Countries enact trade policies based on trade theories, which, in turn, affect companies' optimum production locations.
Answer: TRUE
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Multinational Business Chapter 5
- The growth of small-scale production technology will most likely enable small countries to produce products efficiently for their own consumption.
- The finite nature of natural resources should work as a disadvantage for the export prices of developing countries.
- The combination of free trade and free movement of production factors offers maximum production efficiency.
- The term brain drain describes the export of high-technology products in exchange for low-technology products.
- The foreign-born population as a percentage of total population is substantial for some countries and insignificant for others.
- The international mobility of labor includes workers, students, tourists, and retirees who travel to another country.
- Companies and individuals transfer capital internationally primarily because of expectations of earning higher returns.
- A strategic trade policy is one that develops industries to lessen dependence on foreign military goods.
- The existence of the four favorable conditions of the diamond of national advantage does not guarantee that an industry will develop in a given locale.
- The four favorable domestic conditions of the diamond of national advantage help to explain how and where globally competitive companies develop and sustain themselves.
- An exception to the PLC theory in terms of production location is often a product with very rapid change in innovation.
- Luxury products are the most likely types of products to behave according to the product life cycle theory of trade.
- According to the PLC theory of trade, most new products are produced in countries where wage rates are low.
- Many products' location of production will shift internationally as the products go through their life cycle.
- Trade occurs more between culturally dissimilar countries than between culturally similar countries.
- Most world trade takes place between raw material exporters and manufacturing exporters.
- The factor proportions theory holds that countries should improve their competitiveness by importing capital and skilled employees from abroad.
- The factor proportions theory holds that countries should concentrate production on those products that use their most abundant production factors.
- The top 10 exporting countries are dominated by developing countries.
- Countries with large land areas are generally less dependent on trade than countries with small land areas.
- According to theories of specialization in international trade, gains occur because specialized workers move to countries that can use their skills more effectively.
- The free trade theories of specialization assume that countries will be better off even though some people are unemployed.
- Comparative advantage theory holds that gains from trade are the result of capital movements from countries with low interest rates to countries with higher interest rates.
- The comparative advantage theory holds that a country will gain from trade even though it can produce all goods more efficiently than other countries.
- Under the theory of absolute advantage, countries hold two types of advantages—acquired advantages and technological advantages.
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