Chapter 5/6: Theories of International Trade and Gov. Policy

Question 1

Mercantilism

Answer 1

advocated that countries should simultaneously
encourage exports and discourage imports. (zero sum game)

Question 2

Free Trade

Answer 2

refers to a situation where a government does not attempt
to influence what its citizens can buy and sell

Question 3

What is the New Trade Theory?

Answer 3

Countries specialize in the production and export of specific products.

Question 4

Theory of Absolute Advantage

Answer 4

Unrestricted free trade benefits a
country.’

Question 5

Theory of National Competitive advantage

Answer 5

Explain why particular nations achieve international success in particular industries.

Question 6

Absolute Advantage

Answer 6

A country has an Absolute Advantage in producing a product when
it is more efficient than any other country in producing it.

Question 7

Comparative Advantage

Answer 7

Countries should specialize in the production of goods and services
they can produce most efficiently.

Question 8

Raymond Vernon’s theory:

Answer 8

Early in the life cycle of a typical new
product, while demand is growing rapidly in the USA, demand in
other advanced countries is limited to high-income groups.

Question 9

Economies of scale:

Answer 9

• Unit cost reductions associated with a large scale of output.
• Important source of increasing returns.

Question 10

3 Implications for International Business

Answer 10

1. Location Implications
2. First-mover Implications
3. Policy Implications

Question 11

Tariffs

Answer 11

Tax imposed on exports

Question 12

Subsidies

Answer 12

• A government payment to a domestic producer.
• Can take many forms, including
  * cash grants,
  * low-interest loans,
  * tax breaks,

Question 13

6 Political Arguments for Intervention:

Answer 13

1. Protecting jobs and industries
2. National security
3. Retaliation
4. Protecting consumers
5. Furthering foreign policy objectives
6. Protecting human rights

Question 14

Import Quotas and Voluntary Export Restraints (VER)

Answer 14

• A direct restriction on the quantity of some goods that may be
  imported into a country.
• The restriction is usually enforced by issuing import licenses to a
  group of individuals or firms