IB Module 2- International Trade theories

Mercantilists believed that a country could increase the amount of wealth it had by

• Promoting exports and discouraging imports

• Discouraging exports and promoting imports

• Controlling imports and exports

• Increasing both imports and exports

A theory which is based on opportunity cost

• Comparative Advantage theory

• Product Life cycle theory

• Hecksher Ohlin theory

• Absolute advantage theory

India produces 1 tonne of cotton at 60$ where as china produces at 150$. India has what ?

• opportunity cost

• advantage cost

• All of the above

Tariffs and quotas can also be referred to as

• Trade restrictions

• Free trade strategies

• Outsourcing strategies

• Exchange rates

Why should managers in international business understand international trade theories?

• The understanding helps them decide whether to embrace PLC versus factor proportions theory when seeking to sell abroad.

• Countries enact trade policies based on trade theories, which, in turn, affect companies' optimum production locations.

• If they face supply shortages in their domestic market, it helps them to find suppliers abroad.

• The theory is essential in determining the best pricing strategy to use when exporting.

The trade theory that premises a country's wealth is measured by its holdings of treasure, usually in gold, is known as

• Monetarism

• Mercantilism

• Porter's Diamon theory

• Absolute Advantage

____________ holds that there are advantages to trade because different countries can produce different goods more efficiently than others.

• A favorable balance of trade theory

• The tradable goods theory

• Absolute Advantage theory

• Product Life Cycle theory

Comparative advantage holds that there is a basis for trade when Country A specializes

• in labor-intensive products and Country B specializes in capital-intensive products

• in producing the product that it can produce more efficiently than another product even though Country B can produce both products more efficiently than Country A

• in new products and Country B specializes in mature products

• in producing those goods and services it can produce more efficiently than Country B

Countries with large land areas are generally less dependent on trade than countries with small land areas. One of the factors causing this difference is that large countries

• typically speak languages that are not official elsewhere

• have more people

• are more apt to have varied climates and natural resources

• can support long production runs

The factor proportions theory of trade says that a country will have its best trade advantage if it concentrates on _______.

• producing products using its abundant production factors

• producing products using its scarce production factors

• exporting its expensive products

• importing labor-intensive products and exporting capital-intensive ones