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Why Do Nations Trade?

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Questions and Answers

Why do firms engage in international trade?

To avoid economic losses
To engage in win-win deals with other firms (correct)
To assert political dominance
To dominate the global market

What is the key reason firms in one nation trade with firms in other nations according to the resource-based view?

To import hard-to-imitate exports (correct)
To influence institutional rules
To imitate competitors
To achieve trade dominance

What is the main purpose of different rules governing trade according to the institution-based view?

To determine how gains from trade are shared or not shared (correct)
To ensure trade monopolies
To restrict imports
To regulate export prices

What does a trade deficit mean for a nation's economy?

Importing more than exporting (D) Signup and view all the answers

What is the key difference between classical and modern theories of trade?

Time period they originated from (D) Signup and view all the answers

What is the key proposition of the factor endowment theory?

Nations will develop comparative advantage based on their locally abundant factors. (D) Signup and view all the answers

What is the main difference between classical and modern trade theories?

Classical trade theories focus on mercantilism, absolute advantage, and comparative advantage, while modern trade theories include product life cycle, strategic trade, and national competitive advantage. (A) Signup and view all the answers

What is the main idea behind mercantilism?

The wealth of the world is fixed, and a nation that exports more than it imports enjoys a net inflow of money. (C) Signup and view all the answers

What is the main proposition of the theory of absolute advantage?

Countries should specialize in the production of goods in which they have the greatest absolute advantage. (A) Signup and view all the answers

What is the key idea behind the national competitive advantage of industries (or diamond theory)?

The competitive advantage of certain industries in different nations depends on four aspects: country factor endowments, firm strategy, structure and rivalry, domestic demand and related industries. (A) Signup and view all the answers