MGCR 382 MIDTERM | COMPREHENSIVE STUDY GUIDE,
PRACTICE QUESTIONS & ANSWERS 2026/2027
Modern Firm-Based Theories - correct answer ✔✔Focus on the firm's role in promoting international
trade -Useful in describing patterns of trade in differentiated goods-Brand Name is an important
component of the customer's purchase decision
Relative Factor Endowments - Heckscher-Ohlin Theory - correct answer ✔✔A country will have a
comparative advantage in producing products that intensively use resources (factors of production) it
has in abundance\
Pattern of Comparative Advantage-Export products that use relatively abundant factors of production-
Import products that need relatively scarce factors of production
Leontief paradox - correct answer ✔✔U.S. imports were nearly 30 percent more capital-intensive than
were U.S. exports
Firm-based theories have developed for several reason - correct answer ✔✔s: -Growing importance of
MNCs in the postwar international economy-Inability of the country-based theories to explain and
predict the existence and growth of intra-industry trade-Failure of Leontief and other researchers to
empirically validate Heckscher-Ohlin theory
SteffanLinder sought to explain the phenomenon of intraindustrytrade - correct answer ✔✔Country
similarity theory - international trade in manufactured goods results from similarities of preferences
among consumers in countries that are at the same stage of economic development\
particularly useful in explaining trade in differentiated goods such as automobile
New trade theory - correct answer ✔✔according to this theory, economies of scale occur if a firm's
average costs of producing a good decrease as output of that good increases •Like Linder's approach, the
new trade theory predicts that intraindustrytrade will be commonplacEa
Two main political factors for FDI decisions - correct answer ✔✔avoide trade barriers Firms often build
foreign facilities to avoid trade barriers, such as high tariffs on imported consumer electronics good
Economic Development Incentives
Protectionism -policies that: - correct answer ✔✔affect the ability of foreign producers to compete in
your home market-limit or enhance your company's ability to sell abroad or acquire needed foreign
supplies-
Governments intervene in trade t0: - correct answer ✔✔to achieve economic, social, and political goals-
While free trade is beneficial, in reality all countries regulate the flow of goods and services across their
borders-Officials enact those trade policies they feel will best protect their nations and citizens—and
perhaps their personal political longevity
Policymakers are challenged b - correct answer ✔✔conflicting objectives
interest groups
, The Role of Stakeholder - correct answer ✔✔Proposed policies on trade spark debate •Stakeholders
include -Workers-Owners-Suppliers-Local politicians•Those who are most directly affected tend to be
loudest in voicing their concerns
Economic Rationales of why governments intervene in trade - correct answer ✔✔Fighting
unemployment
Protecting infant industries
Developing an industrial base
Economic relationships with other countries
Non economic rationales - correct answer ✔✔Maintaining essential industries
Promoting acceptable practices abroad
Maintaining or extending spheres of influence
preserving national culture
Countries promote industrialization because it - correct answer ✔✔brings faster growth than
agriculture-brings in investment funds-diversifies the economy-creates growth in manufactured goods-
reduces imports and promotes exports-helps the nation-building proces
Tariffs may be levied: - correct answer ✔✔-on goods entering, leaving, or passing through a country -for
protection or revenue-on a per unit basis or a value basis•export tariffs•transit tariffs•import tariffs
Specific duty - correct answer ✔✔When a country assesses a tariff on a per unit basis
Other direct price influencers - correct answer ✔✔- subsidies, tariffs, aid and loans, tied, untied, customs
valuation, special fees and requirements
Quotas - correct answer ✔✔Voluntary export restraint (VER) and Embargoes
Other direct quantity limiters - correct answer ✔✔quotas, "Buy local"legislation-Standards and labels-
Specific permission requirements•import or export license -Administrative delays-Reciprocal
requirements•Countertrade or offsets-Restrictions on services
Trade restrictions affect services - correct answer ✔✔Countries deciding whether to restrict trade in
services consider essentiality, not-for-profit-preference, standards, and immigration
Companies facing import competition can - correct answer ✔✔Move abroad-Seek other market niches-
Create greater efficiency or superior products -Try to get governmental protection
Tactics for dealing with import competition include - correct answer ✔✔Convince decision makers of the
merits of particular policies-Involve the industry and stakeholders-Prepare for changes in the competitive
environmen
the World Trade Organization - correct answer ✔✔- It is an organization for trade opening
-It is a forum for governments to negotiate trade agreements
-It is a place for them to settle trade disputes
-It operates a system of trade rules
PRACTICE QUESTIONS & ANSWERS 2026/2027
Modern Firm-Based Theories - correct answer ✔✔Focus on the firm's role in promoting international
trade -Useful in describing patterns of trade in differentiated goods-Brand Name is an important
component of the customer's purchase decision
Relative Factor Endowments - Heckscher-Ohlin Theory - correct answer ✔✔A country will have a
comparative advantage in producing products that intensively use resources (factors of production) it
has in abundance\
Pattern of Comparative Advantage-Export products that use relatively abundant factors of production-
Import products that need relatively scarce factors of production
Leontief paradox - correct answer ✔✔U.S. imports were nearly 30 percent more capital-intensive than
were U.S. exports
Firm-based theories have developed for several reason - correct answer ✔✔s: -Growing importance of
MNCs in the postwar international economy-Inability of the country-based theories to explain and
predict the existence and growth of intra-industry trade-Failure of Leontief and other researchers to
empirically validate Heckscher-Ohlin theory
SteffanLinder sought to explain the phenomenon of intraindustrytrade - correct answer ✔✔Country
similarity theory - international trade in manufactured goods results from similarities of preferences
among consumers in countries that are at the same stage of economic development\
particularly useful in explaining trade in differentiated goods such as automobile
New trade theory - correct answer ✔✔according to this theory, economies of scale occur if a firm's
average costs of producing a good decrease as output of that good increases •Like Linder's approach, the
new trade theory predicts that intraindustrytrade will be commonplacEa
Two main political factors for FDI decisions - correct answer ✔✔avoide trade barriers Firms often build
foreign facilities to avoid trade barriers, such as high tariffs on imported consumer electronics good
Economic Development Incentives
Protectionism -policies that: - correct answer ✔✔affect the ability of foreign producers to compete in
your home market-limit or enhance your company's ability to sell abroad or acquire needed foreign
supplies-
Governments intervene in trade t0: - correct answer ✔✔to achieve economic, social, and political goals-
While free trade is beneficial, in reality all countries regulate the flow of goods and services across their
borders-Officials enact those trade policies they feel will best protect their nations and citizens—and
perhaps their personal political longevity
Policymakers are challenged b - correct answer ✔✔conflicting objectives
interest groups
, The Role of Stakeholder - correct answer ✔✔Proposed policies on trade spark debate •Stakeholders
include -Workers-Owners-Suppliers-Local politicians•Those who are most directly affected tend to be
loudest in voicing their concerns
Economic Rationales of why governments intervene in trade - correct answer ✔✔Fighting
unemployment
Protecting infant industries
Developing an industrial base
Economic relationships with other countries
Non economic rationales - correct answer ✔✔Maintaining essential industries
Promoting acceptable practices abroad
Maintaining or extending spheres of influence
preserving national culture
Countries promote industrialization because it - correct answer ✔✔brings faster growth than
agriculture-brings in investment funds-diversifies the economy-creates growth in manufactured goods-
reduces imports and promotes exports-helps the nation-building proces
Tariffs may be levied: - correct answer ✔✔-on goods entering, leaving, or passing through a country -for
protection or revenue-on a per unit basis or a value basis•export tariffs•transit tariffs•import tariffs
Specific duty - correct answer ✔✔When a country assesses a tariff on a per unit basis
Other direct price influencers - correct answer ✔✔- subsidies, tariffs, aid and loans, tied, untied, customs
valuation, special fees and requirements
Quotas - correct answer ✔✔Voluntary export restraint (VER) and Embargoes
Other direct quantity limiters - correct answer ✔✔quotas, "Buy local"legislation-Standards and labels-
Specific permission requirements•import or export license -Administrative delays-Reciprocal
requirements•Countertrade or offsets-Restrictions on services
Trade restrictions affect services - correct answer ✔✔Countries deciding whether to restrict trade in
services consider essentiality, not-for-profit-preference, standards, and immigration
Companies facing import competition can - correct answer ✔✔Move abroad-Seek other market niches-
Create greater efficiency or superior products -Try to get governmental protection
Tactics for dealing with import competition include - correct answer ✔✔Convince decision makers of the
merits of particular policies-Involve the industry and stakeholders-Prepare for changes in the competitive
environmen
the World Trade Organization - correct answer ✔✔- It is an organization for trade opening
-It is a forum for governments to negotiate trade agreements
-It is a place for them to settle trade disputes
-It operates a system of trade rules
