Study Questions: Chapter 3
1. Why were turnpike roads considered an innovation?
Roads are typically maintained by collecting taxes from local residents. Turnpike roads collect fees from the drivers who use the roads. These fees are collected in the form of tolls. These toll fees pay for road maintenance, rather than using taxes from local residents who may or may not use the road.
2. How do transnational corporations exert power within and between countries?
Transnational corporations are able to command and control production and sales at a global scale. Therefore, they are able to take advantage of geographic variations in capital, knowledge, labour, resources, national regulations, and taxes. Hence, transnationals are able to respond relatively swiftly to changes in market regulations by relocating operations to different countries.
3. The Bretton Woods agreement of 1944 led to the creation of which two important economic institutions? What was the purpose of each?
The International Monetary Fund (IMF) was created to provide short-term assistance to countries whose currencies were tied either to gold or to the US dollar. The World Bank was created to provide development assistance to Europe after the war.
4. What are the major factors affecting trade?
Trade is highly vulnerable to the friction of distance. Other factors include the specific resource base of a given area, the size and quality of the labour force, and the amount of capital in a country. These factors are closely linked to level of economic development.
5. What are the main differences between classical trade theory, neo-classical trade theory, and modern trade theory?