PBS3233_CHAPTER2

Why is free trade beneficial for countries according to trade theory?

• It allows governments to control imports and exports more effectively.

• It enables countries to specialize in producing and exporting goods they can produce efficiently.

• It restricts competition from foreign markets, protecting local industries.

• It decreases the overall volume of international transactions, stabilizing global economies.

What is a key concept of mercantilism?

• Trade is a positive-sum game where all countries can benefit simultaneously.

• Governments should avoid intervening in trade to let markets operate freely.

• It is in a country’s best interest to maintain a trade surplus by exporting more than it imports.

• Countries should specialize in producing goods they can produce most efficiently.

According to mercantilism, how should a country manage its trade?

• By encouraging free trade without any government intervention.

• By maintaining a trade deficit to import more than it exports.

• By viewing international trade as a cooperative and mutually beneficial activity.

• By advocating government intervention to achieve a surplus in the balance of trade.

How does the theory of absolute advantage explain the benefits of trade between Ghana and South Korea?

• It shows that both countries are better off without trading because they can produce everything they need themselves.

• It illustrates that specialization according to absolute advantage allows both countries to produce more efficiently and gain from trading their surplus.

• It suggests that Ghana should produce both cocoa and rice, while South Korea should focus solely on cocoa.

• It demonstrates that trade results in one country losing resources while the other gains resources.

According to Ricardo’s theory of comparative advantage, what should countries do to maximize efficiency and benefit from trade?

• Specialize in producing all goods that they can produce with an absolute advantage.

• Produce all goods domestically and avoid trading with other countries.

• Specialize in the production of goods they produce most efficiently and trade for goods they produce less efficiently, even if they can produce them more efficiently at home.

• Focus on producing goods that other countries produce less efficiently.

According to the Heckscher-Ohlin Theory, what determines a country's comparative advantage in producing certain goods?

• The differences in national factor endowments, such as land, labor, and capital.

• The absolute amount of goods the country can produce.

• The country's ability to produce all goods more efficiently than other countries.

• The technological advancements available in the country.

Based on the Heckscher-Ohlin Theory, what type of goods is India likely to export?

• Capital-intensive goods like cars and machinery.

• Labor-intensive goods such as textiles, garments, and agricultural products.

• Services that require high technological advancements.

• High-tech products that require significant investment in machinery.

Why has the Product Life Cycle Theory become less valid in today's globalized economy?

• Because U.S. firms no longer develop new products

• Because production is now concentrated in the United States.

• Because the theory is ethnocentric and doesn't account for the global and simultaneous introduction of products in multiple markets.

• Because demand for new products has decreased globally.

In which stage of the Product Life Cycle does a company typically start exporting its product to other advanced countries?

• Introduction

• Growth

• Maturity

• Decline

What is a primary reason for a company to shift production to developing countries during the Maturity stage of the Product Life Cycle?

• To establish a brand presence in developed countries

• To improve product innovation

• To increase demand in the domestic market

• To benefit from lower labor costs