Better Business, 2e (Solomon)Chapter 4 Business in a Global Economy
1) Localization is the movement toward a more interconnected and interdependent world economy.Answer: FALSEExplanation: This is the definition of globalization, which reflects the great influence of the U.S. economy on the rest of the world and the effects of other countries on the U.S. economy.Diff: 1 Page Ref: 93AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-1 What are the implications of the globalization of markets and the globalization of production?Skill: Conceptual
2) The assigning of certain tasks, such as production or accounting, to an outside company or organization is called outsourcing.Answer: TRUEExplanation: In order to cut costs or increase efficiencies, firms may contract with outside resources. This is outsourcing.Diff: 1 Page Ref: 94AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-1 What are the implications of the globalization of markets and the globalization of production?Skill: Conceptual
3) When a country drops its rule preventing the imports of foreign-made cars, it is increasing globalization through technological innovation.Answer: FALSEExplanation: Trade barriers prevent the flow of goods and services across national boundaries. A decline in trade barriers, such as allowing imports of cars, makes global business much cheaper and easier. This change in rules would be considered a reduction in barriers, not technological innovation. Diff: 1 Page Ref: 95AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-2 Why has globalization accelerated so rapidly?Skill: Application
4) The purchasing of property and businesses in foreign nations is called globalization of markets.Answer: FALSEExplanation: The purchasing of property and businesses in foreign nations is called foreign direct investment.Diff: 1 Page Ref: 96AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-2 Why has globalization accelerated so rapidly?Skill: Conceptual
5) When all countries focus on producing those products for which they have a comparative advantage, collectively, they will produce more products.Answer: TRUEExplanation: The theory of comparative advantage suggests that a country should sell to other countries the goods that it manufactures most efficiently and effectively and buy from other countries the goods it cannot manufacture as efficiently or effectively. If this method is practiced, each nation will have a greater quantity and variety of higher-quality products to consume at lower prices.Diff: 1 Page Ref: 97AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Conceptual
6) One way for a country to improve its competitiveness is to invest in worker training.Answer: TRUEExplanation: Governments invest in health, education, and training designed to increase the productivity of their labor forces. All international businesses are constantly looking for good workers, and each country wants to attract businesses to enhance employment opportunities for its citizens. Moreover, high wages can only be sustained in a global labor market when justified by high productivity.Diff: 2 Page Ref: 98AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
7) The president of the nation of Gamma asks you if the benefits of international trade are greater than the costs. You should answer that it depends on one's perspective. Answer: TRUEExplanation: International trade has both advantages and disadvantages. Consumers often appreciate international trade because it makes more products available at lower costs. Businesses, on the other hand, might dislike international trade because it increases competition and lowers the amount that can be charged. Diff: 2 Page Ref: 99AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
8) Tariffs are a type of trade barrier.Answer: TRUEExplanation: The types of trade barriers include tariffs, subsidies, quotas, embargoes, and administrative trade barriers.Diff: 1 Page Ref: 100AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
9) A quota is a total restriction on an import or export.Answer: FALSEExplanation: A quota is a quantity limitation on the amount of an import allowed to enter a country. For example, a quota on French wine might limit the quantity to 10,000 cases per day.Diff: 1 Page Ref: 100AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
10) The U.S. total ban on importing Cuban cigars is an example of an embargo.Answer: TRUEExplanation: The most heavy-handed government trade barrier is an embargo, a total restriction on an import (or export). The United States has imposed an embargo on most goods that could have otherwise been traded with Cuba since the 1960s.Diff: 1 Page Ref: 100AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
11) Even though the nation of Lambda lost in the arbitration of a WTO trade dispute, Lambda can ignore the result because the WTO has no enforcement power.Answer: FALSEExplanation: The WTO does not allow losing parties to ignore its arbitration reports. The WTO has the power to enforce decisions.Diff: 1 Page Ref: 103AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
12) A free trade area is a compact abolishing trade barriers among member countries.Answer: TRUEExplanation: Many nations have been so eager to achieve the higher standards of living associated with free trade that they have struck out on their own by creating free trade areas, or compacts abolishing trade barriers among member countries.Diff: 1 Page Ref: 104AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
13) The EU is currently the world's largest single market.Answer: TRUEExplanation: The EU is currently the world's largest single market, surpassing the United States. The EU accounts for approximately one-third of the world's total production. The EU is the largest exporter in the world and the second largest importer.Diff: 1 Page Ref: 104AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
14) Companies that sell a single product throughout the entire world follow a transnational strategy. Answer: FALSEExplanation: Companies that pursue a transnational strategy offer a customized product while simultaneously selling it at the lowest possible price.Diff: 1 Page Ref: 107AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-5 What are the three basic strategies of international business?Skill: Conceptual
15) By differentiating its products to meet unique local needs, tastes, or preferences, a company follows a multidomestic strategy.Answer: TRUEExplanation: A basic strategy of international business is the multidomestic strategycompeting primarily by customizing or differentiating the product to meet unique local needs, tastes, or preferences. Firms pursuing a multidomestic strategy face relatively low pressures for cost reduction because the price is often of secondary concern to buyers. Instead, what is important to customers is whether the product meets their needs or is distinct from the product of competitors.Diff: 2 Page Ref: 107AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-5 What are the three basic strategies of international business?Skill: Application
16) If a restaurant chain sells the use of its brand name to a Singaporean investor in exchange for a fee and a percentage of sales, the restaurant is entering a foreign market through exporting.Answer: FALSEExplanation: This restaurant is franchising not exporting. Franchising involves selling the use of a well-known brand name or a proven method of doing business to an investor in exchange for a fee and a percentage of sales or profits. The seller is the franchisor, and the buyer is the franchisee.Diff: 2 Page Ref: 108AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Application
17) Contract manufacturing occurs when a firm pays another firm to produce part or all of its goods as an alternative to the payer owning and operating its own production facility.Answer: TRUEExplanation: Contract manufacturing allows international business to enter a foreign market by placing its label on the good and selling it in the foreign market where it was produced. Contract manufacturing also enables a firm to test market its product in a foreign market with very little expense compared with the high startup costs of building its own facility.Diff: 2 Page Ref: 109AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Conceptual
18) Exchange rates are the rates at which currencies are converted into another currency.Answer: TRUEExplanation: Foreign exchange markets determine exchange rates, the rates at which currencies are converted into another currency. An example is the number of Japanese yen required to obtain one U.S. dollar.Diff: 1 Page Ref: 111AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Conceptual
19) The value of a country's imports exceeds the value of its exports; therefore, the country has a trade deficit.Answer: TRUEExplanation: A trade deficit exists when the value of a country's imports exceeds the value of its exports.Diff: 1 Page Ref: 112AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Application
20) Exchange rates can be manipulated or fixed by governments.Answer: TRUEExplanation: Exchange rates can be manipulated or fixed by governments. For example, China has fixed its currency to a rate that is weak compared to the dollar. This means that Chinese exports to the United States are cheap and Chinese imports from the United States are expensive.Diff: 1 Page Ref: 112AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Conceptual
21) A measure that divides a worker's wages by the average productivity of that worker is unit labor cost.Answer: TRUEExplanation: Unit labor cost is a measure that divides a worker's wages by the average productivity of that worker. Global companies are concerned with labor costs when looking for lowest-cost locations to establish production facilities.Diff: 1 Page Ref: 114AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?Skill: Conceptual
22) Culture is the complex set of values, behaviors, lifestyles, arts, beliefs, and institutions of a population that are passed on from generation to generation.Answer: TRUEExplanation: Culture is the complex set of values, behaviors, lifestyles, arts, beliefs, and institutions of a population that are passed on from generation to generation. Culture impacts all aspects of business, from managing workers and production techniques to marketing and beyond.Diff: 1 Page Ref: 115AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Conceptual
23) Different types of body language mean the same things throughout the world. Answer: FALSEExplanation: Unspoken language, or body language, differs significantly around the world. Although the world is getting smaller and a global culture is emerging, there are still profound and significant differences in culture, including unspoken language.Diff: 1 Page Ref: 117AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Conceptual
24) Since consumers simply want to purchase the best product at the lowest prices, companies need not worry about aesthetics when working internationally. Answer: FALSEExplanation: Aesthetics refers to what is considered beautiful or in good taste. Consumers will not purchase products if the products, or even marketing of the product, violate their sense of aesthetics. Diff: 1 Page Ref: 116AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Conceptual
25) Bribery is illegal all around the world.Answer: FALSEExplanation: Different laws govern bribes throughout the world. In many places in the world bribes are not uncommon and may even be necessary to do business.Diff: 2 Page Ref: 118AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Application
26) The link between labor costs in China and the price of MP3 music players in the U.S. is an example of ________.A) localizationB) monetizationC) globalizationD) nationalizationAnswer: CExplanation: C) By definition, the word globalization refers to the interconnected and interdependent world economy. Diff: 1 Page Ref: 93AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-1 What are the implications of the globalization of markets and the globalization of production?Skill: Application
27) The growing demand for biofuels in the U.S. that has led to a growing supply of soybeans from Brazil is an example of all of the following EXCEPT ________ economies.A) localizedB) globalizedC) interconnectedD) interdependentAnswer: AExplanation: A) A localized economy is one in which trade takes place in a small space such as a single state. Economic interaction between two different countries is not localized. Diff: 1 Page Ref: 93AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-1 What are the implications of the globalization of markets and the globalization of production?Skill: Application
28) Apple's selling iPhones to customers in Africa, Asia, and Europe is an example of the globalization of ________.A) productionB) marketsC) offshoringD) manufacturingAnswer: BExplanation: B) The globalization of markets refers to thinking of the economic market as consisting of the entire world.Diff: 2 Page Ref: 94AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-1 What are the implications of the globalization of markets and the globalization of production?Skill: Application
29) An example of globalization of ________ is Toyota opening a factory in Kentucky.A) productionB) marketsC) retailingD) sellingAnswer: AExplanation: A) The globalization of production refers to the trend of individual firms moving production to different locations around the globe.Diff: 2 Page Ref: 94AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-1 What are the implications of the globalization of markets and the globalization of production?Skill: Application
30) A term that describes the movement of production away from a domestic production site to a foreign location is ________ outsourcing.A) domesticB) offshoreC) productionD) onshoreAnswer: BExplanation: B) General outsourcing is the assigning of certain tasks to an outside company or organization. When faced with intense foreign competition, U.S. firms may be forced to relocate some of their production to another country, or offshore.Diff: 1 Page Ref: 94AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-1 What are the implications of the globalization of markets and the globalization of production?Skill: Conceptual
31) The developing country of Alpha had a rule that none of its factories could be owned by companies from the developed country of Beta. If Alpha drops this rule, this would be an example of a(n) ________.A) decline in trade and investment barriersB) globalization of marketsC) technological innovationD) increase in tariffsAnswer: AExplanation: A) Investment barriers prevent the flow of financial capital across national boundaries, such as the funds necessary to purchase a factory. A decline in trade and investment barriers lets international firms move their production to a less-cost location, such as from Beta to Alpha.Diff: 2 Page Ref: 95AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-2 Why has globalization accelerated so rapidly?Skill: Application
32) An engineering team has members from Egypt, Malaysia, Australia, Argentina, and the U.S. They communicate by email and videoconference. The work of this globalized team is made easier because of ________.A) technological innovationB) declines in trade barriersC) increases in quotasD) increases in democratizationAnswer: AExplanation: A) Dramatic technological advances in communication have made it possible to manage the global production of products. People are able to share information more rapidly and cheaply.Diff: 2 Page Ref: 95AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-2 Why has globalization accelerated so rapidly?Skill: Application
33) Which of the following is contributing to the acceleration of globalization?A) increasing democratizationB) rising number of non-U.S. small, local businessesC) restricting foreign direct investmentD) dominating U.S. economic system Answer: AExplanation: A) With the movement toward democratization and the adoption of free-market economies around the globe, many more nations are becoming involved in the global economy.Diff: 1 Page Ref: 96AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-2 Why has globalization accelerated so rapidly?Skill: Conceptual
34) All of the following contribute to accelerating globalization EXCEPT ________.A) a growing role for developing nationsB) a rise in non-U.S. foreign direct investmentC) an increase in democratizationD) a rise in non-U.S. small, local businessesAnswer: DExplanation: D) Four global business trends are (1) a growing role for developing nations, (2) a rise in non-U.S. foreign direct investment, (3) a rise in non-U.S. multinational enterprises, and (4) increasing democratization.Diff: 1 Page Ref: 95-96AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-2 Why has globalization accelerated so rapidly?Skill: Conceptual
35) Brazil has experienced rapid economic growth and increased sales of its products to other countries. This is an example of a(n) ________.A) increase in democratizationB) growing role for developing nationsC) rise in non-U.S. multinational enterprisesD) rise in non-U.S. foreign direct investmentAnswer: BExplanation: B) The rapid economic growth of developing nations such as Brazil has accelerated globalization. Diff: 2 Page Ref: 95-96AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-2 Why has globalization accelerated so rapidly?Skill: Application
36) The nation of Baa-Baa raises sheep relatively more efficiently than the nation of Snuggle. Snuggle weaves woolen blankets relatively more efficiently than Baa-Baa. Baa-Baa decides to specialize in sheep raising, to sell wool to Snuggle, and to buy blankets from Snuggle. Snuggle decides to specialize in blanket weaving, to sell blankets to Baa-Baa, and to buy wool from Baa-Baa. This international trade illustrates ________ advantage.A) internationalB) comparativeC) globalizationD) absoluteAnswer: BExplanation: B) To possess a comparative advantage means that a country can produce a good or service relatively more efficiently compared with other countries. The theory of comparative advantage suggests that a country should sell to other countries the goods that it manufactures most efficiently and effectively and buy from other countries the goods it cannot manufacture as efficiently or effectively. If this method is practiced, each nation will have a greater quantity and variety of higher-quality products to consume at lower prices.Diff: 2 Page Ref: 97AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
37) If the U.S. has the ability to produce more steel than any other country in the world, the U.S. has a(n) ________ advantage in steel production.A) relativeB) globalizedC) absoluteD) comparativeAnswer: CExplanation: C) A comparative advantage should not be confused with an absolute advantage, which is the ability to produce more of a good or service than any other country. Just because a large country can produce more of a good than a small country does not necessarily mean it is relatively more efficient at producing that good.Diff: 2 Page Ref: 97AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
38) A country's launching of a government-owned telecommunications satellite is an example of investing in ________.A) laborB) natural resourcesC) infrastructureD) private capitalAnswer: CExplanation: C) To give their nations a competitive edge, governments invest in public capital, which is sometimes called infrastructure. Infrastructure includes roads, bridges, dams, electric grid lines, and telecommunication satellites that enhance productivity. Governments also try to promote technological advances.Diff: 1 Page Ref: 98AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
39) A business can create a competitive or comparative advantage by doing all of the following EXCEPT ________.A) shifting funding from worker training in order to increase profitsB) promoting innovation throughout their organizationC) accessing cheap raw materialsD) purchasing state-of-the-art capitalAnswer: AExplanation: A) Successful firms try to gain access to cheap raw materials, invest in their workers' training, and purchase state-of-the-art capital (plant and equipment). Successful companies also invest in cutting-edge technology in their research and development departments. Finally, they promote innovativeness throughout their organizations.Diff: 2 Page Ref: 98AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
40) According to the theory of comparative advantage, if the U.S. and Mexico increase their trade with each other, the two countries will experience ________ standards of living.A) no change inB) higherC) rapidly decreasingD) slightly lowerAnswer: BExplanation: B) The theory of comparative advantage indicates that countries that participate in international trade will experience higher standards of living because of the greater quantity and variety of higher-quality products offered at lower prices. These results stem from the increased competition associated with more open trade.Diff: 1 Page Ref: 97AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
41) A U.S. consumer electronics company has to shut down because it cannot compete against foreign manufacturers. For the U.S., this is an example of a(n) ________ of international trade.A) benefitB) costC) theoryD) causeAnswer: BExplanation: B) The costs of international trade are borne by those businesses and their workers whose livelihoods are threatened by foreign competition. Some domestic businesses may lose market share to foreign companies, stunting their profitability and ability to create jobs. Other firms may be so clobbered by foreign competitors that they're driven out of business entirely.Diff: 1 Page Ref: 99AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
42) U.S. farmers export canned sweet corn to Germany, which lowers the price to a German consumer by a few cents. The benefits to Germany of this international trade deal are ________.A) concentrated in the hands of a few German farmersB) nonexistentC) spread out among millions of German consumersD) immeasurableAnswer: CExplanation: C) The benefits of international trade are not always easily recognizable, as they are spread out among millions of consumers. People benefit from lower-priced products, although the price reductions may only save people a few cents. But the sum of these lower prices for the public at large can be dramaticespecially over time.Diff: 1 Page Ref: 99AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
43) As an economist, Susan Mukulu MOST LIKELY believes that over time the benefits of free trade ________ the costs.A) are far outweighed byB) far outweighC) are equal toD) only slightly outweighAnswer: BExplanation: B) Virtually all economists are free-trade advocates because they argue that over time the benefits far outweigh the costs for the nation as a whole.Diff: 2 Page Ref: 100AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
44) Who benefits from trade barriers?A) domestic consumersB) domestic producers C) foreign workers D) foreign producersAnswer: BExplanation: B) Domestic producers benefit from trade barriers because these barriers make it more expensive to purchase products produced outside of the country. Since it is more expensive to purchase products produced outside of the country, people tend to purchase more products purchased by domestic producers.Diff: 1 Page Ref: 100AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
45) If the nation of Epsilon places a tax on all grapes imported from the nation of Zeta, Epsilon has imposed a ________.A) quota B) subsidyC) embargoD) tariffAnswer: DExplanation: D) The most common trade barrier is the tariff, a tax imposed on an imported good or service, like grapes. Governments prefer to impose tariffs because they raise tax revenues.Diff: 1 Page Ref: 100AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
46) Which of the following is an example of a local content requirement? A) China requires that a specific percentage of its domestically manufactured wind turbines be sold in China. B) China requires a specific percentage of foreign-manufactured wind turbines be produced in China. C) China requires only a small percentage of foreign-manufactured wind turbines be bought in China. D) China requires that a specific percentage of foreign-manufactured wind turbines be sold in China. Answer: BExplanation: B) A local content requirement is a requirement that some portion of a good be produced domestically. This usually drives up the cost of the import.Diff: 1 Page Ref: 101AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
47) As a result of their influence on the quantity, variety, and quality of products, trade barriers ________ consumers.A) give an absolute advantage toB) hurtC) have no effect onD) helpAnswer: BExplanation: B) Trade barriers hurt consumers because the overall quantity, variety, and quality of products are lower as a result of curtailing foreign competition. For any nation, the economic costs of protectionism outweigh the economic benefits over time.Diff: 1 Page Ref: 101AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
48) The country of Theta restricts the activities of foreign insurance companies in order to give Theta's insurance industry a chance to grow and develop. Theta's actions are an example of the ________ argument in favor of protectionism.A) cheap foreign laborB) national securityC) threat of retaliationD) infant-industryAnswer: DExplanation: D) The infant-industry argument states that an undeveloped domestic industry needs time to grow and develop in order to acquire a comparative advantage in the global economy. The protected time to grow will allow plenty of opportunities for the industry to make the investments needed to become innovative.Diff: 1 Page Ref: 101AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
49) The cheap foreign labor argument for protectionism relates to ________.A) an undeveloped domestic industry's workers B) a lower wage often earned by many foreign workers C) a trading partner increasing trade barriers on work done by citizensD) an industry critical to national security being protected from foreign workers Answer: BExplanation: B) The cheap foreign labor argument centers on the sometimes significantly lower wages paid to workers of foreign companies. How can domestic companies compete with these low wages? Sometimes they can't, which motivates government leaders to impose trade restrictions.Diff: 1 Page Ref: 101-102AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
50) The nations of Tweedle-dee and Tweedle-dum do not trust each other. Tweedle-dee is convinced that if it lowers its trade barriers, Tweedle-dum will not lower its barriers. Therefore, Tweedle-dee keeps its trade barriers high. This is an example of the ________ argument in favor of protectionism.A) threat of retaliationB) infant-industryC) national securityD) cheap foreign laborAnswer: AExplanation: A) The threat of retaliation argument says that if Country B increases its trade barriers on Country A's exports, or fails to reduce trade barriers as Country A reduces its own barriers, then an uneven, unfair playing field is created. Therefore, it is justified for Country A to protect its trade with barriers. Diff: 1 Page Ref: 102AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
51) The country of Kappa sells pizza for $1.00 each within its borders. But Kappa exports pizzas at a price of $0.30. This is an example of a(n) ________.A) dumpingB) administrative trade barrierC) embargoD) local content requirement Answer: AExplanation: A) Dumping refers to selling a product at a price below the price charged in the producing country. The intent of dumping is to dominate an industry and then control it.Diff: 1 Page Ref: 106AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
52) GATT stands for ________ on Tariffs and Trade.A) General AgreementB) General ArgumentC) Global AgreementD) Global ArgumentAnswer: AExplanation: A) The General Agreement on Tariffs and Trade (GATT) was created in 1948 with 23 member nations and grew to a membership of 123 by 1994. Although GATT was not an organization with any real enforcement powers, its eight rounds of negotiated agreements or treaties were very successful in reducing tariffs and other obstacles to free trade on goods. This, in turn, spurred significant world economic growth.Diff: 1 Page Ref: 103AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
53) If Ecuador has a dispute with France over the importation of bananas, from which agency can Ecuador seek arbitration?A) GATTB) NAFTAC) WTOD) APECAnswer: CExplanation: C) The World Trade Organization (WTO) has strengthened the world trading system by extending GATT rules to services and increasing protection for intellectual property rights. But, perhaps of most significance, the WTO has taken on the responsibility for arbitrating trade disputes and monitoring the trade policies of member countries.Diff: 2 Page Ref: 103AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
54) A free trade area that includes 27 independent states is the ________. A) European Union (EU)B) MERCOSURC) North American Free Trade Agreement (NAFTA)D) Association of Southeast Asian Nations (ASEAN)Answer: AExplanation: A) The greatest free trade area exists among member nations of the European Union (EU), which is the oldest and largest free trade area. The EU can trace its roots to 1957 with the creation of the European Economic Community (or Common Market), which consisted of the six founding countries of Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. Although many obstacles had to be overcome, like the concern over the potential loss of national sovereignty, the EU has grown to its current membership of 27 independent states, including Portugal and Estonia.Diff: 2 Page Ref: 104AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
55) A free trade area that includes Canada and the U.S., but not Japan, is the ________.A) North American Free Trade Agreement (NAFTA)B) Association of Southeast Asian Nations (ASEAN)C) MERCOSURD) European Union (EU)Answer: AExplanation: A) The North American Free Trade Agreement (NAFTA) is an ongoing agreement to move the United States, Mexico, and Canada closer to true free trade. NAFTA was established on January 1, 1994, after considerable political opposition.Diff: 2 Page Ref: 104-105AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
56) Airbus competes on the basis of price while selling a standardized or homogeneous product. The company is using a ________ strategy.A) transnationalB) globalC) multidomesticD) domesticAnswer: BExplanation: B) A basic strategy of international business is the global strategycompeting primarily on the basis of price while selling a standardized (or homogeneous) product. Standardized products are basic products that meet universal needs.Diff: 1 Page Ref: 107AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-5 What are the three basic strategies of international business?Skill: Application
57) A consumer products company competes around the world primarily by customizing or differentiating its products to meet unique local needs, tastes, or preferences. The company is using a ________ strategy.A) globalB) multidomesticC) transnationalD) domesticAnswer: BExplanation: B) A basic strategy of international business is the multidomestic strategycompeting primarily by customizing or differentiating the product to meet unique local needs, tastes, or preferences. Firms pursuing a multidomestic strategy face relatively low pressures for cost reduction because the price is often of secondary concern to buyers. Instead, what is important to customers is whether the product meets their needs or is distinct from the product of competitors.Diff: 1 Page Ref: 107AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-5 What are the three basic strategies of international business?Skill: Application
58) American Express competes around the world by offering a customized product while simultaneously selling at the lowest possible price. The company is using a ________ strategy.A) transnationalB) globalC) multidomesticD) domesticAnswer: AExplanation: A) A basic strategy of international business is the transnational strategycompeting by offering a customized product while simultaneously selling at the lowest possible price. The strong cost pressures and strong pressures for differentiation that motivate this type of strategy are typically incongruent. Therefore, the successful pursuit of this type of strategy is extremely difficult in practice.Diff: 1 Page Ref: 107AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-5 What are the three basic strategies of international business?Skill: Application
59) With a global strategy for conducting business internationally, a company competes ________.A) primarily on the basis of price while selling a standardized productB) primarily by customizing or differentiating its product to meet unique local needs, tastes, or preferencesC) primarily by offering a customized product while simultaneously selling at the lowest possible priceD) primarily by offering a homogeneous product while simultaneously selling at a high priceAnswer: AExplanation: A) A basic strategy of international business is the global strategycompeting primarily on the basis of price while selling a standardized (or homogeneous) product. Standardized products are basic products that meet universal needs.Diff: 1 Page Ref: 107AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-5 What are the three basic strategies of international business?Skill: Conceptual
60) What is the term for the sale of a domestically produced good in a foreign market?A) exportingB) turnkey projectC) joint ventureD) licensingAnswer: AExplanation: A) Exporting is the sale of a domestically produced good in a foreign market. Most businesses typically begin serving a foreign market by exporting and only later switch to another mode to expand sales abroad.Diff: 1 Page Ref: 108AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Conceptual
61) When Mu Manufacturing Co. exports their technological know-how in exchange for a fee, they are entering foreign markets through a ________.A) strategic allianceB) turnkey projectC) franchiseD) wholly-owned subsidiaryAnswer: BExplanation: B) When firms export their technological know-how in exchange for a fee, they have implemented a turnkey project. Turnkey projects are common in the production of sophisticated and complex manufacturing facilities.Diff: 2 Page Ref: 108AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Application
62) An agreement in which a domestic company's intangible property may be sold or made available to a foreign company in exchange for a royalty fee is called a(n) ________.A) strategic allianceB) franchiseC) licenseD) wholly-owned subsidiaryAnswer: CExplanation: C) Licensing is an agreement in which the licensor's intangible propertypatents, trademarks, service marks, copyrights, trade secrets, or other intellectual propertymay be sold or made available to a licensee in exchange for a royalty fee.Diff: 2 Page Ref: 108AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Conceptual
63) An American company enters the Mexican market by sharing ownership of a subsidiary firm with a Mexican company. This is an example of a(n) ________.A) contract manufacturing arrangementB) joint ventureC) strategic allianceD) export agreementAnswer: BExplanation: B) Joint ventures involve shared ownership in a subsidiary firm. International joint venture partners involve an international business teaming up with a local partner in order to enter a foreign market.Diff: 2 Page Ref: 108-109AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Application
64) Cooperative arrangements between actual or potential competitors in which each partner retains its business independence are known as ________.A) contract manufacturingB) licensing agreementsC) turnkey projectsD) strategic alliancesAnswer: DExplanation: D) Strategic alliances are cooperative arrangements between actual or potential competitors. Unlike a joint venture, each partner retains its business independence. Strategic alliances are typically agreements for a specific period of time or for only the duration of a particular project.Diff: 2 Page Ref: 109AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Conceptual
65) In order to enter the Spanish market, a Moroccan firm establishes a store that is entirely owned by the Moroccan firm. This is an example of a(n) ________.A) strategic allianceB) wholly-owned subsidiaryC) exporting agreementD) joint ventureAnswer: BExplanation: B) A wholly-owned subsidiary involves establishing a foreign facility that is owned entirely by the investing firm. The advantages of this entry choice include total control over foreign operations and technological know-how. The disadvantage is that the parent company must bear all of the costs and risks of entering a foreign market.Diff: 2 Page Ref: 109AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Application
66) The ratio at which Australian dollars are converted into Indonesian rupiah is known as the ________ rate.A) interestB) exchangeC) internationalD) exportAnswer: BExplanation: B) The dollar is the currency of Australia. The rupiah is the currency of Indonesia. Foreign exchange markets determine exchange rates, the rates at which currencies are converted into another currency.Diff: 2 Page Ref: 111AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Application
67) U.S. exporters prefer a(n) ________ dollar.A) strongB) appreciatingC) exchangeD) weakAnswer: DExplanation: D) U.S. exporters prefer a weak dollar because their products will be more affordable to foreigners. A weak dollar causes U.S. exports to become cheaper and more marketable.Diff: 1 Page Ref: 111AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Conceptual
68) U.S importers prefer a(n) ________ dollar.A) internationalB) weakC) depreciatingD) strongAnswer: DExplanation: D) U.S. importers prefer a strong dollar because the cost of importing foreign goods is cheaper. If goods are imported cheaply, then those savings can be either passed on to the consumer or kept as higher profits.Diff: 1 Page Ref: 111AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Conceptual
69) A U.S. company exports products to Russia. The prices of the U.S. products in Russia are going up because the value of the dollar has ________ against Russia's currency.A) depreciatedB) stabilizedC) risenD) fallenAnswer: CExplanation: C) Suppose that the value of the dollar rises or gets stronger against the ruble (the currency of Russia). Goods exported from the United States will become more expensive because the Russians will now have to come up with more rubles to purchase each dollar.Diff: 2 Page Ref: 111-112AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Application
70) An example of currency ________ would be if the value of the U.S dollar rises against the Malagasy ariary (the currency of Madagascar).A) internalizationB) globalizationC) appreciationD) depreciationAnswer: CExplanation: C) Currency appreciation is an increase in the exchange rate value of a nation's currency. Appreciation causes the relative price of imports to fall as the relative price of exports rises. When currency appreciates, the currency becomes stronger.Diff: 2 Page Ref: 111-112AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Application
71) If the value of the nation of Nu's exports is greater than the value of its imports, Nu has a trade ________.A) balanceB) currencyC) surplusD) deficitAnswer: CExplanation: C) A trade surplus occurs when the value of a country's exports exceeds the value of its imports.Diff: 1 Page Ref: 112AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Application
72) Most countries operate under a(n) ________ exchange rate system.A) fixedB) freely floatingC) stableD) immeasurableAnswer: BExplanation: B) Most countries operate under a freely floating (or flexible) exchange rate system, a system in which the global supply and demand for currencies determine exchange rates. Many specific factors affect the demand and supply of a nation's currency, such as changing interest rates, tax rates, and inflation rates. But generally, changes in exchange rates in a freely floating exchange rate system reflect the country's current economic health and its outlook for growth and investment potential.Diff: 2 Page Ref: 113AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Conceptual
73) What would prompt a nation to invest in a sovereign wealth fund (SWF)? A) trade deficit B) trade surplus C) trade balance D) trade growth Answer: BExplanation: B) Often countries that trade in raw materials, such as oil or diamonds, find the price of the commodity fluctuates a great amount from year to year. So, taking the pool of money that exists in the year of a trade surplus and investing it would be a good strategy. Sovereign wealth funds (SWFs) are government investment funds that do just that.Diff: 2 Page Ref: 112AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
74) What is a valid explanation as to why some nations retain nonconvertible currency? A) desire to work with other countries B) increased academic achievement C) fear of capital flight D) reliance on foreign loans Answer: CExplanation: C) Some countries retain nonconvertible currency because they fear that if their currency could be converted into other currencies businesses and consumers would stop purchasing products produced within the nation. Diff: 2 Page Ref: 113AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
75) What is the opposite of nonconvertible currency? A) countertrade currency B) freely floating currency C) gold coin currency D) unregulated currency Answer: BExplanation: B) While nonconvertible currency is not exchanged for other currency on the international market, freely floating currency is exchanged for other currency.Diff: 2 Page Ref: 113AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
76) The nation of North Xi has a ________ currency that cannot be exchanged in a foreign exchange market.A) countertradeB) nonconvertibleC) flexibleD) fixedAnswer: BExplanation: B) Most countries operate under a freely floating (or flexible) exchange rate system, a system in which the global supply and demand for currencies determine exchange rates. However, some countries do not allow their currency to be exchanged in this system. This currency is called nonconvertible. Diff: 2 Page Ref: 113AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Application
77) Global companies can still do business with countries that have nonconvertible currencies through the use of ________.A) appreciationB) countertradeC) depreciationD) currencyAnswer: BExplanation: B) Global companies can still do business with countries that have nonconvertible currencies through the use of countertrade. Countertrade is a form of international barter, the swapping of goods and services for other goods and services.Diff: 2 Page Ref: 113-114AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Conceptual
78) The nation of South Pi is experiencing rapid increases in business activity, but still lacks sufficient infrastructure and modern communication systems. Which challenge to conducting international business is the PRIMARY one faced by exporters to Pi?A) nonconvertible currencyB) government economic policiesC) economic growth and developmentD) socioeconomic factorsAnswer: CExplanation: C) Many developing countries lack the basic infrastructure necessary for effective transportation of goods and/or lack access to dependable electricity. They have insufficient economic growth and development. They may also be lacking in modern communication systems.Diff: 2 Page Ref: 118AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?Skill: Application
79) International businesses prefer ________ economies to ________ economies because the bureaucratic hassles associated with government intervention drive costs up.A) state-run; free market B) free market; state-runC) socialized; free marketD) state-run; socializedAnswer: BExplanation: B) The degree to which markets are allowed to operate free from government intervention is an important economic consideration. International businesses prefer free market economies to state-run or socialized economies because the bureaucratic hassles associated with government intervention drive costs up.Diff: 1 Page Ref: 114AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?Skill: Conceptual
80) Socioeconomic factors that must be considered by international companies include all of the following EXCEPT ________.A) cultural behaviorsB) income distributionC) birthrates D) atypical behaviors Answer: DExplanation: C) Several socioeconomic factors need to be taken into account when conducting business internationally. These include the demographics of population density and age distribution. The birthrates of many developing countries are high and offer exciting opportunities to toy manufacturers, for example. Companies need not consider atypical behaviors of a few people when considering conducting business internationally. Diff: 1 Page Ref: 114AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?Skill: Conceptual
81) An American businessperson who demonstrates sensitivity to and appreciation for Chilean culture possesses ________.A) cross-cultural detachmentB) cross-cultural awarenessC) ethnocentrismD) cultural interventionAnswer: BExplanation: B) Most international businesses fail because they suffer from a lack of cross-cultural awareness, which is an understanding, appreciation, and sensitivity to foreign culture. Ethnocentrism, a belief that one's own culture is superior to all other cultures, is a guaranteed recipe for disaster when undertaking international business.Diff: 1 Page Ref: 116AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Application
82) Aesthetics encompasses all of the following EXCEPT ________.A) etiquetteB) religionC) language D) protocolAnswer: BExplanation: B) Aesthetics refers to what is considered beautiful or in good taste. Aesthetics encompasses etiquette, customs, and protocol. Few things are more embarrassing than violating a sense of good taste. While religion should be respected, it is not a part of aesthetics. Diff: 2 Page Ref: 116AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Application
83) Which of the following BEST demonstrates that different countries have different attitudes toward work?A) different religious traditions B) different aesthetic normsC) different vacation policies D) different language standardsAnswer: CExplanation: C) Different vacation policies, across different countries, demonstrate different attitudes toward work. For example, Europeans expect four to six weeks of vacation per year. Compare this to the two weeks on average a person in the United States gets. Europeans value time away from work more than Americans. Diff: 1 Page Ref: 116AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Conceptual
84) If a Turkish company closes its U.S. offices on Easter Sunday, the company is giving PRIMARY consideration to ________.A) aestheticsB) languageC) religionD) attitudes Answer: CExplanation: C) Religion plays a profound role in shaping a culture. International businesses are therefore well advised to educate themselves on varying religious value systems, customs, and practices if they do not wish to offend customers and employees.Diff: 1 Page Ref: 116-117AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Application
85) An American executive who studies Italian before making a sales trip to Rome is showing consideration for ________.A) languageB) attitudes C) religionD) aestheticsAnswer: AExplanation: A) Language is extremely important. A lack of cross-cultural and language awareness can lead to international business blunders.Diff: 1 Page Ref: 117AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Application
86) Generally, international businesses thrive in nations that have all of the following EXCEPT a ________.A) government-controlled economyB) firm commitment to free market principlesC) stable governmentD) democratically elected governmentAnswer: AExplanation: A) Generally, international businesses thrive in nations that have a firm commitment to free market principles with a stable, democratically elected government.Diff: 1 Page Ref: 117AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Conceptual
87) All of the following are legal challenges to conducting business in a foreign country EXCEPT ________.A) cross-cultural awarenessB) contractsC) product safety and liability standardsD) property rightsAnswer: AExplanation: A) Cross-cultural awareness supports international business efforts. It does not pose a legal challenge. Diff: 2 Page Ref: 118AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Conceptual
88) All of the following are ethical challenges to conducting business in a foreign country EXCEPT ________.A) conforming to home country environmental standardsB) doing business with repressive totalitarian regimesC) exceeding product safety standardsD) protecting property rightsAnswer: DExplanation: D) Unique differences in economic conditions and cultural values give rise to many ethical dilemmas surrounding global business. For example, should a firm conform to its home country's environmental, workplace, and product safety standardseven though it's not legally required to do sowhile operating in another country? Should a company do business with a repressive totalitarian regime?Diff: 2 Page Ref: 118AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Conceptual
89) Give an example of globalization of markets.Answer: Student answers will vary, but should demonstrate an understanding that many companies seek customers beyond their local areas and national borders.Diff: 2 Page Ref: 93AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-1 What are the implications of the globalization of markets and the globalization of production?Skill: Application
90) What are multinational enterprises? How have they contributed to the growth of globalization?Answer: Multinational enterprises manufacture and market products in two or more countries. Through their presence in multiple countries, multinational enterprises increase the globalization of markets and production.Diff: 2 Page Ref: 97AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-2 Why has globalization accelerated so rapidly?Skill: Conceptual
91) The country of Delta removes its dictator and moves toward democracy and a free market. Predict what happens to Delta's connection to the global economy.Answer: Delta will become more involved in the global economy, becoming not only a market for products from other countries and a recipient of foreign direct investment but also an exporter of its products and perhaps an investor in production in other countries.Diff: 3 Page Ref: 98AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-2 Why has globalization accelerated so rapidly?Skill: Application
92) Describe the theory of comparative advantage.Answer: The theory of comparative advantage states that a country should sell to other countries the goods that it manufactures most efficiently and effectively and buy from other countries the goods it cannot manufacture as efficiently or effectively. If this method is practiced, each nation will have a greater quantity and variety of higher-quality products to consume at lower prices.Diff: 1 Page Ref: 97AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
93) What would cause a nation to lose its comparative (or competitive) advantage?Answer: In many nations, governments focus on improving the nation's resourcesnatural resources, labor, capital (plant, equipment, and infrastructure), technology, and innovation and entrepreneurialismto improve competitiveness. If a nation has lost its comparative (or competitive) advantage, then it probably failed in one or more of these areas. Alternatively, the foreign competition (companies or nations) may have simply done a better job of improving in one or more of these areas. Remember, comparative advantage is really a relative advantagerelative to the competition.Diff: 3 Page Ref: 97AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-3 What are the costs and benefits of international trade?Skill: Application
94) Describe the difference in attitude between most economists and most government leaders with regard to free trade.Answer: Virtually all economists are free-trade advocates because they argue that over time the benefits far outweigh the costs for the nation as a whole. However, all real-world governments have trade barriers in place to protect selected domestic industries from foreign competition.Diff: 1 Page Ref: 100AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
95) Give an example of a subsidy used as a trade barrier.Answer: Student answers will vary, but should demonstrate understanding that subsidies are government payments to domestic producers.Diff: 3 Page Ref: 100AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
96) What does national security have to do with trade barriers?Answer: The national security argument states that certain industries critical to national security should be protected from foreign competition. For example, the United States would not want to become dependent on another nation for a critical component of national defense.Diff: 1 Page Ref: 101AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
97) How do most economists feel about protectionist trade barriers?Answer: Most economists are free-trade advocates because they believe that the economic benefits of free trade outweigh the economic costs. Economists insist that the best way to address the concerns of those industries and their workers whose livelihoods are threatened by foreign competition is not to impose protectionist trade barriers. Instead, these displaced individuals need to be equipped with the education, training, and skills necessary to smooth their transition into a line of business or work in which the nation has a comparative advantage and demand is rising.Diff: 2 Page Ref: 102AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Conceptual
98) How has the European Union affected international business worldwide?Answer: The European Union's economic power and political clout has a huge influence on international businesses worldwide. For example, some international businesses have been motivated to invest in production facilities within the EU to hedge against any potential trade barriers. The EU has also established many legal, regulatory, and technical standards for imports to the EU market. In addition, the EU's antitrust rulings have significantly affected foreign businesses. Diff: 3 Page Ref: 104AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-4 What are the different types of trade barriers?Skill: Application
99) Describe the two major factors that determine an international firm's strategy.Answer: Two major factors determine an international firm's strategy. The first factor involves how important it is for a business to keep its costs down and, therefore, its prices low. The second factor is how necessary it is for a company to customize or differentiate its product to adapt to different customer tastes and preferences around the globe.Diff: 1 Page Ref: 107AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-5 What are the three basic strategies of international business?Skill: Conceptual
100) List the six methods for entering foreign markets.Answer: The six methods for entering foreign markets are (1) exporting; (2) turnkey projects; (3) franchising; (4) entering into a licensing agreement, a joint venture, or a strategic alliance; (5) contract manufacturing; and (6) a wholly-owned subsidiary.Diff: 1 Page Ref: 107-109AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Conceptual
101) Describe an exporting relationship between a Brazilian manufacturing and an Australian retailer.Answer: The Brazilian manufacturer would produce its product in Brazil and sell it to the Australian retailer.Diff: 2 Page Ref: 107AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Application
102) What are the advantages and disadvantages of joint ventures?Answer: The advantages of a joint venture include gaining local knowledge of the economic, social, and political landscape while sharing the costs and risks of accessing a foreign market. The disadvantage of a joint venture is losing control over the company because compromise with the partner is inevitable. The risk of losing proprietary technology in the event of dissolution or "divorce" of the joint venture is also a major drawback.Diff: 2 Page Ref: 108-109AACSB: Analytic Skills, Dynamics of the Global EconomyObjective: 4-6 How can international firms successfully enter foreign markets?Skill: Conceptual
103) What would be the impact on U.S. exporters if the value of the U.S. dollar rose against the Mexican peso?Answer: Suppose that the value of the dollar rises or gets stronger against the peso (the currency of Mexico). Products exported from the United States will become more expensive because Mexicans will now have to come up with more pesos to purchase each dollar. Mexican consumers will buy fewer U.S. products and exports to Mexico will fall.Diff: 3 Page Ref: 111-112AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Application
104) What are the effects of depreciation of the U.S. dollar?Answer: Currency depreciation, a decrease in the exchange rate value of a nation's currency, causes exports to become cheaper and imports to become more expensive. Americans will have to come up with more dollars to purchase foreign products. On the other hand, foreign buyers will be able to purchase more U.S. products.Diff: 3 Page Ref: 112AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Application
105) Which is better: a strong U.S. dollar or a weak U.S. dollar?Answer: Student answers will vary. Can students distinguish between U.S. exporters and their employees who benefit from a weak dollar and U.S. importers and their employees who benefit from a strong dollar? Consumers usually prefer a strong dollar. Effects on society as a whole are mixed. Diff: 3 Page Ref: 111-113AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-7 What are exchange rates and how do they affect international business?Skill: Application
106) In addition to exchange rates, what are three economic challenges to conducting international business?Answer: (1) Economic growth and development; (2) Government economic policies and the economic environment; (3) Socioeconomic factors.Diff: 1 Page Ref: 114AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?Skill: Application
107) In what way does a demand for a bribe by an international business partner present an ethical challenge to a U.S. businessperson?Answer: Bribery is illegal according to U.S. law, but is not necessarily illegal everywhere else. A bribe may be necessary to doing business. A U.S. businessperson will have to decide whether or not to "pay to play."Diff: 2 Page Ref: 118AACSB: Reflective Thinking, Dynamics of the Global EconomyObjective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?Skill: Application
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