Trade Theories Quiz

Which of the following theories suggests that a country should specialize in the production of goods it can produce most efficiently?

• Absolute Advantage Theory

• Comparative Advantage Theory

• Heckscher-Ohlin Theory

• Product Life Cycle Theory

According to the Absolute Advantage Theory by Adam Smith, trade benefits occur when:

• A country produces all goods more efficiently than others.

• A country has an absolute advantage in producing at least one good over other countries.

• Both countries produce goods with equal efficiency.

• None of the above.

The Heckscher-Ohlin Theory (Factor Proportion Theory) is primarily concerned with:

• Labor productivity

• Capital investments

• Factor endowments of countries

• Technological advancements

In the Product Life Cycle Theory by Raymond Vernon, which stage indicates that production of a product starts to shift abroad?

• Introduction Stage

• Growth Stage

• Maturity Stage

• Decline Stage

The New Trade Theory suggests that:

• All nations benefit equally from trade.

• There are increasing returns to scale and network effects in certain industries.

• Trade is driven purely by differences in factor endowments.

• Comparative advantage has no effect on trade patterns.