Business 111 Chapter 3

Why does it make sense to trade with other nations?

• After producing all the product and service its people want and need, a nation can sell the excess products to the world.

• Some nations have lots of natural resources and technological know-how. They have an ethical obligation to offer the rest to other nations.

• Other nations need foreign currency.

• A nation will produce what it can produce most efficiently and effectively and buy from other nations what they can produce most efficiently and effectively.

Which of the following statements best describes the theory of comparative advantage?

• The best way for a nation to ensure full employment is to be totally self-sufficient rather than relying on other nations to obtain goods and services.

• Each nation should produce those goods that it can produce more efficiently and effectively than other nations, and buy the goods it cannot produce efficiently from other nations.

• The nation that has the largest reserves of gold and other natural resources will enjoy a position of comparative advantage in trade relationships.

• A nation should produce those goods for which domestic demand is comparatively strong, and should import those goods for which domestic demand is comparatively weak.

Peru and Bolivia account for almost 97% of the production of quinoa seed, and most of it is sold to the U.S., Japan, and other wealthy nations. According to a former Colorado State agronomist who helped introduce the product into the U.S. several years ago, “This food is about the most perfect you can find for human diets.” Although there are other areas where the seed will grow (including higher elevations in Colorado), the majority of the quinoa sold in the U.S. is imported from Peru and Bolivia. These two nations have a(n)

• absolute advantage

• comprehensive advantage

• comparative advantage

• tertiary advantage

China has approximately 95% of the world’s Neodymium, a rare earth metal used in consumer and military electronics and contemporary technology. The fact that this is a necessary metal for the production of many products we use today—everything from smartphones to smart bombs—means China can almost name its price! Which of the following describes this situation?

• China has a near absolute advantage in Neodymium.

• China has a comparative advantage in Neodymium.

• China’s rare earth industry is considered perfect competition.

• China’s rare earth industry participates in monopolistic competition.

Many of the toy products sold in the United States are imported from Taiwan because the Taiwanese can produce these products more efficiently than U.S. companies. This is an example of:

• bilateral advantage.

• comparative advantage.

• absolute advantage.

• unilateral advantage.

Climate and terrain in several South American countries are conducive to growing coffee efficiently. While other countries can grow coffee, they are not as efficient and effective at coffee growing because of short seasons and climate concerns. This fact would lead you to believe that South American countries have a(n) __________ advantage in the production of coffee.

• comparative

• absolute

• unprotected

• progressive

The only deposits of a rare and sought-after mineral known as Yuksporite are found in Russia. Since no other nation has deposits of Yuksporite, Russia has a(n)__________ in this mineral.

• protected advantage

• diversified benefit

• absolute advantage

• relative internal benefit

First Engineering, a large U.S.-based mechanical engineering firm, is considering entering the global market. Upon careful analysis of the global market, they will find that global trade:

• opportunities are diminishing.

• is dominated by emerging, developing countries.

• is big business today and is expected to be more important in the future.

• is likely to be severely restricted in the future by nontariff trade barriers.

After finishing college, Nathan joined his uncle's company in Miami, FL, a(n) _______ of bauxite, copper, and other minerals from the Chile. Every day, he brokers trades with mines in Chile to buy and transport these minerals into the U.S.

• exporter

• quota manager

• importer

• domestic trader

An important principle for firms desiring to export is:

• sell to countries with high standards of living.

• keep in mind that American methods are probably always best.

• find a need in the global market and fill it.

• if your product sells well in the U.S. it will sell well globally.