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. Show
David Ricardo's theory of comparative advantage explains international trade in terms of international differences in political environments. 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. Heckscher–Ohlin theory supports the case for unrestricted free trade between nations. A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. Adam Smith argued that countries should specialize in the production of goods for which they have an absolute advantage. According to Ricardo's theory of comparative advantage, countries should produce all the products for which they have an absolute advantage. According to Ricardo's theory of comparative advantage, countries shall not produce a good even if they have an absolute advantage in its production. The theory of comparative advantage suggests that trade is a positive–sum game in which all countries that participate realize economic gains. Factor endowments refer to the extent to which a country is gifted with such resources as land, labor, and capital. The Heckscher–Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally scarce. Heckscher–Ohlin theory stresses that comparative advantage arises from differences in productivity. The Heckscher–Ohlin theory argues that the pattern of international trade is determined by differences in factor endowments. Economies of scale are unit cost reductions associated with a large scale of output. Companies that trade small volumes of product can benefit from economies of scale. First–mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. New trade theory suggests that nations cannot benefit from trade when they do not differ in resource endowments or technology. According to the new trade theory, firms that establish a first–mover advantage with regard to the production of a particular new product may subsequently dominate global trade in that product. Which of the following refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country? B. Protectionism C. Free trade D. Offshoring Which of the following is a major benefit of engaging in free trade? B. It helps the countries protect the jobs that are available to their citizens. C. It gives countries access to products that they cannot produce. D. It allows the governments to exert more control on businesses. C. It gives countries access to products that they cannot produce. 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? B. Smith's theory C. Ricardo's theory D. Heckscher-Ohlin theory D. Heckscher-Ohlin theory Identify the theory that supports the view that in some cases countries export for the reason that the world market can support only a limited number of firms. B. Smith's theory C. Ricardo's theory D. New trade theory 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? B. New trade theory C. Ricardo's theory D. Smith's theory A country has an absolute advantage in the production of a product when it ____. B. is more efficient than any other country in producing it C. has the largest domestic demand for the product D. has access to the raw materials needed to produce the product B. is more efficient than any other country in producing it According to Adam Smith, A country should specialize in the production of a good when it has ____. B. a strong domestic demand for the good C. the ability to help country increase its national output D. the necessary raw materials for production A. an absolute advantage in the production of the good Country A can produce product X, but it can also buy it at a cheap rate from Country B. Which of the following courses of action is suitable in this situation according to Adam Smith's theory of absolute advantage? B. Country A should partly import the product and produce it domestically. C. Country A should produce more of product X and should attempt to obtain an absolute advantage for the product. D. Country A should subsidize the production of product X to obtain an absolute advantage over country B. A. Country A should import product X from country B and it should not attempt to produce it at home. According to Ricardo's theory of comparative advantage, a country should produce goods ____. B. that it produces most efficiently C. that have the highest domestic demand D. for which it has an absolute advantage B. that it produces most efficiently Which of the following terms refers to the extent to which a country is gifted with such resources as land, labor, and capital? B. Factor endowments C. National balance D. National accounts Identify the theory that predicts that countries will export those goods that make intensive use of factors that are locally abundant. B. Ricardo theory C. New trade theory D. Heckscher-Ohlin theory D. Heckscher-Ohlin theory Wal–Mart makes bulk purchases from its vendors and hence it is able to get better deals than its competitors. This allows Wal–Mart to offer greater discounts to its customers. In this case, Wal–Mart benefits from____. B. constant marginal returns C. economies of scale D. absolute advantage of production Company A entered the production of office software before its competitors. Because of this, the company's products are more familiar among and favored by customers. This situation exemplifies the ____. B. diminishing marginal returns C. economies of scale D. constant marginal returns Which of the following theories suggests that first mover advantage is significant in the export of a good? B. Ricardo's theory C. New trade theory D. Theory of comparative advantage Which theory suggests that factor resource endowments determine a nation's comparative advantage?The Heckscher-Ohlin theory maintains that factor endowments determine a nation's comparative advantage.
What is the theory of factor endowment?The factor endowment theory of international trade contains three messages: First, each country will export those goods in which its abundant factors have comparative advantages; second, a country's abundant factors gain from trade and its scarce factors lose; and, third, such factor endowment trade tends to bring ...
Which theory suggests that in cases where there may be important first mover advantages governments can help firms from their countries attain these advantages?Thus, the observed pattern of trade between nations may be due in part to the ability of firms within a given nation to capture first-mover advantages. In a work related to the new trade theory, Michael Porter developed a theory referred to as the theory of national competitive advantage.
Which theory suggests that as the product matures the optimal production location will change?THE PRODUCT LIFE CYCLE THEORY
In the mid-1960s, Raymond Vernon proposed the product life-cycle theory that suggested that as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade.
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Which theory suggested that comparative advantage arises from differences in national factor endowments?
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