Exam 6: International Trade Theory

Which of the following is one of the four attributes present in Porter's diamond?

Mercantilist doctrine advocates unrestricted free trade between countries.

According to Ricardo's theory of comparative advantage,countries should produce all the products for which they have an absolute advantage.

The simple comparative advantage model assumed that trade does not change a country's stock of resources or the efficiency with which it utilizes those resources.

Factor endowments refer to the extent to which a country is gifted with such resources as land,labor,and capital.

Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country.

The principle of mercantilism views trade as a positive-sum game.

Paul Samuelson's critique argues that trade is a positive-sum game in which all countries that participate realize economic gains.

Which of the following observations is consistent with Michael Porter's theory of national competitive advantage?

Identify the theory that argues that advanced nations have an incentive to develop a new offering and hence such nations always tend to create a good or service for the first time.

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?

Briefly differentiate between constant returns to specialization and diminishing returns to specialization.

Which of the following is an example of a basic factor that a nation will possess as proposed by Porter?

The theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains.

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?

The Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally scarce.

New trade theory 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.

Explain Ricardo's theory of comparative advantage.

The production possibility frontier will be convex if constant return to specialization is observed.

A key assumption in the Heckscher-Ohlin theory is that technologies are the same across countries.