SOM 354 Chapter 5 Flashcards

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Questions and Answers

_____ are politically motivated trade sanctions against foreign countries to signal displeasure.

Trade Embargos

Trade deficit occurs when a nation _____.

imports more than its exports

The _____ is popularly known as the diamond theory because its principal architect, Harvard strategy professor Michael Porter, presents it in a diamond-shaped diagram.

theory of national competitive advantage of industries

Which of the following statements best describes merchandise trade?

It refers to the tangible products being bought and sold. Signup and view all the answers

Which of the following statements is true of opportunity cost?

It is the cost of pursuing one activity at the expense of another activity. Signup and view all the answers

Which of the following statements is true of import tariff?

It is imposed on a good brought in from another country. Signup and view all the answers

Which of the following statements is true of the theory of mercantilism?

It suggested that the wealth of the world was fixed. Signup and view all the answers

_____ is the idea that government should actively guard domestic industries from imports and vigorously promote exports.

protectionism Signup and view all the answers

Which of the following statements is true of non-tariff barriers?

They include subsidies, import quotas, and export restraints. Signup and view all the answers

In order to ensure the success of firms' exports, managers need to:

nurture the comparative advantage of a location Signup and view all the answers

Which of the following is a reason why the product life cycle theory is criticized?

It assumes that the United States will always be the lead innovation nation for new products. Signup and view all the answers

_____ can determine the success and failure of a firm's exports around the globe.

Being politically active to advance the gains from international trade Signup and view all the answers

Which of the following statements best defines balance of trade?

It is the country-level trade surplus or deficit. Signup and view all the answers

Which of the following statements is true of deadweight costs?

They are net losses that occur in an economy as the result of tariffs. Signup and view all the answers

Which of the following statements is true of strategic trade theory?

It proposes that governments help a few industries, such as those centered on clean energy like electric cars and batteries. Signup and view all the answers

According to Adam Smith, a nation that is more efficient than anyone else in the production of any good or service is said to have a(n) _____ in the production of that good or service.

absolute advantage Signup and view all the answers

Which of the following definitions best describes import quotas?

They are restrictions on the quantity of goods that can be brought into a country. Signup and view all the answers

Which of the following is a reason why strategic trade theory is criticized?

Many scholars and policy makers are uncomfortable with government intervention. Signup and view all the answers

Which of the following is an economic argument against free trade?

They need to shield infant industries. Signup and view all the answers

Which of the following statements is true of free trade?

It is the idea that open market forces should determine the buying and selling of goods and services with little or no government intervention. Signup and view all the answers

Which of the following statements is true of the Heckscher-Ohlin theory?

It proposed that nations will develop comparative advantages based on their locally abundant factors. Signup and view all the answers

Study Notes

Trade Concepts and Theories

Trade embargos are politically motivated sanctions imposed on foreign countries to express disapproval.
A trade deficit occurs when a nation imports more than it exports.
The theory of national competitive advantage, created by Michael Porter, is illustrated through a diamond-shaped diagram.
Merchandise trade involves the buying and selling of tangible products.

Economic Principles

Opportunity cost refers to the value lost when one activity is pursued over another.
An import tariff is a tax levied on goods brought into a country from abroad.
Mercantilism suggests that global wealth is fixed, promoting national trade surpluses.
Protectionism advocates for government measures to protect domestic industries from foreign competition.

Trade Barriers and Strategies

Non-tariff barriers include subsidies, import quotas, and export restrictions that limit trade.
To succeed in exporting, firms need to enhance the comparative advantage of their locations.
Critics of the product life cycle theory argue it erroneously assumes the U.S. will always lead in innovation.

Trade Metrics

The balance of trade measures a country’s overall trade surplus or deficit.
Deadweight costs result from tariffs, leading to net economic losses.
Strategic trade theory supports government assistance for certain industries, such as clean energy sectors.

Comparative and Absolute Advantage

According to Adam Smith, a nation that can produce a good more efficiently than others holds an absolute advantage.
Import quotas restrict the maximum quantity of goods that can enter a country.
Strategic trade theory faces criticism for encouraging government intervention in markets.

Free Trade Perspectives

Economic arguments against free trade include the need to protect emerging industries from foreign competition.
Free trade promotes minimal government intervention in the buying and selling of goods and services.
The Heckscher-Ohlin theory posits that comparative advantages arise from a nation’s locally abundant resources.

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Test your knowledge with these flashcards covering key terms from SOM 354 Chapter 5. Focus on important concepts like trade embargos and trade deficits to understand their global implications. Ideal for students looking to reinforce their understanding of international trade principles.