Questions on International Trade

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Testbank

Chapter 1: Introduction

TRUE/FALSE 1. Many of the developing countries of the world experience traffic gridlock. ANS: T DIF: Easy REF: Introduction

2. World trade has grown about 10 percent per year since 1950. ANS: F DIF: Easy REF: 1-1

3. World trade in services representf a higher percentage of total world trade than does world trade in merchandise. ANS: F DIF: Moderate REF: 1-1: Tables 1-1, 1-2, and 1-3

4. The Bretton Woods Conference triggered the creation of the World Trade Organization in 1944. ANS: F DIF: Moderate REF: 1-2a

5. The Treaty of Rome in 1957 was the first step in the creation of the European Union. ANS: T DIF: Easy REF: 1-2c

6. The North American Free Trade Association (NAFTA) includes only the United States and Canada. ANS: F DIF: Moderate REF: 1-2c: Table 1-4

7. The euro has replaced the currencies of all of the countries of the European Union. ANS: F DIF: Hard REF: Table 1-2d

8. In 2007, the United States exported more goods than any other country in the world. ANS: F DIF: Moderate REF: 1-3: Figure 1-3

9. In 2007, the United States imported about 1.5 times more goods than it exported. ANS: T DIF: Hard REF: 1-3: Figures 1-3 and 1-4

10. A company that has to make large capital outlays before starting production will want to export in order to spread its costs over a large number of units produced. ANS: T DIF: Moderate REF: 1-4a

1-1

Chapter 1: Introduction 11. The “Wal-Mart effect” pushes manufacturers to sell products at ever-lower prices, often obtained by manufacturing abroad. ANS: T DIF: Moderate REF: 1-4a

12. The term “outsourcing” refers to a strategy whereby a company purchases plants overseas. ANS: F DIF: Moderate REF: 1-4a

13. A competitor offering a new product in a mature market can entice a company to start importing its own low-cost alternative. ANS: T DIF: Moderate REF: 1-4b

14 Consumers are becoming increasingly worldly and willing to purchase foreign-made products. ANS: T DIF: Easy REF: 1-4c

15. According to Thomas Friedman, individuals looking for jobs now compete with hundreds of other similarly trained applicants, coming from all corners of the world. ANS: T DIF: Hard REF: 1-4d

16. According to Adam Smith, countries trade when they enjoy a comparative advantage over other countries in the production of a given product. ANS: F DIF: Easy REF: 1-5a

17. A country enjoys an absolute advantage in the production of a particular good when it can produce it at a lower price than another country. ANS: T DIF: Easy REF: 1-5a

18. David Ricardo’s Theory of Comparative Advantage explains why countries that enjoy an absolute advantage in making certain goods can still prefer to purchase these products from other countries. ANS: T DIF: Hard REF: 1-5b

19. Most trade today is more likely to be explained by the Theory of Comparative Advantage than by the Theory of Absolute Advantage. ANS: T DIF: Moderate REF: 1-5b

20. A country often enjoys a comparative advantage because of the abundance of a particular production factor (land, labor, capital, or entrepreneurship) within its borders. ANS: T DIF: Easy REF: 1-5c

1-2

Testbank 21. The Factor Endowment Theory was developed by Raymond Vernon. ANS: F DIF: Easy REF: 1-5c

22. The International Product Life Cycle Theory explains why there are no televisions manufactured in Great Britain and the United States, although that technology was invented in those countries. ANS: T DIF: Easy REF: 1-5d

23. A product is invented in Country X and is first manufactured there. The International Product Life Cycle Theory holds that the product will be manufactured in developing countries within a couple of years. ANS: F DIF: Hard REF: 1-5d

24. Michael Porter views Silicon Valley is an example of a “cluster” of innovation and manufacturing. ANS: T DIF: Easy REF: 1-5e

25. Until the 1950s, most of the area rugs in the world were manufactured in Persia (Iran) and Pakistan. Artisans in these...
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