Chapter 2: Trade Theories

Comparative advantage is driven by differences in ___.

• labor productivity

• absolute costs

• resource differences

• relative resource endownments

"One country manufactures goods at a lower cost in terms of foregone resources than another" is the basic idea of ____.

• comparative advantage

• absolute advantage

• competitive advantage

• None is correct

In the USA, the production of 1 airplane has an opportunity cost of 2 tons of shoes.

For China, the production of 1 airplane means the country has to give up producing 8 tons of shoes.

Which country has a comparative advantage in airplane production?

• China

• The USA

• Both China and the USA

• Neither the USA nor China

Opening to trade driven by comparative advantage leads to ___.

• Equalisation of world relative prices

• Partial specialisation in each country

• No separation of production and consumption possibilities in each country

• All answers are correct

According to Heckscher-Ohlin, ____ is the drive behind trade.

• technology

• a strategic edge

• relative resource endowment

• None is correct

Which of the following is chance events in Porter's Diamond model?

• shifts in exchange rates

• technological discontinuities

• surges of world demand

• All is correct

In Germany, there are many car manufacturers (Audi, Mercedes Benz, BMW, etc.)

They compete intensely and keep developing more innovative and quality products.

Today, Germany is a key player in the automobile industry as it satifies the ____ factor in Porter's Diamond model.

• Demand Conditions

• Firm Strategy, Structure, and Rivalry

• Related and Supporting Industries

• Factor Conditions

During the 2000s, value added by ___ activities is highest in the global value chain.

• production

• R&D

• service

• Both R&D and service

Instead of specializing in production of a complete product, firms (and countries) can specialize in much narrower activities, like production of a particular component or a service like R&D.

This is the concept of "____".

• the smiling curve

• competitive advantage

• the Diamond model

• trading in tasks

GVCs are complex, interlinked networks of economic activity, such as ___.

• trade in goods

• trade in services

• movement of ideas

• All of the above is correct