SOM 354 Exam 2 questions & answers
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Free trade - correct answer ✔✔The absence of barriers to the free flow of goods and services
between countries
New trade theory - correct answer ✔✔Trade allows a nation to specialize in the production of
certain goods, attaining scale economies and lowering the costs of producing those goods, while
buying goods that it does not produce from other nations that are similarly specialized; By this
mechanism, the variety of goods available to consumers in each nation is increased, while the
average costs of those goods should fall
Mercantilism - correct answer ✔✔An economic philosophy advocating that countries should
simultaneously encourage exports and discourage imports
Zero-sum game - correct answer ✔✔A situation in which an economic gain by one country
results in an economic loss by another
Absolute advantage - correct answer ✔✔A country has this in the production of a product when
it is more efficient than any other country at producing it
Constant returns to specialization - correct answer ✔✔The units of resources required to
product a good are assumed to remain constant no matter where one is on a country's
production possibility frontier
Factor endowments - correct answer ✔✔A country's _____________________ with resources
such as land, labor, and capital
, Economies of scale - correct answer ✔✔Cost advantages associated with large-scale production
First-mover advantages - correct answer ✔✔Advantages accruing to the first to enter a market
Theory of absolute advantage - correct answer ✔✔Countries differ in their ability to product
goods efficiently; Countries should specialize in producing goods in areas where it has an
absolute advantage and import goods in areas where other countries have absolute advantages
Theory of comparative advantage - correct answer ✔✔It makes sense for a country to specialize
in producing those goods that it can produce most efficiently, while buying goods that it can
produce relatively less efficiently from other countries - even if that means buying goods from
other countries that it could produce more efficiently itself
product life-cycle theory - correct answer ✔✔Trade patterns are influenced by where a new
product is introduced; In an increasingly integrated global economy, the
________________________ seems to be less predictive than it once was; Firms undertake FDI
at particular stages in the ___________________ of a product they have pioneered
Strategic trade policy - correct answer ✔✔The government, by the sophisticated and judicious
use of subsidies, might be able to increase the chances of domestic firms becoming first movers
in newly emerging industries
What are the implications of international trade theory for international businesses? - correct
answer ✔✔1. Location implications
2. First-mover implications
3. Government policy implications
General Agreement on Tariffs and Trade (GATT) - correct answer ✔✔International treaty that
committed signatories to lowering barriers to the free flow of goods across national borders and
led to the WTO
rated A+ UPDATED
Free trade - correct answer ✔✔The absence of barriers to the free flow of goods and services
between countries
New trade theory - correct answer ✔✔Trade allows a nation to specialize in the production of
certain goods, attaining scale economies and lowering the costs of producing those goods, while
buying goods that it does not produce from other nations that are similarly specialized; By this
mechanism, the variety of goods available to consumers in each nation is increased, while the
average costs of those goods should fall
Mercantilism - correct answer ✔✔An economic philosophy advocating that countries should
simultaneously encourage exports and discourage imports
Zero-sum game - correct answer ✔✔A situation in which an economic gain by one country
results in an economic loss by another
Absolute advantage - correct answer ✔✔A country has this in the production of a product when
it is more efficient than any other country at producing it
Constant returns to specialization - correct answer ✔✔The units of resources required to
product a good are assumed to remain constant no matter where one is on a country's
production possibility frontier
Factor endowments - correct answer ✔✔A country's _____________________ with resources
such as land, labor, and capital
, Economies of scale - correct answer ✔✔Cost advantages associated with large-scale production
First-mover advantages - correct answer ✔✔Advantages accruing to the first to enter a market
Theory of absolute advantage - correct answer ✔✔Countries differ in their ability to product
goods efficiently; Countries should specialize in producing goods in areas where it has an
absolute advantage and import goods in areas where other countries have absolute advantages
Theory of comparative advantage - correct answer ✔✔It makes sense for a country to specialize
in producing those goods that it can produce most efficiently, while buying goods that it can
produce relatively less efficiently from other countries - even if that means buying goods from
other countries that it could produce more efficiently itself
product life-cycle theory - correct answer ✔✔Trade patterns are influenced by where a new
product is introduced; In an increasingly integrated global economy, the
________________________ seems to be less predictive than it once was; Firms undertake FDI
at particular stages in the ___________________ of a product they have pioneered
Strategic trade policy - correct answer ✔✔The government, by the sophisticated and judicious
use of subsidies, might be able to increase the chances of domestic firms becoming first movers
in newly emerging industries
What are the implications of international trade theory for international businesses? - correct
answer ✔✔1. Location implications
2. First-mover implications
3. Government policy implications
General Agreement on Tariffs and Trade (GATT) - correct answer ✔✔International treaty that
committed signatories to lowering barriers to the free flow of goods across national borders and
led to the WTO
