Question 1

Classical theories of trade rely on the theory of comparative advantage as developed by David Ricardo.What is comparative advantage and how does it affect trade?

Accepted Answer

The answer of Classical theories of trade rely on the...

Question 2

The Gravity Theory of international trade says that the quantity of trade between two countries is positively related to __________________ and negatively related to _________________________.

Accepted Answer

A) the value of the products produced by each country;the political leanings of each country. 
B) the countries' GNP;the distance between the countries. 
C) the status of the world economy;the economy of each country. 
D) whether each country is a developed country or a developing country;the political leanings of each country.

Question 3

The conflict between principals and agents arises because:

Accepted Answer

A) agents often do not know the extent of their authority. 
B) agents act without specific authority form their principals. 
C) agents prefer actions that will increase their own welfare instead of the welfare of their principals. 
D) principals are not willing to give agents the authority that the need to protect the welfare of their principals.

Question 4

Unilateral actions by individual nations in trade matters:

Accepted Answer

A) is authorized by most international trade agreements. 
B) is preferred in resolving trade disputes since the actions can be taken quickly. 
C) often mean that international trade organizations have failed to resolve trade conflicts. 
D) often result in a cycle of retaliation against each other which interferes with international trade.

Question 5

The general objectives of both the WTO and NAFTA include:

Accepted Answer

A) enabling the movement of goods and services across borders by eliminating tariffs and other restrictions. 
B) providing a forum where trade disputes can be resolved and where nations that violate trade laws can be punished. 
C) protecting domestic industries in member countries from competition for foreign companies. 
D) encouraging the creation of new international companies that will increase international trade.

Question 6

An MNC acquiring ownership in a foreign branch or subsidiary is an example of:

Accepted Answer

A) globalization. 
B) foreign direct investment. 
C) international trade. 
D) political risk.

Question 7

An example of the widespread belief that political freedom is necessary for economic freedom and economic growth can be found in:

Accepted Answer

A) the emergence of Japan as an international economic force in the latter part of the 20th century. 
B) the widespread availability of technical education in India. 
C) the rise of Brazil as an economic powerhouse in the Southern Hemisphere. 
D) the demise of the Soviet Union and the rise of an entrepreneurial class in Russia.

Question 8

___________________________ says that firms in an industry tend to locate in the same areas because of positive externalities.

Accepted Answer

A) Industry Agglomeration Theory 
B) Industry Cluster Theory 
C) Externality Theory 
D) Economic Development Theory

Question 9

When a nation's products are first introduced into global markets,that country has a competitive advantage that is not easily overcome in the short-term.This expresses the basis of the _____________________________ of international trade.

Accepted Answer

A) Product Life Cycle Theory 
B) Gravity Theory 
C) Comparative Advantage Theory 
D) New Trade Theory

Question 10

The global business environment is much more ________________ than the domestic business environment.

Accepted Answer

A) profitable 
B) difficult 
C) political 
D) dynamic

Exam 1: Introduction