Understanding International Trade Theories

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What does the theory of mercantilism advocate for a country?

Maintain a trade surplus by exporting more than importing (correct)

Avoid international trade completely

Not focus on trade balance

Maintain a trade deficit by importing more than exporting

According to mercantilism, how does the theory view trade?

As a way to achieve global harmony

As a win-win situation for all countries involved

As a zero-sum game (correct)

As an unpredictable economic activity

How does international trade benefit a country according to trade theories?

By limiting imports and focusing on domestic production only

By allowing specialization in products it can produce efficiently (correct)

By exporting less than it imports

By producing all goods domestically without any imports

What is one of the main criticisms of mercantilism as a trade theory?

Views trade as a zero-sum game Signup and view all the answers

How does Adam Smith's Theory of Absolute Advantage differ from Ricardo's Theory of Comparative Advantage?

Absolute Advantage focuses on labor productivity, while Comparative Advantage focuses on opportunity cost Signup and view all the answers

What is an implication of a country specializing in products it can produce efficiently?

Increased economic efficiency and output Signup and view all the answers

According to the Heckscher-Ohlin Theory, countries will export goods that:

Make intensive use of factors that are locally scarce Signup and view all the answers

What does the New Trade Theory suggest about trade and economies of scale?

Trade allows firms to gain economies of scale Signup and view all the answers

What is a key implication of the New Trade Theory regarding specialization?

Specialization can lead to increased productivity and innovation Signup and view all the answers

What is a critique of the Heckscher-Ohlin Theory compared to Ricardo's Theory of Comparative Advantage?

Heckscher-Ohlin Theory lacks predictive power Signup and view all the answers

How does Paul Samuelson critique free trade in relation to wages?

Free trade leads to a decrease in wages for the rich country Signup and view all the answers

Which trade theory suggests that countries should export goods based on their factor endowments?

Heckscher-Ohlin Theory Signup and view all the answers

Which trade theory emphasizes the importance of a nation's competitive advantage in global trade?

Porter's Diamond Of Competitive Advantage Signup and view all the answers

According to the Product Life Cycle Theory, where were products like Xerox photocopiers, TVs, and PCs developed in the twentieth century?

United States Signup and view all the answers

What is one of the criticisms of the Product Life Cycle Theory today?

It fails to account for the simultaneous introduction of products in different markets. Signup and view all the answers

Which trade theory focuses on a nation's ability to produce goods more efficiently than other nations?

Ricardo's Theory of Comparative Advantage Signup and view all the answers

In the context of international trade theories, what does Adam Smith's Theory of Absolute Advantage emphasize?

A nation's inherent ability to produce certain goods more efficiently Signup and view all the answers

Which theory explains how nations can gain a competitive edge by having factors like skilled labor and advanced infrastructure?

Porter's Diamond Of Competitive Advantage Signup and view all the answers

Understanding International Trade Theories

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