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Department
Administrative Studies
Course
ADMS 3960
Professor
Brian Zeiler- Kligman
Semester
Fall

Description
International Business: Environments and Operations, 14e (Daniels et al.) Chapter 6 International Trade and Factor-Mobility Theory 1) Which of the following is NOT a reason that international trade theory is useful for managers to understand? A) Countries use trade theories to help them decide how to improve their competitive positions, such as improving the quantity and quality of production factors. B) Countries' trade policies affect whether imports are allowed to compete against domestic production, thus affecting where companies need to produce to serve given markets. C) Countries use laissez-faire policies to intervene in the free movement of international trade, thus affecting where companies can produce most efficiently. D) Countries wrestle with the questions and set policies on what, with whom, and how much they should import and export, thus affecting companies' abilities to produce given products efficiently and sell them into given markets. Answer: C Diff: 3 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 2) Why should managers in international business understand international trade theories? A) Countries' trade policies, based on trade theories, influence which products companies might export to given countries. B) The understanding helps managers decide whether their companies should follow laissez-faire management practices. C) The theories help managers decide whether to locate production in large versus small countries. D) The comprehension is useful when deciding whether to transfer managers abroad to manage foreign operations. Answer: A Diff: 3 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 1 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 3) Because all countries face the questions of what, how much, and with whom they should import and export, international business managers should most likely ________. A) identify their governments' trade policies to determine if an invisible hand directs these decisions B) understand the theories used to answer these questions because policies affect business operations C) establish operations in small countries where they can exert more political influence D) produce only nontradable goods that are less affected by government policies Answer: B Diff: 3 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 4) All countries face the questions of what, how much, and with whom they should import and export. How they answer these questions primarily affects whether ________. A) nontradable goods become tradable B) products go through a lengthy life cycle C) companies adhere to laissez-faire export policies D) a company's present production location will be competitive Answer: D Diff: 2 Skill: Concept Objective: 1 5) The trade theory that says a country should export more than it imports is known as ________. A) mercantilism B) absolute advantage C) comparative advantage D) import substitution Answer: A Diff: 1 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 6) Under mercantilism, governments sought to influence trade by ________. A) establishing bilateral trading agreements with other countries B) limiting exports C) limiting imports and subsidizing exports D) encouraging the development of manufacturing in their colonies Answer: C Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7) Country X runs a favorable balance of trade. Which of the following undesirable results will most likely occur? A) higher unemployment B) higher domestic interest rates C) lower value of global investments D) lower credit value for purchasing goods Answer: D Diff: 2 Skill: Application Objective: 1 8) Neomercantilism describes the approach of countries that try to run a favorable balance of trade to ________. A) build up gold reserves B) achieve a political objective C) lower their rates of inflation D) buy raw materials more cheaply Answer: B Diff: 1 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 9) According to Adam Smith's theory of absolute advantage, specialization allows countries to increase their efficiency for each of the following reasons EXCEPT ________. A) labor could become more skilled by repeating the same tasks B) transportation costs could be lowered by producing closer to markets C) labor would not lose time in switching from the production of one kind of product to another D) long production runs would provide incentives for the development of more effective working methods Answer: B Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 10) Which of the following is most likely a basis for a Jamaican natural advantage in international trade? A) product technology developed by a Jamaican company B) high literacy rates among Jamaican citizens C) the use of English as the primary language D) beautiful beaches and climate Answer: D Diff: 2 Skill: Application Objective: 1 AACSB: Reflective thinking skills 3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 11) As a leading exporter of luxury automobiles, Germany has built a strong reputation in engineering. Germany's trade most likely relies on a(n) ________. A) patented process B) natural advantage C) acquired advantage D) compared advantage Answer: C Diff: 2 Skill: Application Objective: 1 12) Assume the following conditions: In the United States it takes 5 units of resources to produce a ton of potatoes and 10 to produce a ton of coal. In Canada it takes 6 units of resources to produce a ton of potatoes and 9 to produce a ton of coal. According to the theory of absolute advantage, ________. A) the United States should export potatoes to Canada and import coal from Canada B) the United States should export coal to Canada and import potatoes from Canada C) the United States should import both potatoes and coal from Canada, while concentrating on production of more valuable goods D) there would be no basis for trade Answer: A Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Application Objective: 1 AACSB: Analytic Skills 13) Comparative advantage differs from absolute advantage in that the former ________, whereas the latter ________. A) holds that countries should specialize their production; does not B) holds that trade should be kept as nearly in balance as possible; says countries should seek a favorable balance of trade C) bases trade on natural advantages; bases trade on acquired advantage D) states that there is a basis of trade even if one country can produce everything more efficiently than another country; does not deal with this issue Answer: D Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 14) The comparative advantage theory holds that a country will gain from trade ________. A) when it exports products for which it has an acquired advantage and imports products for which another country has a natural advantage B) if it exports goods it can produce more efficiently than other countries and imports goods other countries can produce more efficiently than it can C) even though it can produce all goods more efficiently than other countries D) if it exports products using its abundant production factors in exchange for products for which it has scarce production factors Answer: C Diff: 1 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 15) According to the theory of comparative advantage, a country gains from foreign trade even though it may have an absolute advantage in the production of all products because ________. A) the country will forego producing its less efficient output in order to produce its more efficient output B) workers become more efficient through specialization C) economies of scale will reduce cost D) there will be more incentive to develop cost-saving technologies Answer: A Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 AACSB: Analytic Skills 16) Assume the following conditions: In the United States it takes 4 units of resources to produce a ton of potatoes and 5 to produce a ton of coal. In Canada it takes 6 units of resources to produce a ton of potatoes and 10 to produce a ton of coal. According to the theory of comparative advantage, ________. A) there would be no basis for trade B) the United States should import potatoes from Canada and export coal to Canada C) the United States should export both potatoes and coal to Canada D) the United States should export potatoes to Canada and import coal from Canada Answer: B Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 AACSB: Analytic Skills 5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 17) Which of the following assumptions was made in the original theories of absolute and comparative advantage? A) Specialized labor seeks efficiency. B) Labor resources are fully employed. C) Countries pursue objectives other than economic efficiency. D) Production networks enable countries to concentrate on particular functions. Answer: B Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 1 18) The free trade theories of specialization primarily assume that ________. A) specialization leads to unemployment, but production gains compensate for job losses B) resources can move internationally from the production of one good to another C) resources can move domestically from the production of one good to another D) countries have objectives other than economic efficiency Answer: C Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 2 19) The free trade theories of specialization primarily assume that ________. A) domestic resources are unable to move from the production of one good to another B) countries have objectives other than economic efficiency C) specialization triggers unemployment D) resources are immobile internationally Answer: D Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 2 20) Nontradable goods are best defined as ________. A) products and services that are too costly to export B) factors of production that exceed safety regulations C) goods vital for the production of national defense items D) products that comprise a portion of the inputs for components Answer: A Diff: 2 Skill: Concept Objective: 3 6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 21) Countries with varied climates and varied natural resources generally ________ than countries with less varied climates and natural resources. A) have lower per capita incomes B) depend less heavily on trade C) have more ethnic subgroups D) have higher endowments of capital relative to labor Answer: B Diff: 2 Skill: Concept Objective: 3 22) Countries with large land areas are generally less dependent on trade than countries with small land areas because of ________. A) highly restricted economic scales B) self-sufficiency with natural resources C) higher transportation costs related to foreign trade D) the development of unique products that have a limited demand Answer: C Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 3 23) Seven of the top 10 exporting countries are countries with ________. A) cheap labor forces B) small land masses C) natural advantages D) developed economies Answer: D Diff: 2 Skill: Concept Objective: 3 AACSB: Dynamics of the global economy 24) The trade theory that says countries should concentrate production on those products using their most abundant production factors is the ________. A) factor proportions theory B) theory of comparative advantage C) theory of absolute advantage D) theory of nontradable goods Answer: A Diff: 1 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 3 7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 25) El Salvador has a population density of about 620 people per square mile and neighboring Honduras a population density of about 115 people per square mile. According to the factor proportions theory of trade, one would expect El Salvador's exports to Honduras to ________. A) have a lower labor-to-land ratio than its imports from Honduras B) have a higher labor-to-land ratio than its imports from Honduras C) embody more capital per square mile than its imports from Honduras D) embody more capital per worker than its imports from Honduras Answer: B Diff: 3 Learning Outcome: Compare and contrast theories of international trade Skill: Critical Thinking Objective: 3 AACSB: Reflective thinking skills 26) Tests to substantiate the factor proportions theory have had mixed results most likely because ________. A) labor migration quickly outdates any studies B) most countries have a favorable balance of trade C) labor skills and education are not homogeneous D) large and small countries have different trade policies Answer: C Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 3 27) Most world trade takes place ________. A) between developed countries and developing countries B) among developed countries C) among developing countries D) between raw material exporters and manufacturing exporters Answer: B Diff: 2 Skill: Concept Objective: 3 AACSB: Dynamics of the global economy 28) One way that developed countries specialize in order to gain acquired advantages is by ________. A) allocating research efforts more heavily in specific sectors B) emphasizing production in natural resource endowments C) restricting imports to those in the service sector D) subsidizing the transport of exports Answer: A Diff: 3 Skill: Concept Objective: 3 8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 29) Why is the United States both an exporter and importer of such products as vehicles and passenger aircraft? A) Buyers procure similar products for replacement parts. B) Transportation costs and cultural differences limit exporters. C) Companies differentiate products to appeal to different consumers. D) Bilateral trading agreements require this interchange for a number of products. Answer: C Diff: 2 Skill: Concept Objective: 3 30) Which of the following statements is most likely FALSE? A) Developing countries trade mainly with developed countries. B) Developed countries trade mainly with other developed countries. C) Cultural similarity among countries enhances their trade with each other. D) The greater the geographic distance between countries the greater the trade. Answer: D Diff: 2 Skill: Concept Objective: 3 AACSB: Dynamics of the global economy 31) According to the product life cycle theory, production and sales are primarily domestic in the introductory stage because ________. A) businesses need quick market feedback B) tariff reductions remain under negotiation C) companies lack sufficient production capacity D) international patents have not been approved Answer: A Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 4 32) According to the PLC theory, at an early stage of a product's life cycle the product is likely to be made in a more ________ method than in its later stages. A) capital-intensive B) labor-intensive C) standardized D) low-cost Answer: B Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 4 9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 33) According to the PLC theory, what is the most likely reason that companies manufacture products in locations with high labor rates during the introductory stage of a product's life cycle? A) Most workers are inefficient when using non-standardized tools. B) Many consumers are willing to pay high costs for the newest products. C) Transportation costs are reduced by focusing on markets in developed countries. D) Import restrictions prevent production in countries other than the ones making product innovations. Answer: B Diff: 3 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 4 34) According to the PLC theory, developing countries have their best production advantage in which stage of the product life cycle? A) growth B) maturity C) decline D) introduction Answer: C Diff: 2 Skill: Concept Objective: 4 35) Which of the hypothetical new products, if successful, would most likely diffuse its production and sales according to the product life cycle theory? A) a Ferrari sports car selling for $150,000 to a niche, upper-end market B) a Sony television that receives global transmissions without a satellite dish or cable connection, introduced at a high price but targeted eventually for sale to a mass market C) a new Diet Coca-Cola soft drink flavored with cranberries D) a Kyocera plastic chip carrier, which is expected to be obsolete within a year because of innovations Answer: B Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Application Objective: 4 AACSB: Reflective thinking skills 10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 36) All of the following are types of products that are usually exceptions to what is predicted by the product life cycle theory EXCEPT ________. A) trendy clothing B) luxury items C) differentiated products D) consumer durables Answer: D Diff: 2 Skill: Concept Objective: 4 37) Contrary to the product life cycle theory, there has been an increased tendency for companies to ________. A) sell products only in their home markets throughout the cycle B) produce and sell products in countries where counterfeiting is low C) introduce new products simultaneously in domestic and foreign markets D) sell new products in developing countries before expanding into developed countries Answer: C Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 4 38) All of the following are features of the diamond of national advantage theory EXCEPT ________. A) firm strategy, structure, and rivalry B) strategic trade policy regulations C) related and supporting industries D) demand conditions Answer: B Diff: 1 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 4 39) The diamond of national advantage would be best used to answer which of the following questions? A) How do developed countries prevent the trade of blood diamonds? B) How can developing countries create a significant trade surplus? C) Why do specialized competitive advantages differ among countries? D) Why do most innovative products originate in developed countries? Answer: C Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Application Objective: 4 AACSB: Reflective thinking skills 11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 40) According to the diamond of national advantage theory, the domestic existence of all four conditions best explains ________. A) the essence of an industry's development B) the position of a product in the product life cycle C) how globally competitive firms sustain themselves D) why countries rely on abundant factor endowments Answer: C Diff: 2 Learning Outcome: Compare and contrast theories of international trade Skill: Concept Objective: 4 41) Costa Rica applied the concepts of the diamond of national advantage theory to help transform its economy by ________. A) building domestic demand for its products and services B) looking globally to develop favorable conditions C) following import substitution policies D) concentrating on nontradable goods Answer: B Diff: 2 Skill: Application Objective: 4 42) Which of the following best supports a nation's decision to implement a strategic trade policy? A) The policies have usually resulted in big payoffs. B) Governments, rather than entrepreneurs, should take the risks of developing new industries. C) Consumer needs would otherwise not be met. D) Government actions should help industries that will give the country the best export advantages. Answer: D Diff: 3 Learning Outcome: Compare and contrast theories of international trade Skill: Critical Thinking Objective: 4 AACSB: Analytic Skills 43) A governmental strategic trade policy is one that ________. A) lessens dependence on foreign military goods B) seeks reciprocal free trade agreements with developing countries C) targets the resources needed to support industries that fit best with the country's advantages D) limits imports to encourage domestic production of what would otherwise be imported Answer: C Diff: 2 Skill: Concept Objective: 4 12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 44) Which of the following statements most likely undermines the implementation of a strategic trade policy? A) Entrepreneurs, rather than governments, should take business risks. B) Developed countries have production lead time over developing countries. C) If big companies can figure out what products to develop, so can governments. D) Governments have limited resources, so industries with greater growth potential should be targeted. Answer: A Diff: 3 Skill: Critical Thinking Objective: 4 AACSB: Analytic Skills 45) Countries undergoing a simultaneous population reduction and increased percentage of retirees between now and the year 2050 will most likely need more ________. A) imports B) immigrants C) domestic products D) medical service personnel Answer: B Diff: 2 Skill: Concept Objective: 5 AACSB: Dynamics of the global economy 46) The most internationally mobile factor of production is ________. A) labor B) management C) long-term capital D) short-term capital Answer: D Diff: 1 Skill: Concept Objective: 5 47) All the following are reasons for the lower international mobility of people than capital EXCEPT which one? A) The differences in economic return between countries are lower for people than for capital. B) It is more expensive to move people than capital. C) People may have to learn another language and adapt to a different culture. D) International capital transfers have less cumbersome legal restrictions than international movements of people. Answer: A Diff: 2 Skill: Application Objective: 5 AACSB: Analytic Skills 13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 48) All of the following are examples of international labor mobility EXCEPT ________. A) a manager assigned by an MNE to work short-term abroad B) a refugee who takes up employment in another country C) a college student on a study abroad program D) a person working illegally in another country Answer: C Diff: 2 Skill: Application Objective: 5 49) Labor and capital mobility are intertwined because ________. A) illegal workers sometimes pay large sums to people who smuggle them into another country B) people cannot emigrate to another country unless they bring capital with them C) countries receive tax benefits for receiving illegal immigrants D) nations invest in the education of their workers Answer: D Diff: 2 Skill: Concept Objective: 5 50) Brain drain is a term that describes ________. A) a country's loss of educated, productive people B) a nation's shift from an emerging market to a developed economy C) the exportation of high-technology products in exchange for low-technology products D) the unauthorized use of patents, copyrights, and technology by the counterfeiting industry Answer: A Diff: 2 Skill: Concept Objective: 5 51) Which of the following is the LEAST likely result of outward migration? A) Emigrants use remitted capital to start businesses in the home country. B) Workers develop trade specialties that are transferred overseas. C) Nations lose highly educated and productive workers. D) Countries receive remittances from emigrants. Answer: B Diff: 3 Skill: Concept Objective: 5 AACSB: Dynamics of the global economy 14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 52) Country X brings in a large number of unskilled immigrants to meet its labor needs. Which of the following is the LEAST likely to occur in Country X as a result? A) Country X will develop a long-term class of "have-nots" if the children of immigrants remain unskilled. B) Country X will need more unskilled people in the future if immigrant children become skilled. C) The continual supply of unskilled labor will delay the development of labor saving technology in Country X. D) Country X will experience a significant transfer of knowledge and a resulting rise in start-up businesses. Answer: D Diff: 3 Skill: Application Objective: 5 53) In this example, assume that both tr
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