Which of the following theories argues that free trade is always good?
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Chapter 6 International Trade Theory Show TRUE/FALSE 1) The theories of Smith and Ricardo show that a country should engage in international trade, even for products that it is able to produce for itself. TRUE 2) Porter's theory of national competitive advantage recommends unrestricted free trade between countries. FALSE 3) Heckscher-Ohlin theory supports the case for unrestricted free trade between nations. TRUE 4) Mercantilist doctrine advocates unrestricted free trade between countries. FALSE 5) A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. TRUE 6) Factor endowments refer to the extent to which a country is gifted with such resources as land, labor, and capital. TRUE 7) Heckscher-Ohlin theory stresses that comparative advantage arises from differences in productivity. FALSE 8) Ricardo's theory makes fewer simplifying assumptions compared to Heckscher-Ohlin theory. FALSE 9) A key assumption in the Heckscher-Ohlin theory is that technologies are the same across countries. TRUE 10) Some of the arguments made by the product life-cycle theory seem ethnocentric and increasingly dated when viewed from an Asian or European perspective. TRUE 11) XYZ Toys manufactures and sells small quantities of each of its products, but it can still benefit from economies of scale. FALSE 12) The simple model of free trade assumed away transportation costs between countries. TRUE 13) Resources always move easily from one economic activity to another. FALSE 14) Diminishing returns show that it is feasible for a country to specialize to the degree suggested by the simple Ricardian model. FALSE 15) According to Paul Samuelson's critique, a poor country will rapidly improve its productivity if a rich country enters into a free trade agreement with it. TRUE 16) Apple's iPhone was unique when it first came out, with many features that no other phones had. As such, it enjoyed great success and dominated the cell phone market. This demonstrates the first-mover advantage. TRUE 17) New trade theorists stress the role of luck in giving a firm first-mover advantages. TRUE 18) According to the new trade theory, firms that establish a first-mover advantage with regard to the production of a particular new product may subsequently dominate global trade in that product. TRUE 19) From a profit perspective, it makes sense for firms to disperse their productive activities to those countries where they can be performed most efficiently. TRUE MULTIPLE CHOICES 20) ________ refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country. A) Fair trade B) Trade theory C) Free trade D) Mercantilism 21) Identify the theory that supports the view that, in some cases, countries export for the reason that the world market can support only a limited number of firms. A) Heckscher-Ohlin theory B) Smith's theory C) Ricardo's theory D) new trade theory 22) Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly? A) comparative advantage theory B) new trade theory C) Ricardo's theory D) Smith's theory 23) Which of the following observations is consistent with Michael Porter's theory of national competitive advantage? A) Factors such as domestic demand and domestic rivalry explain nations' dominance in production. B) Countries should produce only those goods for which they have a comparative advantage. C) Interplay between the factors of production cause international marketing decisions. D) International differences in labor productivity determine nations' supremacy in production. 24) Which of the following is a theory that can be used to justify limited government intervention to support the development of certain export-oriented industries? A) comparative advantage theory B) Ricardo's theory C) new trade theory D) Heckscher-Ohlin theory 25) Which of the following refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country? A) economic patriotism B) protectionism C) free trade D) offshoring 26) Which of the following is a major benefit of engaging in free trade? A) It helps to reduce the financial volatility in global markets. B) It helps countries protect the jobs that are available to their citizens. C) It gives countries access to products that they cannot produce. D) It allows governments to exert more control on businesses. 27) David Ricardo's theory of comparative advantage explains global trade in terms of the A) first-mover advantage that certain countries and firms enjoy. B) geographical differences between various countries. C) international differences in labor productivity. D) late-mover advantage that certain countries and firms possess. 28) Which of the following theories emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods? A) Porter's theory B) Smith's theory C) Ricardo's theory D) Heckscher-Ohlin theory 29) ________ stresses that in some cases countries specialize in the production and export of particular products because the world market can support only a limited number of firms. A) New trade theory B) Absolute advantage C) The world market theory D) Mercantilism 30) ________ supports the idea that countries should export more than they import. A) Absolute advantage B) Mercantilism C) The world market theory D) New trade theory 31) The principle of mercantilism views trade as a(n) ________ game. A) advantage B) positive-sum C) zero-sum D) negative-sum 32) ________ argued that countries should specialize in the production of goods for which they have an absolute advantage. A) Paul Krugman B) David Hume C) David Ricardo D) Adam Smith 33) According to Ricardo's theory of comparative advantage, countries should A) specialize in the production of those goods that it produces most efficiently. B) specialize in the production of those goods that their competitors in the world market currently have monopolies on. C) produce all the products for which they have an absolute advantage. D) produce only the products for which they have an absolute advantage. 34) The theory of comparative advantage suggests that trade is a ________ game in which all countries that participate realize economic gains. A) net-sum B) positive-sum C) zero-sum D) negative-sum 35) The Heckscher-Ohlin theory predicts that countries will A) export those goods that make intensive use of factors that are locally scarce. B) export those goods that make intensive use of factors that are locally abundant. C) import those goods that make intensive use of factors that are locally abundant. D) import those goods that make intensive use of factors that are available worldwide. 36) The ________ theory argues that the pattern of international trade is determined by differences in factor endowments. A) comparative advantage B) Leontief Paradox C) Heckscher-Ohlin D) absolute advantage 37) A capital-intensive country exports products that are capital intensive. Which theory is this an example of? A) new trade B) Leontief paradox C) Porter's diamond D) Heckscher-Ohlin 38) The ________ argues that a large proportion of the world's new products had been developed by U.S. firms. A) product life-cycle theory B) Porter's diamond C) new trade theory D) Leontief paradox 39) ________ are unit cost reductions associated with a large scale of output. A) Current account deficits B) Economies of scale C) Current account surpluses D) Factor endowments 40) Which of the following is the main principle of mercantilism? A) Protection of domestic industries is not essential for a nation's welfare. B) Government intervention is not required in global trade. C) Countries should encourage absolute free trade. D) It is in a country's best interests to maintain a trade surplus. Which theory argues that free trade is always good?Popularized by David Ricardo, comparative advantage argues that free trade works even if one partner in a deal holds absolute advantage in all areas of production – that is, one partner makes products cheaper, better and faster than its trading partner.
Which of the following is an argument for trade free trade?Arguments for Free Trade
Free trade increases the size of the economy as a whole. It allows goods and services to be produced more efficiently.
What is the theory of free trade?Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange. The concept of free trade is the opposite of trade protectionism or economic isolationism.
Which trade theory suggests that trade is a positive?The theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains.
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