Week 5 MGM 5966

The theory of mercantilism viewed international trade as a zero-sum game.

• True

• False

The Heckscher-Ohlin theory proposed that nations will develop comparative advantage based on locally abundant factors.

• True

• False

Which of the following is true of the absolute advantage theory of international trade?

• It emphasizes relative advantage in one economic activity that one nation enjoys in comparison with other nations.

• It divides the countries of the world into three categories based on innovation.

• It advocates extensive government intervention in international trade.

• It was the first theory that advocated free trade.

Trying to be self-sufficient & producing a wide range of goods, what policy eventually reduces the wealth of a nation?

• absolute advantage

• Laissez faire

• Free Trade

• Mercantilist

Which of the following ideas is closely linked to the theory of absolute advantage?

• All international trade must be closely regulated by governments.

• Free market forces determine how much to trade with minimal intervention.

• Nations need to engage in activities that they have comparative advantage

• Government should protect domestic industries from imports & promote export

In which of the following ways is the theory of comparative advantage linked to the Heckscher-Ohlin theory?

• Sustainability of wealth in the short run

• Dependency on a nation’s locally available abundant factors

• Dynamic changes in the patterns of trade over time

• Extent to which government influences international trade

Government intervention in international trade was proposed by the factor endowment theory.

• True

• False

Which of the following can be considered as an economic argument against free trade?

• Infant industry

• Consumer protection

• National Security

• Foreign policy