Questions for Chapter A1 Review

1. What did the mercantilists prioritise in the use of export earnings? Why they considered it as priority?
2. Can mercantilism ensure economic growth for all trading nations? Explain why?
3. Explain the role of absolute advantage in inducing two parties to trade with each other.
4. Give examples of absolute advantage in today’s world?
5. Explain the circumstances that give rise to an absolute advantage.
6. Which theory explains trade between countries in a product for which neither country has an absolute advantage, and which can be produced in both countries?
7. If a country can produce two products, what are the circumstances that, according to the theory of comparative advantage, make it more advantageous for a country to export one product than the other?
8. Explain the problem of diminishing resources in the case of standard trade theory.
9. Explain the causes and consequences of country specialisation according to standard trade theory. Can a country change its specialisation? What are the possible consequences of changing specialisation?
10. What disadvantages of communism have made the products of communist countries less competitive with those of capitalist countries?
11. What are some examples of communist countries in the 20^th and 21^st centuries? How is communism different in these countries?
12. What are the two main resources described in the Heckscher – Ohlin theory?
13. List the limitations of the Heckscher – Ohlin theory.
14. Explain the capital intensity of a product. Which products are the most capital-intensive?
15. Explain the labour-intensive nature of the product. Which products are the most labour-intensive?
16. If a country has a lot of capital but little labour compared to other countries, what type of products is it likely to produce and export the most? Why?
17. According to Paul A Samuelson’s theorem, what happens to the price of labour and capital if there is free movement of people, capital, and goods between countries?
18. What did Leontief find in his empirical study using the Heckscher-Ohlin theory? Did it refute or confirm the theory?
19. Why does labour productivity differ between countries?
20. Explain why it is useful to specialise in a narrow field. What does it take to specialise in a narrow field? Why can’t everyone specialise?
21. What is the difference between economies of scale and economies of scope?
22. How are economies of scale and economies of scope similar? What effect do they have on cost cases? How these effects different and similar?
23. How does technological progress change the capital and labour intensity of product production?
24. Explain the implications of product life cycle theory for international trade.
25. What is Porter’s four dimensions of international competitiveness? How do they manifest themselves?
26. How does competition in the domestic market affect a company’s ability to compete internationally?

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