International Trade Theory Chapter 5

According to mercantilism, a country's wealth is measured by its GDP.

The theory of absolute advantage was introduced by Adam Smith in 1500.

Free trade theories endorse a laissez-faire approach of no governmental intervention.

Neomercantilism aims to achieve a trade deficit.

Mercantilism was the foundation of economic thought for nearly two hundred years.

Adam Smith's theory of absolute advantage holds that a country can maximize its own economic well-being by specializing in the production of those goods and services that it can produce at a higher cost than any other nation.

Trade theory helps managers and government policymakers focus on four critical questions.

Interventionist trade theories endorse a laissez-faire approach of no governmental intervention.

According to Smith, workers become more skilled by repeating the same tasks and switching from the production of one kind of product to another.

A country's natural advantage is solely due to its access to particular resources.

An acquired advantage is a result of natural advantages among countries.

The production possibilities curve shows that specialization and trade will always lead to a decrease in global efficiency.

Ricardo's theory of comparative advantage holds that a country can maximize its own economic well-being by producing everything it needs.

Smith asserted that country-specific advantages can only be natural.

Technology has created new products, displaced old products, and altered trading-partner relationships, but it has not affected global efficiency.

Real income depends on the resources used to produce a product, regardless of the output.

China has a large economy because of its small population.

The top ten nations account for less than one-quarter of all of the world’s trade.

The factor-proportions theory assumes production factors to be heterogeneous.

Most new products originate in developing countries.

High-income countries trade primarily with emerging economies.

The country-similarity theory suggests that companies create new products in response to market conditions in foreign markets.

Emerging economies primarily export capital-intensive products.

Distance has no effect on the determination of trading partners.

Factor mobility via foreign direct investment may reduce foreign trade.

LUKOIL's foreign investments are limited to nearby countries.

LUKOIL's foreign acquisitions are primarily aimed at gaining access to new markets.

The inability to gain sufficient access to foreign production factors may hinder domestic substitution.

LUKOIL controls 10 percent of Russia's oil production and refining capacity.

Short-term capital is less mobile than long-term capital.

High market prices have enabled LUKOIL to reduce its foreign investments.

The Diamond of National Advantage Theory suggests that the existence of favorable conditions is sufficient for the development of a particular national industry.

LUKOIL's forward integration into filling stations is aimed at reducing its market access.

The Costa Rican government did not alter its educational system to fit the needs of targeted industries.

Global political and economic conditions do not affect global oil markets and prices.

Factor mobility theory focuses on why production factors remain static.

People are less mobile than capital.

Firms can only gain market information and production inputs from domestic sources.

The Diamond of National Advantage Theory is only applicable to domestic conditions.

The creation and persistence of national competitive advantage requires outdated product and process technologies.