantilism

The government of the Republic of Senna enforces tariffs and quotas to limit imported goods, while exports are subsidized. By using these instruments, the government seeks to achieve a surplus in the balance of trade. Based on this information, which approach most influences the Republic of Senna's approach to international trade?

A. new trade theory

B. Heckscher-Ohlin theory

C. theory of absolute advantage

D. mercantilism

D. mercantilism

A situation in which an economic gain by one country results in an economic loss by another is called a

A. positive-sum game.

B. diminishing return.

C. first-mover advantage.

D. zero-sum game.

E. dynamic effect.

D. zero-sum game

If Italy is more efficient at producing fine leather shoes and handbags, then Italy has a(n)

A. mercantilist advantage.

B. first-mover advantage.

C. absolute advantage.

D. comparative advantage.

E. unsustainable advantage.

C. absolute advantage

The basic message of ________ is that potential world production is greater with unrestricted free trade than it is with restricted trade.

A. zero-sum game theory

B. theory of comparative advantage

C. mercantilist theory

D. absolute advantage theory

E. Heckscher-Ohlin theory

B. theory of comparative advantage

Mexico has raised the taxes on cheeses imported from the United States. These taxes are an example of a(n)

A. subsidy

B. referendum

C. antidumping policy.

D. local content requirement.

E. tariff.

E. tariff.

In some years, the U.S. government has paid wheat farmers an additional 50 cents on every bushel of wheat they sell. This money is an example of a(n)

A. local content tariff.

B. ad valorem tariff.

C. subsidy

D. import quota.

E. antidumping duty.

C. subsidy

A tiny South Pacific island country produces large quantities of coconut-based products. To protect this industry, the island government mandates that only designated trading companies can import the crop, each of which is allocated the right to import a maximum number of pounds of coconuts each year. This is an example of a(n)

A. import duty

B. subsidy

C. import tariff.

D. local content requirement.

E. import quota.

E. import quota.

If a country is experiencing a surge of electronic imports from a trading partner, it might ask that country to set a limit on how much can be exported. This limit is known as a

A. tariff rate quota.

B. quota rent.

C. voluntary export restraint (VER).

D. quota share.

E. export embargo.

C. voluntary export restraint (VER).

ComTek Limited has an order to sell 50,000 central processing units (CPUs) to Brazil, but the Brazilian government stipulated that 35 percent of the component parts of those CPUs must be produced in Brazil. This stipulation is an example of a(n)

A. voluntary export restraint.

B. quota rent.

C. import quota.

D. local content requirement.

E. antidumping policy.

D. local content requirement.

Dumping takes place when foreign producers

A. attempt hostile takeovers of domestic firms and usurp the available resources for production.

B. indiscriminately exploit the natural resources of a foreign country to create a later demand that can be met only by imports.

C. eliminate competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits.

D. capture the niche market rather than the masses.

E. export only a small quantity of their products into an importing country.

C. eliminate competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits.

A major reason why many economists remain critical of the infant industry argument is because it

A. makes the domestic industry inefficient.

B. does not provide guaranteed employment for citizens.

C. affects the standards of living and per capita income of the people.

D. promotes foreign direct investment.

E. leads to reduced prices in domestic markets.

A. makes the domestic industry inefficient.

According to Krugman, _____ is the best indicator of the dangers of a strategic trade policy.

A. a decrease in subsidies

B. a decrease in protectionism

C. the occurrence of a trade war

D. huge financial debts for the countries involved

E. the occurrence of a global recession

C. the occurrence of a trade war

SilverFinn makes high-end jewelry for women. This jewelry is manufactured and patented in Italy. Manufacturers in Argentina create counterfeit SilverFinn jewelry and sell it in local markets at nearly similar prices to the original SilverFinn jewelry sold in other countries. This lack of intellectual property protection is like to result in

A. expansion of the world market for SilverFinn products.

B. reduction in the export opportunities for SilverFinn jewelry in Argentina.

C. reduction in import of all Argentinian goods.

D. increase in the prices of jewelry produced by SilverFinn.

E. reduction in export opportunities from Argentina to other countries.

B. reduction in the export opportunities for SilverFinn jewelry in Argentina.

The _____ does not reinforce that the best interests of international business are served by a free trade stance.

A. increasing integration of the world economy

B. internationalization of production

C. trend toward greater protectionism

D. implementation of open markets

E. dispersion of production activities

C. trend toward greater protectionism

A tax of 32 cents is levied for each pair of eyeglasses imported into a nation. This is an example of a(n)

A. quota rent.

B. specific tariff.

C. ad valorem tariff.

D. import quota.

E. local content requirement.

B. specific tariff.

Subsidies and quotas are examples of ________ barriers a county might impose

A. antidumping

B. tariff

C. nontariff

D. content requirements

E. export restraint

C. nontariff

A tariff rate quota provides a lower tariff rate to

A. all imports in a specific industry.

B. imports within the quota.

C. only domestic producers.

D. agricultural products.

E. imports that are over the quota.

B. imports within the quota.

A(n) ________ refers to the extra profit that producers make when supply is artificially limited by an import quota.

A. profit margin

B. net profit

C. import profit

D. trade surplus

E. quota rent

E. quota rent

Some countries have a policy that entirely restricts the export of coffee products. This is called a(n)

A. antidumping policy.

B. import quota.

C. administrative trade policy.

D. export ban.

E. voluntary export restraint.

D. export ban.

________ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

A. Circular trade

B. Subsidy

C. Barter

D. Countertrade

E. Dumping

E. Dumping

The ________ argument was proposed by Alexander Hamilton in 1792 and is by far the oldest economic argument for government intervention.

A. infant industry

B. strategic trade policy

C. consumer protection

D. national security

E. retaliation

A. infant industry

How did the Smoot-Hawley Act affect employment?

A. It created more jobs domestically and abroad

B. It decreased the overall wage rate

C. It boosted job rates around the world

D. It did not have any effect on employment

E. It had a damaging effect on employment abroad

E. It had a damaging effect on employment abroad

Which organization was created to implement the GATT agreement?

A. World Trade Organization

B. United Nations

C. World Bank

D. International Monetary Fund

E. Department of Justice

A. World Trade Organization

Most economists would agree that the best interests of international business are found in a nation with a

A. laissez-faire policy.

B. command economy.

C. free trade policy.

D. planned economy.

E. mercantilist view.

C. free trade policy.

A computer manufacturing firm from the United States invests in a microprocessor manufacturing plant in Taiwan. This is an example of

A. an absolute advantage.

B. stock consolidation.

C. foreign direct investment.

D. product differentiation.

E. market segmentation.

C. foreign direct investment.

Which two nations have historically been the largest recipients of inward FDI?

A. Japan and China

B. Italy and Germany

C. Argentina and Brazil

D. the United Kingdom and France

E. the United States and Canada

D. the United Kingdom and France

General Electric (GE) built an operation from scratch in Nigeria. This is an example of a(n)

A. merger.

B. acquisition.

C. strategic alliance.

D. FDI stock.

E. greenfield investment.

E. greenfield investment.

SmartStuff Inc. grants a foreign entity the right to produce and sell the firm's microprocessors in return for a royalty fee on every product sold. SmartStuff Inc.'s approach is called

A. outsourcing.

B. licensing.

C. franchising.

D. exporting.

E. diversifying.

B. licensing.

3M, an American firm, manufactures adhesive tape in St. Paul, Minnesota, and ships the tape to South Korea for sale. According to this information, 3M uses _____ to deliver this product.

A. exporting

B. licensing

C. franchising

D. insourcing

E. outsourcing

A. exporting

JumpIn Products is a market leader in playground equipment, which is typically large, bulky, and very heavy. In order to compete, JumpIn Products sells its entire line at very low prices. Although its products can be produced anywhere, it is considering exporting as a way to grow in overseas markets. The viability of JumpIn Products' exporting strategy could be constrained by transportation costs, particularly of products that can be produced in almost any location and have a

A. high local content requirement.

B. low total landed cost.

C. low value-to-weight ratio.

D. low licensing tariff.

E. high marginal cost.

C. low value-to-weight ratio.

Governments impose quotas to limit

A. FDI.

B. importing.

C. franchising.

D. outsourcing.

E. licensing.

B. importing.

Internalization theory promotes the idea that

A. licensing gives a firm tight control over manufacturing, marketing, and strategy in a foreign country.

B. licensing may result in a firm giving away valuable technological know-how to a potential foreign competitor.

C. licensing has no major drawbacks as a strategy for exploiting foreign market opportunities.

D. a problem with licensing arises when the firm's competitive advantage is based on its products rather than on the manufacturing capabilities that produce those products.

E. licensing is always more profitable than FDI.

B. licensing may result in a firm giving away valuable technological know-how to a potential foreign competitor.

ModShoes Inc. decides to move its manufacturing facility from Toledo, Ohio, to Jakarata, Indonesia, because it will have access to lower-cost but still highly skilled labor. This choice reflects the concept of

A. a planned economy.

B. supply-and-demand.

C. location-specific advantages.

D. an oligopoly.

E. a comparative advantage.

C. location-specific advantages.

Camille told the management team that investing capital in the Swaziland-based manufacturing plant would not only benefit their company in terms of labor costs but would also promote significant economic development in Swaziland. What type of host-country benefit is Camille referring to?

A. resource-transfer effect

B. balance-of-payments effect

C. effects on competition

D. effects on foreign exchange rate

E. technology effect

A. resource-transfer effect

It is one of Garrett's job responsibilities to report the amount of foreign direct investment undertaken by the government over a one-year time period. Garrett reports the ________ of FDI.

A. stock

B. bundle

C. flow

D. portfolio

E. ratio

C. flow

The stock of FDI refers to the

A. total accumulated value of foreign-owned assets at a given time.

B. the net position of FDI flows after comparing inflows and outflows during a period.

C. the outflows of FDI from a country.

D. amount of FDI undertaken over a given time period.

E. the inflows of FDI into a country.

A. total accumulated value of foreign-owned assets at a given time.

Concrete Forms International needs immediate access to steel in order to produce a new product line. It cannot afford to wait and establish a new operation in a foreign country where steel is prevalent, so it decides to purchase an existing company instead. Why did Concrete Forms decide to make this purchase?

A. A greenfield investment will provide quickest access to the steel forms.

B. FDI flows are similar between developed and developing nations.

C. Mergers and acquisitions are quicker to execute than greenfield investments.

D. The higher percentage of mergers and acquisitions in developing nations compared to developed nations indicate the low valuation of target firms in developing countries.

E. It is easier and less risky for a firm to build up through a greenfield investment rather than through acquisitions.

C. Mergers and acquisitions are quicker to execute than greenfield investments.

A firm might justify a preference for licensing over FDI because licensing

A. results in the licensor retaining control over technical know-how.

B. gives the licensor tight control over the operations of the licensee in the foreign nation.

C. allows the firm to take advantage of differences in factor costs across countries.

D. reduces the potential risks of creating a future competitor.

E. results in the licensee bearing the costs and risks.

E. results in the licensee bearing the costs and risks.

SmileBright, a dental products manufacturing company, has a market share of 30 percent in India. Three of its competitors together control 55 percent of the market. Whenever SmileBright raises or lowers the prices of its products, the other three companies quickly imitate its action. What is the market structure of this industry in India?

A. fair market

B. monopoly

C. oligopoly

D. perfect competition

E. pure competition

C. oligopoly

________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

A. Perfect competition

B. Collusion

C. Monopoly

D. Multipoint competition

E. Cartel

D. Multipoint competition

According to ________, location-specific advantages are of considerable importance in explaining both the rationale for and the direction of foreign direct investment.

A. the infant industry argument

B. Knickerbocker's theory

C. the eclectic paradigm

D. internalization theory

E. market imperfections theory

C. the eclectic paradigm

Which political ideology reflects the idea that a multinational enterprise is an instrument of imperialist domination?

A. free market

B. mercantilism

C. pragmatic nationalism

D. radical view

E. planned economy

D. radical view

A country that relies on the pragmatic nationalist view would say that

A. international production should be distributed among countries according to the theory of comparative advantage.

B. FDI should be allowed so long as the benefits outweigh the costs.

C. no country should ever permit foreign corporations to undertake FDI.

D. FDI is a benefit to both the source country and the host country.

E. the multinational enterprise (MNE) is an instrument of imperialist domination.

B. FDI should be allowed so long as the benefits outweigh the costs.

A country that imports more goods than it exports experiences a

A. first-mover advantage.

B. current account surplus.

C. trade deficit.

D. factor endowment.

E. late-mover advantage.

C. trade deficit.

As with free trade in general, regional economic integration creates gain for consumers, but it can be challenging for some producers.

True

False

True

The emphasis of the European Free Trade Association has been on free trade in consumer goods.

True

False

False

A common market has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members.

True

False

True

A political union addresses the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations of an economic union.

True

False

True

In terms of regional economic integration, linking neighboring economies and making them increasingly dependent on each other creates incentives for political cooperation between the neighboring states.

True

False

True

Trade creation occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area.

True

False

False

By adopting the euro, the European Union has created the second most widely traded currency in the world after that of the U.S. dollar.

True

False

True

A disadvantage of the euro is that the development of a pan-European, euro-denominated capital market will decrease the range of investment options open to both individuals and institutions.

True

False

False

The Andean Community now operates as a customs union.

True

False

True

Where has the movement toward regional economic integration been most successful?

A. South America

B. Europe

C. Asia

D. North America

E. Africa

B. Europe

The countries of Mimbo, Juwan, and Ninot agreed to remove all barriers to the trade of goods and services among each other. However, the three countries agreed that each would be allowed to determine its own trade policies with regard to nonmembers. The economic integration among these three countries is a(n)

A. free trade area.

B. economic union.

C. customs union.

D. political union.

E. common market.

A. free trade area.

Which of the following is the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements?

A. common markets

B. economic unions

C. free trade agreements

D. licensing agreements

E. political unions

C. free trade agreements

Three countries, close to each other in the Pacific Rim, enter into an agreement to remove all tariffs and trade barriers between them. They decide on a common trade policy with regard to nonmembers. Faced with political backlash, the countries stop short of allowing mobility of factors of production such as labor and capital. Which of the following levels of economic integration best describes this arrangement?

A. monetary union

B. common market

C. economic union

D. political union

E. customs union

E. customs union

As a result of the formation of a free trade area between six member countries in the Pacific Rim, the member country of Rimho found that its lower-cost external suppliers were replaced by higher-cost suppliers within the free trade area. This is an example of

A. trade creation.

B. trade diversion.

C. protectionism.

D. strategic pricing.

E. synergy.

B. trade diversion.

A regional free trade agreement will benefit the world only if

A. the currencies of the nations involved appreciate.

B. it creates trade surplus for one of the countries involved.

C. the amount of trade it creates exceeds the amount it diverts.

D. it raises the standard of living in one of the member countries.

E. the balance-of-trade situation remains stable in the region.

C. the amount of trade it creates exceeds the amount it diverts.

Which of the following is responsible for proposing European Union legislation, implementing it, and monitoring compliance with European Union laws by member-states?

A. Court of Justice

B. European Parliament

C. Council of the European Union

D. European Community

E. European Commission

E. European Commission

Which of the following is true of the Court of Justice?

A. A member country cannot bring another member country to this court.

B. It is the supreme appeals court for European Union law.

C. It comprises several judges from a few selected countries.

D. The judges are required to act as representatives of national interests.

E. Member countries cannot bring the commission or the council to this court.

B. It is the supreme appeals court for European Union law.