The World of International Trade

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Questions and Answers

According to Krugman's new trade theory, what is the focus?

Government involvement in promoting exports

Limited government intervention for certain export-oriented industries

First-mover advantages (correct)

Unrestricted free trade

Which trade theory advocates government involvement in promoting exports and limiting imports?

Smith, Ricardo, and Heckscher-Ohlin

New trade theory

Porter's competitive advantage theory

Mercantilism (correct)

Which trade theory calls for unrestricted free trade?

Mercantilism

New trade theory (correct)

Smith, Ricardo, and Heckscher-Ohlin

Porter's competitive advantage theory

According to the theory of comparative advantage, what should a country specialize in?

Producing goods it produces most efficiently Signup and view all the answers

What does the theory of comparative advantage suggest about trade?

Trade is a positive-sum game Signup and view all the answers

What are the assumptions of the Ricardian Model?

Constant returns to scale Signup and view all the answers

What are the two types of dynamic gains that can result from free trade?

Increase in a country's stock of resources and increase in efficiency Signup and view all the answers

What does the Samuelson critique raise concerns about?

Lower wages in the U.S Signup and view all the answers

What do countries that adopt a more open stance toward international trade enjoy?

Higher growth rates Signup and view all the answers

Which trade theory explains comparative advantage arising from differences in national factor endowments?

Heckscher-Ohlin theory Signup and view all the answers

According to the new trade theory, what is one of the implications of economies of scale for international trade?

Trade can increase the variety of goods available to consumers Signup and view all the answers

According to the text, what is one of the factors that can influence the national diamond?

Chance and government Signup and view all the answers

According to Porter's diamond, what are the four broad attributes of a nation that shape the environment in which local firms compete?

Factor endowments, demand conditions, supporting industries, and firm rivalry Signup and view all the answers

What is one of the advantages of being a first-mover in a market, according to the text?

A first-mover can gain a scale-based cost advantage Signup and view all the answers

What is one of the factors that can limit the potential for U.S. exports, according to the text?

Lower costs of production in other countries Signup and view all the answers

What is one of the factors that can increase the variety of goods available to consumers, according to the new trade theory?

Economies of scale Signup and view all the answers

According to Porter, what is one of the factors that can help a nation achieve international success in a particular industry?

Related industries Signup and view all the answers

What is one of the factors that can shape the domestic demand of a country, according to the text?

Government policies Signup and view all the answers

What is one of the factors that can influence firm rivalry in a country, according to the text?

Government policies Signup and view all the answers

What is one of the managerial implications of Porter's theory, according to the text?

Firms should concentrate production in countries with the largest market size Signup and view all the answers

According to the text, what is the main concept behind gains from trade?

Countries specialize in the production of goods and services that they produce most efficiently Signup and view all the answers

According to the text, what is the difference between free trade and managed trade?

Managed trade allows selling products manufactured in Canada, USA, or Mexico only Signup and view all the answers

Which theory explains why international trade is beneficial even for products a country can produce itself?

David Ricardo’s theory of comparative advantage Signup and view all the answers

According to the text, what is the main focus of Ricardo’s theory of comparative advantage?

Differences in labor productivity Signup and view all the answers

According to the text, what is the main focus of the Heckscher - Ohlin theory?

Factors of production Signup and view all the answers

According to the text, what is the main focus of Vermon’s product life-cycle theory?

Production location changes as products become more widely accepted Signup and view all the answers

According to the text, why are limits on imports often in the interest of domestic producers but not domestic consumers?

Limits on imports protect domestic jobs Signup and view all the answers

According to the text, what does free trade allow in terms of product manufacturing and selling?

Manufacture products in Canada, USA, or Mexico and sell them without import duties Signup and view all the answers

According to the text, what is the main benefit of free trade?

Lower prices for domestic consumers Signup and view all the answers

According to the text, why is much of the observed pattern of international trade difficult to explain?

Multiple factors influencing trade patterns Signup and view all the answers

Study Notes

International Trade Theories

New trade theory focuses on the concept of economies of scale and how it affects international trade.
The mercantilist trade theory advocates for government involvement in promoting exports and limiting imports.

Comparative Advantage

According to the theory of comparative advantage, a country should specialize in producing goods for which it has a lower opportunity cost.
The theory suggests that trade is beneficial because it allows countries to specialize in what they do best and import what they do not produce efficiently.

Ricardian Model

The assumptions of the Ricardian Model include a single factor of production, labor, and constant returns to scale.

Dynamic Gains

Two types of dynamic gains that can result from free trade are increased economic efficiency and innovation.

Samuelson Critique

The Samuelson critique raises concerns about the limitations of the Ricardian Model in explaining real-world trade patterns.

Benefits of Free Trade

Countries that adopt a more open stance toward international trade enjoy increased economic growth and higher living standards.

Heckscher-Ohlin Theory

The Heckscher-Ohlin theory explains comparative advantage arising from differences in national factor endowments.

New Trade Theory

One of the implications of economies of scale for international trade is that large firms can export to other countries, leading to increased trade.
The new trade theory suggests that countries can increase the variety of goods available to consumers by exporting and importing.

Porter's Diamond

The four broad attributes of a nation that shape the environment in which local firms compete, according to Porter's diamond, are factor conditions, demand conditions, firm strategy, and supporting industries.
One of the factors that can influence the national diamond is government policy.
One of the advantages of being a first-mover in a market is the ability to capture market share and establish a competitive advantage.

International Success

One of the factors that can help a nation achieve international success in a particular industry is the presence of related and supporting industries.

Domestic Demand

One of the factors that can shape the domestic demand of a country is the presence of local consumers who are willing and able to purchase goods.

Firm Rivalry

One of the factors that can influence firm rivalry in a country is the presence of local competitors who can challenge company market share.

Managerial Implications

One of the managerial implications of Porter's theory is that companies must be aware of their position within the national diamond and adjust their strategy accordingly.

Gains from Trade

The main concept behind gains from trade is that countries can increase their economic efficiency by specializing in what they do best and trading with other countries.

Free Trade vs Managed Trade

The main difference between free trade and managed trade is the level of government intervention in the economy.

International Trade

The theory of comparative advantage explains why international trade is beneficial even for products a country can produce itself.
The main focus of Ricardo's theory of comparative advantage is the concept of opportunity cost.
The main focus of the Heckscher-Ohlin theory is the concept of national factor endowments.
The main focus of Vernon's product life-cycle theory is the concept of product life cycles and how they affect international trade.
Limits on imports are often in the interest of domestic producers but not domestic consumers because they can limit competition and increase prices.
Free trade allows for the unrestricted production and sale of goods across countries.
The main benefit of free trade is increased economic efficiency and higher living standards.
Much of the observed pattern of international trade is difficult to explain because it often involves complex interactions between multiple factors and variables.

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Description

Test your knowledge on international trade with this quiz! Learn about the benefits of cross-border trade and how countries specialize in producing goods and services. Explore the concept of free trade and understand the implications of shifting towards managed trade.