International Trade Theory

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Chapter 05

International Trade Theory

 

True / False Questions
 

1. (p. 154) Countries such as the U.S should not participate in free trade because it leads to a migration of jobs overseas and ultimately leads to lower living standards.  FALSE

 

Difficulty: Medium
 

2. (p. 154) A situation where a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to another country is known as free trade.  TRUE

 

Difficulty: Easy
 

3. (p. 155) According to the theories of Smith, Ricardo and Heckscher-Ohlin, if a country can produce a product itself it should not import that product.  FALSE

 

Difficulty: Medium
 

4. (p. 155) The theories of Smith, Ricardo and Heckscher-Ohlin tell us that a country's economy may gain if its citizens buy certain products from other nations that could be produced at home.  TRUE

 

Difficulty: Medium
 

5. (p. 155) The Heckscher-Ohlin theory emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are need for producing particular goods.  TRUE

 

Difficulty: Medium
 

6. (p. 155) The Heckscher-Ohlin theory has proven to be a powerful explanation of world trade patterns.  FALSE

 

Difficulty: Medium
 

7. (p. 156) New trade theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can only support a limited number of firms.  TRUE

 

Difficulty: Medium
 

8. (p. 156) Ricardo noted the importance of country factors such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products.  FALSE

 

Difficulty: Hard
 

9. (p. 156) The theory of absolute advantage was the first theory of international trade.  FALSE

 

Difficulty: Easy
 

10. (p. 156) According to the theory of comparative advantage, it is in a country's best interest to maintain a trade surplus and to export more than it imports.  FALSE

 

Difficulty: Medium
 

11. (p. 157) When a gain by one country results in a loss by another, there is a zero-sum game.  TRUE

 

Difficulty: Medium
 

12. (p. 160) Smith's theory of international trade suggests that when one country has an absolute advantage in the production of all goods, the country might not derive any benefit from international trade.  TRUE

 

Difficulty: Medium
 

13. (p. 160) According to Ricardo, there may be cases when it makes sense for a country to buy goods from another country that it can make more efficiently itself.  TRUE

 

Difficulty: Hard
 

14. (p. 162) While popular in its time, Ricardo's theory is no longer a major intellectual weapon for those who argue for free trade.  FALSE

 

Difficulty: Medium
 

15. (p. 162) Ricardo's theory of comparative advantage provides a strong rationale for encouraging free trade.  TRUE

 

Difficulty: Medium
 

16. (p. 162) The theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains.  TRUE

 

Difficulty: Medium
 

17. (p. 163) Political opposition to the adoption of a free trade regime typically comes from those whose jobs are most at risk.  TRUE

 

Difficulty: Medium
 

18. (p. 164) Because of diminishing returns, it is not feasible for a country to specialize to the degree suggested by the simple Ricardian model.  TRUE

 

Difficulty: Medium
 

19. (p. 166) In general, economic studies suggest that countries that adopt a more open stance toward international trade enjoy higher growth rates than those who keep their economies closed to trade.  TRUE

 

Difficulty: Medium
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