Business & Government Relations Final

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Ethnic Chinese are also known as the ________ people. a) Xia b) Han c) Sui d) Qing

The Coase theorem does not apply to a tradable permits system.

False

The separation of ownership from management and the resulting managerial discretion means that Adam Smith's market capitalism cannot coexist with managerial capitalism

False

The size of the Chinese economy implies that resources cannot be readily mobilized by the government in the domestic capital and factor input markets

False

The source of all the revolutions in the Middle East was to seek democracy.

False

Trade policy does not depend on the market and nonmarket strategies of private interests.

False

In the short run, the subsidies increased the budget deficit

True

In terms of remedies, the European Commission is limited to imposing fines and supervising conduct

True

Indirect subsidies such as high feed-in tariffs were funded by higher prices to consumers of electricity.

True

Invasion by barbarians resulted in centuries of political fragmentation, during which much of China's most impressive philosophy was developed.

True

The EPA enforcement process requires the filing of a notice of a complaint and a hearing before an administrative law judge

True

A stakeholder relationship centers on ________. a) an exchange b) rapport with peak organizations c) voting rights d) a niche market

China took the lead in the production of solar panels primarily because ________. a) labor costs in China were very low relative to that in Europe and the United States b) the domestic demand for solar panels fell sharply c) the price of pure silicon rose dramatically as supply caught up with demand d) demand-side subsidization was not implemented in the United States

Demand-side subsidies include ________. a) tax credits for households to install solar panels on rooftops b) electric utilities for smart grid infrastructure c) high feed-in tariffs for power producers d) loan guarantees to solar panel producers

In constructing CDOs, the mortgage loans are sliced into tranches with the cash flowing first to the _____. a) most safe tranche (lowest interest rate) b) most risky tranche (highest interest rate) c) non-investment grade tranche

In relation to the WTO Dispute Settlement Body (DSB), ________ has been involved in more disputes than any other country. a) the United States b) Venezuela c) Brazil d) North Korea

The negotiations in the ________ Round were to pay special attention to the situations of developing countries. a) Doha b) Uruguay c) Kennedy d)Tokyo

________ Amendment places a limit on the application of regulation. a) First b) Fourteenth c) Eighth d) Nineteenth

From the Coasean perspective, social efficiency is a problem only when there are impediments to ________. a) growth b) bargaining c) expansion d) diversification

Which of the following goods is provided by the government to redistribute income rather than because they are public goods? a) landsat satellite system b) public housing c) radio and television broadcasts d) national defense

Which of the following is a part of BRIC countries? a) Belgium b) India c) Canada d) Rwanda

Which of the following is true with regard to the communist era in China? a) With the aid of Soviet loans, the CCP industrial policy emphasized the consumer goods sector at the expense of sectors such as steel, petroleum, and chemicals. b) In keeping with Marxist philosophy, the CCP sought to control all commerce. c) The end of the Korean War allowed policymakers to concentrate on their next task: the transformation of the Chinese economy into a capitalist system. d) The Cultural Revolution minimized the army's status within the party hierarchy.

According to Mao and Lin, which of the following was one of the four "olds"? a) old people b) old technology c) old ideas d) old machinery

A firm that undertakes social activities motivated by moral principles will act only when there is an opportunity for profits or when forced to act by its nonmarket environment.

False

A natural monopoly results when costs are increasing in the scale of output or in the scope of the set of goods a firm produces.

False

A pharmaceutical company does not mention all the side-effects of its new medical formulation. This is an example of moral hazard problem.

False

According to the U.S .Constitution, the Congress is not vested with the power "to regulate commerce with foreign nations" and to "lay and collect duties."

False

According to the Zhongyong, the relationship between an individual and his/her foe is one of the "Five Relationships" that must be perfected before social harmony is achieved.

False

Aggregate well-being does not take into account the harm from an externality and the social costs of reducing that harm

False

Agriculture has been the sector with the smallest distortions in trade

False

An emissions tax is considered superior to a tradable permits system because it is impossible to know the amount of abatement in advance with a permits system.

False

Assessment measures developed for countries and the growth of political consultancies help draw conclusions about a country before business can be established.

False

Asymmetric information results in market efficiency when it is in the self-interest of its possessor not to supply it.

False

China's paramount executive body is the State Planning Commission (SPC).

False

The Schengen Agreement established, subject to certain exceptions, free trade among Canada, Mexico, and the United States.

False

The Single European Act increased the political power of the governments of the member states relative to the power of the EU institutions.

False

The general framework of Confucian thoughts displays considerable rigidity.

False

The market imperfection perspective is grounded in political economy theory.

False

Empirical studies provide a picture of the landscape in which firms operate, but it does not provide a roadmap for individuals firms. What is the challenge faced by individual firms?

From the perspective of an individual firm the challenge is to determine the relation between its CFP, its CSP, and the social pressure it encounters. This requires specific information on the possible rewards that it might receive for its CSP and how the social pressure it faces depends on its CSP and financial performance

Courts could review regulatory actions for whether they are arbitrary or capricious. Explain briefly.

The basic concerns are whether an action exceeds the scope of the mandate of the regulatory agency and whether it has a basis in the record of evidence the agency has.

Regulatory decisions are required to bear a relationship to a proper public purpose under the Constitution. This is review under the framework of ________. a) procedural due process b) substantive due process c) arbitrary regulatory actions d) capricious regulatory actions

The Clean Air Act Amendments of 1990 addressed efficiency through a tradable permits system and the distributive consequences were addressed through a number of special provisions called ________. a) permits b) allowances c) incentives d) credits

The EPA administers the ________ for the cleanup of existing toxic waste disposal sites. a) Solid Waste Cleanup Fund b) Superfund c) Resource Conservation and Recovery Act of 1976 d) Toxic Substances Control Act of 1976

Discuss management in the nonmarket environment.

The following points must be discussed: -the need for an integrated strategy -broadly applicable frameworks for the nonmarket environment -relationship with the government in nondemocratic countries. -the high risk of corruption and mistrust of foreigners -difference between the nature and magnitude of risks in developed and emerging market countries -Risk management and risk reduction

A central feature of China's First Five Year Plan was the collectivization of agriculture.

True

Banco Compartamos is am example of microfinance institution

True

Congress mandates that regulatory agencies provide for public notice and comment prior to agency action

True

Corporate social responsibility (CSR) activities can strengthen local community relations and improve employee morale.

True

Culture can be important, not only shaping the opportunities and risks in a country but also for the likelihood that a company can implement its market strategy.

True

Decisions made by the European Union are legally binding but pertain only to the parties identified in the decision

True

Under the principle of subsidiarity, the member states are responsible for health care and can institute their own price controls

True

When the Obama administration took office, its EPA declared that CO2 and other greenhouse gases were pollutants and subject to regulation.

True

When there are market imperfections, government intervention could improve its efficiency.

True

With its emphasis on hierarchy, deference, moral rectitude, and behavioral norms, Confucianism was well suited to the needs of social stability and significantly contributed to China's long existence as a unified nation

True

With regard to trade disputes, the European Union maintains a set of preferences for the overseas territories and former colonies of its member states

True

With the disintegration of the mortgage market, lenders do not bear the risk of failure of borrowers to repay loans

True

The fair trade system attempts to intervene directly on both the ________ and the ________ sides of the market by coordinating the flow of consumer revenue to participating producers. a) production, distribution b) branded, non-branded c) demand, supply d) regulated, unregulated

The theory of comparative advantage is based on the assumption of________. a) perfectly regulated markets b) perfectly monopolistic markets c) perfectly competitive markets d) perfectly competitive innovation

The third component of the control of an externality in a tradable permits system ________. a) is allowing parties to respond to incentives by choosing the most efficient means of abatement b) involves providing incentives for abatement by internalizing the cost of the harm done by the pollution. c) involves reflecting in the prices of goods and services, the costs of abatement and the social costs of the harm from the remaining pollution. d) is allowing states to decide how best to decrease dangerous air pollution in the most cost effective manner.

A(n) ________ results when costs are decreasing in the scale of output or in the scope of the set of goods a firm produces. a) moral hazard b) asymmetric information c) pecuniary externality d) natural monopoly

The fair trade movement began in ________. a) Australia b) the United Kingdom c) the United States d) the Netherlands

The major focus of the third phase of regulation in the 1960s was ________. a) labor and economic regulation b) economic deregulation c) political regulation d) social regulation

The sector in which there has been the greatest distortion in trade is ________. a) transportation b) iron and steel c) heavy machinery d) agriculture

To provide a voice to groups that would otherwise be underrepresented, the EU provides funding for ________ to participate in political and policy-making processes. a) trade unions b) work councils c) lobby committees d) NGOs

What do the antitrust laws of the US and EU have in common? a) Both laws have per se offenses. b) Both rely frequently upon voluntary approaches to regulation. c) Neither allows defenses such as economic consequences. d) Both aim at promoting competition.

Which of the following EU institutions is responsible for reviewing large mergers? a) the Advisory Committee on Restrictive Practices and Monopolies b) the European Chamber of Commerce c) the European Parliament d) the European Commission

Which of the following approaches can aid in influencing regulatory agency decisions? a) boycott b) bribery c) organizational learning d) lobbying

Which of the following did not contribute to the financial crisis of 2007-2008? a) subprime lending b) high leverage ratio for banks c) credit default swaps d) regulation of derivatives

Which of the following is one of the "Five Relationships" that, according to the Zhongyong, must be perfected before social harmony is achieved? a) the relationship between mother and daughter b) the relationship between mother and son c) the relationship between father and daughter d) the relationship between father and son

Demand-side subsidies are provided to power producers.

False

Due to the very high transaction costs, automobile emissions are controlled through private regulations

False

Joint ventures are illegal in China

False

Private sector is does not supply public goods.

False

Regulation is rarely used for public purposes or to accomplish fairness goals as it requires long term policies.

False

Regulation takes place through a private process that is relatively closed and low-profile.

False

Rents from demand-side subsidization were earned by power producers and the producers of power generation inputs, such as solar panels.

False

Rule of law can override politics and political ties when doing business in emerging market countries.

False

State aids are subsidies paid by the European Union to their member states.

False

Subsidization of renewable power deters producers from realizing economies of scale.

False

Subsidization was economically disadvantageous because it increased the nation's dependence on imported fuels.

False

Substantial economic inefficiency is an inherent consequence of a natural monopoly.

False

The Council of Ministers consists of two ministers from each state and the nations have equal voting weight

False

With the rise in the powers of the EU institutions, the governments of the member states have ceased to be the focus of nonmarket activity.

False

A natural monopoly occurs if having more than one supplier would result in an uneconomical duplication of facilities.

True

A number of regional trade agreements such as the North American Free Trade Agreement (NAFTA) and the treaties that established the single market in the European Union, have reduced barriers and increased trade

True

All EU member states are required to participate in the EU Emissions Trading System

True

An emissions tax is favored by some economists because it is transparent and easy to implement compared to having to develop a market.

True

At the conclusion of World War II, a group of countries led by the United States established the International Trade Organization (ITO)..

True

At the level of an individual firm, successful participation in a domestic market requires specific knowledge of that market so as to apply the firm's expertise.

True

Before the enactment of the SEA, Council decisions were governed by a unanimity rule.

True

In 1999 Macao was returned to China by Portugal.

True

In a corporatist structure, unions and businesses have peak organizations that advise the government and negotiate on policy

True

Managerial capitalism can result in inefficiency when the incentives of management are not structured properly.

True

Many smart grid applications were driven more by opportunities for efficiency than by government support.

True

Media restrictions, ethnic and religious conflicts, political corruption, and political megalomania are some of the risks faced in emerging market countries.

True

Microfinance, in its modern version, was introduced by Muhammad Yunus, a Bangladeshi economist.

True

Nonmarket risks can arise from private politics, including consumer reactions, activist and NGO challenges, and changes in public sentiment.

True

One concern with the fair trade concept was whether retailers would charge such a large price premium that demand would be suppressed

True

Ownership of the firm is never mentioned in the Roundtable statement, which suggests that the corporation exists as a legal entity

True

Population growth and economic growth are the two most important factors contributing to the increase in greenhouse gas emissions.

True

Private interests affect regulatory agencies directly through their participation in hearings and other regulatory proceedings and indirectly through pressure on Congress and the executive branch.

True

Securitization can reduce idiosyncratic risks but cannot reduce systematic risks

True

Subsidization in the form of high feed-in tariffs raises electricity prices

True

The Chinese government views renewable energy as an attractive industry for growth.

True

The European Union uses the precautionary regulation more readily than the United States.

True

The Kennedy Round of GATT negotiations incorporated provisions in Article VI allowing domestic laws to include antidumping measures

True

The NIMBY movement can hamper the development of renewable energy

True

The NIMBY movement focuses on local environmental concerns, particularly as they involve possible risks to person or property

True

The Politburo is responsible for the ongoing administration of the CCP

True

The Regional Greenhouse Gas Initiative (RGGI) was formed to operate a cap-and-trade system for reducing greenhouse gases emissions.

True

The antitrust policy is the centerpiece of competition policy, and this section addresses EU antitrust law and its administration

True

The adoption of the ________ made human and civil rights enforceable by the European Union. a) Charter for Fundamental Rights b) Common Agricultural Policy c) State Aid Directive d) Maastricht Treaty

The central principle of the WTO agreements is embodied in which of the following requirements? a) most favored nation b) reform-friendly state c) developed nation d) democratic free state

The politics of international trade policy is driven by ________, which arises from the interactions between international trade policy and the domestic economy. a) domestic politics b) international peak organizations c) the aggregate well-being of the country d) the aggregate cost of social externalities

The regulatory responses to the financial crisis include all of the following except a) penalizing customers who defaulted on interest payments b) increasing the regulation of credit card issuers c) reducing speculative investments by banks d) regulating credit rating agencies

When the Party Congress is not in session, authority passes to the ________, which convenes at least twice annually. a) Central Committee b) Politburo c) state work units d) Standing Committee of the Politburo

Which of the following institutions does not implement regulation? a) judicial institutions b) National Labor Relations Board c) independent commission d) agencies of the executive branch

Which of the following is a distinctive trait of incentive approaches? a) Incentive approaches impose a cost on pollution-causing activities, leaving it to individual polluters to decide how best to respond. b) Incentive approaches attain social efficiency by requiring polluters to externalize the social costs of pollution externalities. c) Incentive approaches does not take into account the benefits and costs of attaining environmental objectives. d) Incentive approaches centralize pollution-control decisions.

Explain briefly the rationale behind the launch of the Great Proletarian Cultural Revolution in 1966. What was the aftermath of the revolution?

Mao's allies—notably his wife Jiang Qing and army chief Lin Biao—insisted that China's problems were the result of insufficient dedication to the CCP's revolutionary principles. Mao's gambit to reassert power combined this message with his still considerable populist appeal in launching the Great Proletarian Cultural Revolution in 1966. Mao and Lin organized thousands of Red Guard units, consisting largely of fanatical students who were directed to purge their jurisdictions of the four "olds"—old ideas, old customs, old cultures, and old habits. Their campaigns destroyed many of China's most valuable cultural artifacts and degenerated into destructive excess and mob rule in the name of Mao. Finally, in 1967, the army stepped in to control the chaos, often by imposing martial law. The Cultural Revolution had decimated much of the party's organization, especially at the provincial and lower levels. It had also elevated the army's status within the party hierarchy.

Write a short note on the competitive theory of international trade

The competitive theory of international trade is based on the gains from trade. Those gains are evident in the case of a country that cannot produce a product that its citizens wish to consume. Gains from trade are also evident when one country can produce a good more efficiently than another country, and the latter country can produce a different good more efficiently than can the former country. There are also gains from trade when one country is absolutely more efficient than the other in the production of both goods. That is, even though a country has an absolute disadvantage, gains from trade can be achieved if it produces the good for which it is relatively more efficient and the other country produces the good for which it is relatively more efficient. This result, known as the law of comparative advantage, provides the basic rationale for free trade—all countries, even those with an absolute disadvantage, can gain from trade. The gains from trade can be demonstrated when two countries either determine the terms of their trade through bargaining or trade goods in a competitive market

State and explain the different components of the control of an externality in a tradable permits system.

The control of an externality in a tradable permits system has three components. The first is providing incentives for abatement by internalizing the cost of the harm done by the pollution. The second is allowing parties to respond to those incentives by choosing the most efficient means of abatement. These means include reducing output, installing pollution-control equipment, redesigning products and production processes to reduce the pollution generated, and reducing the harm from emissions, as when oil refineries create safety zones around their facilities. The third component involves reflecting in the prices of goods and services, the costs of abatement and the social costs of the harm from the remaining pollution. This allows consumers to take into account the full social cost of the goods they consume. These three components operate simultaneously. An equilibrium results when (1) all advantageous trades have been made, (2) emitters have taken the abatement measures they prefer given the market price of permits, and (3) the quantities of products consumers purchase result in total emissions equal to the number of permits issued.

Directives issued by the European Union are legally binding with respect to the result sought, but national governments are responsible for how the result is achieved.

True

Dumping in international trade refers to sales at less than fair value that materially injure domestic industries

True

EPA regulation has largely been command and control, in which uniform rules or standards are ordered and then enforced.

True

Emerging markets countries have imposed a variety of restrictions on foreign direct investment, foreign exchange transactions, and the repatriation of earnings

True

Even when there are advantageous trades that could be made, market imperfections can arise when people have different information at the time they act.

True

Federal law delegates the implementation of federal regulations such as environmental issues or health issues to the states.

True

Firms can undertake corporate social performance (CSP) because of social norms or audience effects.

True

For emerging market countries strategies for influencing outcomes on issues often involve the development of relationships with government officials. This provides a setting for corruption, and vigilance is required to make certain that managers and advisors do not succumb to temptation

True

Formulating integrated strategies requires consideration of the market and nonmarket environments as well as attention to moral concerns and social responsibilities.

True

From Friedman's perspective, the responsibility of managers, serving as agents of the owners of the firm, the principals, is to maximize profits (shareholder value) by engaging in free and open competition

True

Gains from trade are evident when one country can produce a good more efficiently than another country, and the latter country can produce a different good more efficiently than can the former country.

True

Government intervention to deal with market imperfections or failure may itself be subject to a nonmarket failure.

True

Guanxi ties create a form of diffuse reciprocity, allowing individuals to exchange favors even years after a formal relationship has been dissolved.

True

In both democracies and nondemocracies, however, obtaining access to government officeholders, whether for the purpose of lobbying or using personal ties or political relationships, can be important for success.

True

In situation where national laws have been harmonized with EU law, EU law takes precedence when a conflict arises.

True

In the absence of trade, the consumption possibilities of each country are its own production possibilities

True

Regulation is also supplied in response to the demands of interest groups other than business.

True

Regulation is not always intended to correct market imperfections but instead can be the result of political forces that serve objectives other than economic efficiency.

True

Renewable energy (non hydroelectric) production has been dependent on subsidies because it is not cost competitive

True

Renewable energy production was dependent on subsidies because it was not cost competitive.

True

Securitization involves pooling contractual debt obligations and issuing new securities backed by those obligations

True

Social activities could be undertaken as a perquisite for management, and if so, social performance should be greater the greater are the slack resources available to managers.

True

Social performance is not only self-assessed by firms but is also assessed through external monitoring and evaluation by activist and other groups

True

Social pressure results from private and public politics and is directed to selected firms and industries.

True

Solar power producers and their suppliers were well organized.

True

The Chinese tendency toward small, family-owned businesses that operate within tight networks shows many traces of the Confucian heritage

True

The Coase theorem implies that when bargaining between two parties to an externality is possible, social efficiency can be achieved.

True

The Coase theorem pertains to market imperfections, including externalities and public goods.

True

The Confucian tradition places a strong emphasis on behavioral minutiae because of its belief that self-cultivation is not a solitary endeavor, but rather occurs in a social context.

True

The European Commission initiates legislation in the form of drafts that are circulated for comments before the legislative process begins

True

The European Economic and Social Committee is an advisory body whose members represent employees, employers, farmers, trades, and other interests.

True

The European Union requires works councils or a consultative process between management and workers, or "social partners" in the terminology of European Union

True

The General Agreement on Trade in Services (GATS) covers all services and provides for MFN and national treatment.

True

The U.S. government provided subsidization on both the demand and supply sides of the market for renewable power

True

The US government provided subsidization on both the demand and supply sides of the market for renewable power

True

The central principle of the WTO agreements is manifested in the most favored nation (MFN) requirement that each signatory accord all other signatories the most favorable terms for trade provided to any country.

True

The challenge to the subsidies for renewable power and solar power in particular came from entrepreneurial politics.

True

The direct costs of subsidies such as grants and loan guaranties are the corresponding government budget expenditures and liabilities.

True

The domestic politics of international trade are asymmetric due to sunk resources and the rents on those resources.

True

The duty of loyalty supports both Friedman's position and the strategic use of corporate social responsibility (CSR).

True

The executive branch can influence regulatory commissions through the policy expertise of cabinet agencies.

True

The fair trade movement was begun to improve the lives of poor farmers and workers trapped by market conditions.

True

The focus of international trade policy through the 1960s was on tariffs.

True

The immediate source of many risks is the weak rule of law in a country

True

The institutions in China are dominated by the Chinese Communist Party (CCP)

True

The law of comparative advantage provides the basic rationale for free trade—all countries, even those with an absolute disadvantage, can gain from trade.

True

The major components of U.S. trade law are embodied in the Trade Act of 1974 and the Tariff Act of 1930.

True

The market for control disciplines management and directors to serve shareholder interests through mergers, acquisitions, hostile takeovers, proxy contests, and depressed market valuations

True

The market perspective of Friedman leaves unresolved a number of issues about the role of business in society.

True

The nonmarket risk to demand-side subsidization stemmed both from government budget concerns and imported solar panels that hindered achieving the political objective of creating jobs

True

The political economy theory views regulation as shaped by market imperfections, institutions and their officeholders, and the nonmarket action of private interests.

True

The principal risk to subsidization through high feed-in tariffs was from business customers forced to pay higher prices for electricity.

True

The principles of nonmarket strategy for operating in democracies cannot simply be transported to emerging markets, particularly for countries that are not democratic and where the rule of law is weak

True

The results for the corporate social performance (CSP) equation provide no support for the perquisites hypothesis and strong support for the responsive CSP hypothesis. That is, better CFP results in lower CSP.

True

The signatories to the Kyoto Protocol agreed to use an emissions permits trading system to reduce the cost of achieving their commitments.

True

The theory of comparative advantage is based on the assumption of perfectly competitive markets.

True

Trade policy consists of agreements among countries, domestic laws pertaining to international trade, and procedures for administering those laws and resolving disputes.

True

Transparency International's Corruption Perceptions Index (CPI) pertains to the corruption in a country or the demand side of corruption.

True

At the level of an individual firm, successful participation in a domestic market requires ________. a) inadequate capital markets for financial needs b) specific knowledge of that market so as to apply the firm's expertise c) lower investment rates d) drawing conclusions from the various measures and assessments for countries

Before the Council of Ministers considers proposals, the ________ appoints an ad hoc working party composed of government officials from the member states. a) European Commission b) Committee of Permanent Representatives c) Council of Financial Affairs d) Court of First Instance

GlObe-dOt is a leading manufacturer of information display systems based in California. It seeks uniform federal regulation to impose a carbon emission tax on all manufacturing firms. This is an example of ________. a) natural monopoly b) rent-seeking theory c) capture theory d) moral hazard

Grameen Bank loaned to groups or circles of women, who were responsible for allocating the borrowings among themselves and for ensuring that the borrowings were repaid. This is an example of ________. a) market risk hedging b) microfinance c) micropatronage d) fair trade movement

Economic theory identifies the ________ as the objective that provides the strongest incentives for efficiency. a) maximization of social well-being b) perpetuation of corporate ethics c) maximization of shareholder value d) consideration of morality

In 1995 most EU member states signed the ________, which eliminated border checks so as to allow the free flow of people within the signatory states. a) Maastricht Treaty b) Treaty of Lisbon c) Schengen Agreement d) Treaty of Rome

Informal personal ties in Chinese society are referred to as ________. a) li b) ren c) guanxi d) danwei

Kyoto mechanisms referred to credits bought by countries to ________. a) help finance projects in developing nations that would encourage the usage of coal and oil b) help reduce the rate of unemployment in developing countries c) help finance projects in developing nations that would reduce greenhouse gases d) help developing nations diversify their businesses

Labor was furnished through the ________ system, under which workers were permanently assigned to enterprises upon completing their education. a) Five Relationships b) Four Modernizations c) danwei d) guanxi

Social efficiency is attained when ________. a) aggregate well-being is minimal b) aggregate economic inequities are maximal c) aggregate well-being is maximal d) aggregate costs negative externalities are maximal

TRIPS, or Trade Related Aspects of Intellectual Property Rights, provides a narrow protection to intellectual property and is, thus, excluded from the WTO dispute settlement system.

False

The Coase theorem implies that a negative externality can be resolved when property rights are assigned to the pollutees, not the polluters

False

The EPA was created by an executive order of President Clinton to control greenhouse gas emissions by the developing countries.

False

The EU's Common Agricultural Policy provides a vision for the free circulation of labor and the rights to fair wages, improvement of living and working conditions; social security and equal treatment for men and women.

False

The EU's consultation procedure is used for decisions pertaining to the admission of new member states, international agreements, and the structure of the European Central Bank

False

The European Parliament (EP) does not have the power of "democratic supervision.

False

The European Union was established because Europeans recognized the need to fortify country borders and strengthen military bases after World War II.

False

The Fifth and Fourteenth Amendments provide the authority for regulation.

False

The Kyoto Protocol had strong backing in the U.S. Senate, which in 1997 adopted a resolution in support of the protocol.

False

The Labor Contract Law took effect in 2005 and provided for rights that are as extensive as those found in Europe and the United States.

False

The Qin dynasty lacked the technological expertise of its rivals

False

The Smoot-Hawley Act of 1930 helped reduce the depth and duration of the Great Depression by decreasing tariffs dramatically

False

The Uruguay Round and follow-up agreements were generally unsuccessful, and the WTO dispute settlement process had been largely ineffective.

False

The biggest advantage of the euro system was that the ECSB could control monetary policy, while the member states controlled their own fiscal policies.

False

The competitive theory of international trade is based on the losses from trade.

False

The courts judge the discharge of the obligations of directors according to a civil law standard referred to as the duty of care rule

False

The demand-side subsidies decreased the supply of renewable power and increased the negative externalities from emissions.

False

The duty of care pertains to conflicts of interest and requires that directors serve the interests of the corporation and its shareholders.

False

The fair trade movement started in the United States in 1988

False

The fair trade system attempts to intervene directly on both market and nonmarket issues by coordinating the flow of consumer revenue to participating producers.

False

The first component of the control of an externality in a tradable permits system involves reflecting in the prices of goods and services, the costs of abatement and the social costs of the harm from the remaining pollution.

False

The focus of the Tokyo Round of GATT was on agricultural subsidies.

False

The ordinary legislative procedure of the EU is said to be unicameral, since it only requires the approval of the Council of Ministers.

False

The policies of the European Union and the United States are very similar on matters pertaining to the protection of personally identifiable information

False

The pre-Ming Chinese were strictly against foreign commerce

False

The study of the nonmarket environment of an emerging market country involves assessment of labor market, demand and supply relations, and investigation of the competitiveness of incumbent companies.

False

The theory of comparative advantage implies that intervention by governments in perfectly competitive domestic or international markets will increase aggregate well-being.

False

To use a country to export goods to better developed countries and markets requires foreign markets to be closed, which if generally the case in developing countries.

False

Voluntary environmental information disclosure by firms provides an accurate representation of their environmental performance

False

Wind power differed from solar power in that blades and tower sections were less expensive to ship than were solar panels.

False

With the growing scientific evidence indicating global climate change, the George W. Bush administration made the political and economic choice to support the Kyoto Protocol.

False

Article 1, Section 8 of the U.S. Constitution gives ________ the power "to regulate commerce with foreign nations" and to "lay and collect duties." a) the secretary of state b) the Congress c) domestic peak organizations d) multinational corporations

Between 1983 and 1985, in the agricultural sector, the government replaced mandatory grain purchases with a contracting system known as the ________. a) One Country, Two Systems b) Household Responsibility System c) Danwei system d) Guanxi system

Confucius was responsible for initiating the central preoccupation of Chinese philosophical thought: ________. a) self-awareness b) moral self-cultivation c) individualism d) hedonic living

From Friedman's perspective, a conception of corporate social responsibility (CSR) that differs from shareholder value maximization must be costly and can have only two interpretations—either a political process is to be used to make decisions or ________. a) managers are to act as agents rather than as principals b) managers are to act as principals rather than as agents c) shareholders are to act as principals rather than as agents d) consumers are to act as principals rather than as agents

The Environmental Protection Agency defines ________ as that which creates and maintains the conditions under which humans and nature can exist in productive harmony, that permit fulfilling the social, economic and other requirements of present and future generations. a) stability b) sustainability c) an ecosystem d) the Superfund

The Maastricht Treaty ________. a) formally recognized the Charter for Fundamental Rights b) established an independent European Central Bank c) made human and civil rights enforceable by the European Union d) addressed several impediments to trade and provided measures to facilitate access to national markets

The North American Free Trade Agreement (NAFTA) established, subject to certain exceptions, free trade among ________. a) Great Britain, the United States, and Japan b) Canada, Mexico, and the United States c) Great Britain, France, and Canada d) the United States, India, and Japan

The Single European Act mandated the realization of a single market which involved the removal of three types of barriers: physical, technical, and fiscal. The removal of physical barriers pertained to ________. a) restricting the entry of people b) eliminating customs and other goods inspections c) prohibiting individuals from working in any member state d) deposing dictatorial governments

The ________ has the authority to overturn decisions that conflict with the EU treaties. a) European Commission b) Court of Justice c) Council of Ministers d) European Parliament

The ________ is an advisory body whose members represent employees, employers, farmers, trades, and other interests. a) Committee of Permanent Representatives b) European Economic and Social Committee c) European Chamber of Commerce d) Advisory Committee on Restrictive Practices

The control of an externality in a tradable permits system has three components. The first component ________. a) is allowing parties to respond to incentives by choosing the most efficient means of abatement b) is providing incentives for abatement by internalizing the cost of the harm done by the pollution. c) involves reflecting in the prices of goods and services, the costs of abatement and the social costs of the harm from the remaining pollution. d) is allowing states to decide how best to decrease dangerous air pollution in the most cost effective manner.

The extent of corporate social responsibility (CSR) activities by firms depends on ________. a) the number of vacant job positions in a firm b) the role of the firm's business in society c) the financial profits of the past five years d) the extent of compliance with national laws and regulations

The fourth period of major regulatory change which started in the 1970s focused on the ________. a) introduction of social regulation b) introduction of economic deregulation to several industries c) extension of regulation to labor markets and industries d) regulatory bodies at the state level and extension to federal level

The growing market share of Chinese wind tower and turbine producers generated complaints that ________. a) the quality of material used for producing wind towers and turbines by American companies was inferior and resulted in loss of market share b) the subsidies provided to U.S. wind power companies were being used to purchase equipment from abroad rather than to create jobs in the United States c) importing turbines from China violated the terms and conditions of trade set down by the International Trade Centre d) the subsidies provided to U.S. wind power companies were fairly inadequate compared to that provided to Chinese companies by the Chinese government

The signatories to the Kyoto Protocol agreed to use a(n) ________ to reduce the cost of achieving their commitments. a) life-expectancy system b) emissions permit trading system c) greenhouse gases reporting system d) command-and-control system

Under China's ________ policy, Hong Kong was to retain its autonomy, including a separate currency, for 50 years. a) "One Country, One System" b) "One Country, Two Systems" c) "Two Countries, One System" d) "Two Countries, Two Systems"

What has been China's principal environmental concern? a) global warming b) domestic pollution c) changes in sea-water levels d) soil erosion

Which of the following defines market capitalism? a) the reliance on markets to increase the aggregate social welfare b) the reliance on markets to direct the allocation of resources c) the reliance on managers to direct market growth d) the reliance on managers to increase market efficiencies

Which of the following forms a part of the four I's? a) injunction b) information c) instant justice d) internal trade barriers

Which of the following is true about NIMBY? a) The primary objective of the NIMBY movement is to eradicate unemployment in the United States. b) The NIMBY movement focuses on local environmental concerns, particularly as they involve possible risks to person or property. c) The primary objective of the NIMBY movement is to lobby for greater subsidization for renewable energy. d) The NIMBY movement focuses on eradicating poverty in developing countries.

Which of the following is true of the Coase theorem? a) It pertains to distributive objectives and social justice. b) It addresses the private attainment of social efficiency and the conditions for its attainment. c) It implies that when bargaining between the parties to an externality is possible, social efficiency cannot be achieved. d) It underrates the role of government in assigning entitlements to private parties

Which of the following is true with regard to peak associations? a) The use peak organizations for political and other nonmarket actions is not customary in Europe. b) Peak associations play a number of roles, including the monitoring of government activities, the funneling of information and expertise from their members to the government, and lobbying. c) The role of peak organizations is insignificant at the EU level. d) Peak organizations do not participate in lobbying

Which of the following is true with regard to the EU's Common Agriculture Policy (CAP)? a) It provided a vision for the free circulation of labor and the rights to fair wages, improvement of living and working conditions. b) It provided subsidies to farmers totaling €41 billion in 2009. c) It substantially reduced farming subsidies in 2009 leading to widespread protests. d) It aimed at limiting competition by proposing internal barriers to trade.

Which of the following is true with regard to the State-Owned Enterprises (SOEs) in China? a) The SOEs are more efficient than private enterprises b) The Chinese government has provided significant subsidies to the SOEs c) The SOEs did not serve as China's social welfare system d) China did not privatize any of the SOEs

Which of the following is true with regard to the costs of subsidization? a) Subsidization in the form of high feed-in tariffs lowers electricity prices. b) U.S. consumers had benefited from the cost-efficient location of production in China even though it meant the loss of high-paying jobs in the United States. c) The demand-side subsidies increased the negative externalities from emissions. d) Renewable energy production such as solar and wind power was cost competitive and hence was not dependent on subsidies.

Which of the following is true with regard to the era of reforms in China? a) In the agricultural sector, the government replaced a contracting system with mandatory grain purchases known as the danwei system. b) Recognizing that China needed more exposure to Western products, ideas, and capital, Beijing lifted import restrictions in 1978 under its open-door policy. c) Deng's economic reforms were headlined by the "Five Relationships." d) In the cities, SOEs were given reduced discretion over their profits, and individual managers were made less accountable for their performance.

Which of the following is true with regard to the trust gap between firms and the public in general? a) The greater the size of the firm, the greater the trust accorded to it. b) The public trust in large firms is low, and criticisms of business are often viewed with a degree of credibility that is not accorded to the communication by firms. c) The apparent lack of trust in NGOs stands in stark contrast to the trust in global companies. d) The public trust in large firms is higher than that in smaller firms because large firms are less vulnerable to social pressures.

Which of the following regulatory approaches has been blamed for inducing inefficiency across companies? a) Deregulation b) cost-of-service regulation c) information disclosure requirement d) monopoly restrictions

Which of the following statements is true of regulation? a) It is implemented through judicial institutions. b) It is based on legislatively enacted statutes. c) It is not implemented by independent commissions. d) It takes place through a private process.

Which of the following statements is true of the nonmarket environment of regulatory agencies? a) Commissioners and administrators of regulatory agencies do not require Senate confirmation. b) Private interests affect regulatory agencies indirectly through pressure on Congress and the executive branch. c) Congress can indirectly revise and block changes in statues. d) The president cannot review regulations to influence regulatory agencies.

Why were the loan guarantee and cash option awarded to wind power producers jeopardized? a) State public utility regulatory agencies were barred by law from determining wind energy prices. b) The huge federal budget deficit required measures to reduce expenditure. c) State public utility regulatory agencies gave a negligible premium for wind power. d) The price of natural gas fell considerably

________ have become an effective means of achieving environmental goals at the least cost to society. a) Command-and-control regulations b) Incentive-based systems c) Life-expectancy approaches d) Supply-chain approaches

________ is the principal political activity for implementing both representation and informational strategies in the European Union. a) Canvassing b) Lobbying c) Petitioning d) Tax resistance

________ refers to inefficient actions induced by policy instruments that cause people not to bear the full consequences of their actions. a) Adverse selection b) Moral hazard c) Externalities d) Natural monopoly

According to Deng, which of the following was one of the "Four Modernizations"? a) defense b) social norms c) cultural heritage d) religion

________ are only a necessary condition for regulation to improve economic efficiency. a) Market imperfections b) Nonmarket issues c) Corporate campaigns d) Grassroots campaigns

________ is an example of an opportunity to use an emerging market country to export goods to better developed countries and markets? a) The extractive industries b) Wholesale and retail sales c) Domestic transportation and telecommunication d) Domestic consumption economy

Article VI of the GATT ________. a) allows for temporary safeguard relief from imports b) allows exceptions for balance of payments problems of developing countries c) covers antidumping and countervailing duties d) sets a framework for the elimination of quantitative restrictions on trade

Confucianism laid emphasis on ________. a) chauvinism b) hedonic living c) deference d) individualism

Which of the following is an emerging market country? a) Australia b) Canada c) China d) United States of America

______ occurs when one group of customers pays more and another group pays less than the cost of providing their service. a) Deadweight loss b) Free-riding c) Moral hazard d) Cross-subsidization

Business groups as well as individual companies have weaker incentives to interact with government when it controls markets, lets contracts, and regulates business activity.

False

China is not a member of the World Trade Organization, which puts it at a great disadvantage

False

Corporate social performance (CSP) cannot be rewarded

False

The Kyoto Protocol targets expire in 2014.

False

What are the two theories to explain where regulation is and is not imposed?

The first is the theory of market failures or imperfections, which predicts that regulation will be instituted to correct market imperfections. The second political economy theory predicts that regulation is provident in response to pressure from interest groups.

Describe the three-component approach to managing policy risk that was proposed by Henisz and Zellner.

The first is to understand the preferences of the actors in the market and nonmarket environments. The second is to have a structure analogous to that of the intelligence community that can provide information and assessments. The four I's provide a framework for identifying preferences and collecting information. The third is to influence the risk through collective action and coalitions.

Kyoto mechanisms referred to credits bought by countries to help finance projects in developing countries that would reduce greenhouse gases.

True

Lobbying is the principal nonmarket strategy for influencing the EU institutions.

True

No company is allowed wholly foreign-owned enterprise (WFOE) status in China.

False

Political leaders and economists all over the world are of the opinion that the Kyoto Protocol was widely successful.

False

Supply-side subsidies were less likely to create U.S. jobs, since they were not restricted to companies producing in the United States.

False

Supply-side subsidization did not face market risks, whereas subsidization through high feed-in tariffs was subject to high budget pressures.

False

Chinese manufacturers with conventional photovoltaic technology set the cost standard for the renewable energy industry

True

Compliance with the law is an essential guide for responsible management, but reliance solely on the law is rarely sufficient

True

Confucianism has often been linked with the development and operation of capitalism in China and other Asian countries.

True

Social responsibility focuses less on pressures and more on normative principles that identify duties based on ________. a) conceptions of well-being b) conceptions of nonmarket challenges c) maximizing shareholder value d) maximizing profits

What are the seven factors that explain the resilience of emerging market economies (EMEs) during the recent global financial and economic crisis?

1. Less dependence on foreign finance and a shift away from external debt denominated in foreign currencies 2. Large buffers of foreign exchange reserves 3. Greater trade linkages among EMEs 4. More diversification in EME production and exports 5. Separation of EMEs' business cycles from advanced economies' business cycles 6. Better macroeconomic policies, including flexible exchange rates, in emerging markets 7. Rising per capita incomes and a burgeoning middle class

The Congress exerts great influence on the regulatory agencies by ________. a) using its budgetary and oversight authorities b) appointing the regulatory agencies administrators c) using the Office of Management and Budget (OMB) d) delegating policymaking to agencies

The European Commission is responsible for ________. a) trade negotiations and managing the EU budget b) negotiating informal agreements between member states prior to council deliberations c) appointing ad hoc working parties composed of government officials from the member states d) hearing cases related to the various treaties of the European Union

The ________ can be understood as an approach to improving the well-being of poor farmers in developing countries by circumventing markets and coordinating market behavior. a) fair trade movement b) Clayton Act c) Freedom House d) Ethics in Government Act of 1978

The ________ is the executive and administrative body of the European Union. a) European Commission b) European Parliament c) EU Court of Justice d) Council of Ministers

Confucianism views the family as the ideal setting for moral self-cultivation

True

A leading airline firm increases the airfare for its business and first class passengers on high-density routes. This aids in reducing the prices for economy class passengers on low-density routes. This is an example of ________. a) cross-subsidization b) moral hazard c) redistribution of wealth d) deadweight loss

According to the Confucian ideal of hierarchical relations, households were expected to defer to the ________ on nonhousehold matters. a) state b) family heads c) head of the clan d) religious leaders

Due to the ________, automobile emissions are controlled through government regulation. a) exorbitant costs associated with private bargaining b) unwillingness of businesses to curb air pollution c) low negative externalities associated with air pollution d) general disagreement on the impacts of automobile emissions on the environment

Freedom House publishes an evaluation of ________. a) personal autonomy and individual rights b) trade freedom c) government size d) corruption index

Regulations of the European Union are legally binding on the member states and are enforced by the ________. a) European Commission b) European Parliament c) Council of Ministers d) Court of Justice

Which of the following is an economic advantage of the subsidization of renewable power? a) Subsidization decreases dependence on imported fuels. b) Subsidization renders the adverse effects of traditional energy sources harmless. c) Subsidies for renewable power plants do not affect states with budget deficits. d) Subsidies for renewable power plants increase the tax revenue of the country substantially.

Which of the following is true about the antitrust law of the European Union? a) The EU law allows defenses, such as economic consequences, not explicitly provided for under United States law. b) Article 101 of the TFEU deals with unilateral actions. c) Article 102 of the TFEU refers to group activities that may limit competition or constitute a barrier to trade among member states. d) The basic antitrust law of the European Union is found in Sections 1 and 2 of the Sherman Act

Which of the following is true of Adam Smith's view of markets and resource allocation? a) Markets allow decentralized decision making. b) Markets discourage innovation. c) Efficient markets depend on the goodwill of individuals. d) Markets are usually inefficient in allocating scarce resources to the society.

Which of the following is true of business groups in emerging market countries and a) political relationships can become a liability during regime changes b) relying on political relationships reduce risks c) firms with strong political relationships rely more on global financial markets d) firms with strong political relationships have higher transparency

Which of the following is true of emerging markets? a) Changes occur rapidly in emerging markets countries and risk often accompanies opportunity. b) Making generalizations helps business in emerging market countries because they share similar problems. c) The principles of nonmarket strategy in democracies can be simply transported to emerging markets that are not democratic. d) Foreign direct investment has flowed to relatively unstable and high-risk countries.

Which of the following is true of management in the nonmarket environment? a) Obtaining information about the agenda of regulators and administrators can be crucial to developing a successful strategy. b) It requires a divided strategy with a strong market component to share opportunities and deal with risks. c) Obtaining access to government officeholders in emerging markets is less important because government is not bound by due process requirements. d) The weaker the rent chain in an emerging markets country; the more effective a nonmarket strategy is likely to be.

Which of the following is true of the relationship between social responsibility and compliance with laws? a) Criminal prosecution can occur under antitrust laws, securities and exchange laws, certain environmental laws, and many others. b) Criminal law is not applicable to either firms or their managers. c) Violations in business rarely lead to more stringent laws. d) Individual managers and corporations are not liable for damages under statutory laws.

Which of the following is true with regard to the Republican era in China? a) While many credit Sun Yat-sen with the founding of the Republic of China in 1911, China at the time was hardly a coherent political entity. b) Despite the military offensives launched in the 1920s, Chiang Kai-shek failed to bring most of China under GMD rule. c) The Revolutionary Alliance, led by Mao Zedong, had the backing of a strong armed force. d) By the first decade of the twentieth century, the activities of the Revolutionary Alliance steadily dwindled in China's major urban centers.

Which of the following is true with regard to the competitive theory of international trade? a) The gains from trade can be demonstrated when two countries either determine the terms of their trade through bargaining or trade goods in a competitive market. b) The competitive theory of international trade is based on the trade deficits accumulated over a period of time. c) In the absence of trade, the consumption possibilities of each country are far below its own production possibilities. d) Gains from trade do not occur if there are differences in the relative prices of untraded factor inputs such as labor.

Which of the following provides an assessment of political risk "based on criteria including stability, democratic accountability, and economic risk"? a) Country Watch b) Deutsche Bank Research c) IMD Switzerland d) Transparency International

Which of the following regulatory agencies is not located in a cabinet department? a) Environmental Protection Agency b) Federal Aviation Administration c) Occupational Health and Safety Administration d) Food and Drug Administration

Why do countries generally gain from multilateral reductions in tariff and nontariff barriers? a) because liberalized trade policy is beneficial in the aggregate b) because the politics of international trade policy is majoritarian c) because liberalized trade policy supports market monopolies d) because the distributive consequences of a liberalized trade policy are not uniform

________ is a market imperfection that results when sellers have incomplete information about customers. a) Adverse selection b) Pecuniary externality c) Nonpecuniary externality d) Deadweight loss

________ means that management and the board have a substantial range of discretion in deciding the extent of corporate social responsibility. a) The business judgment rule b) The duty of loyalty c) The duty of care d) Market capitalism

Discuss the piracy issues plaguing China. Why was it difficult to stop piracy?

A major concern of firms has been the piracy of intellectual property ranging from pharmaceuticals to software to consumer goods. Copies of movies and books often appeared on Chinese street corners before they were available in stores in the United States. Even the CCP had been a victim of piracy. The party sponsored production of an anticorruption movie, and prior to its release pirated copies were being shown in Chinese state-owned cinemas. The Chinese automaker Jonway UFO exported to Europe a copy of the RAV4, which Toyota had failed to patent in China. The U.S.-based Business Software Alliance estimated that in 2000, 91 percent of the software in China was pirated. One reason it was difficult to stop the pirating of intellectual property was that local officials were said to support it. The pirating companies paid local taxes and more importantly provided badly needed jobs. Chinese joint venture partners have set up competing companies with technology taken from their foreign partners. Many foreign joint venture partners complained to their home countries and began to take their cases to China's courts. Demonstrating that almost anything can be pirated, enterprising Chinese opened fake Apple stores in Kumming, Chongqing, and other cities. With the popularity of Apple's iPhone and the slow pace of its opening of full-service retail outlets, pirates capitalized on the gap and began opening fake stores that were nearly identical to the real stores. When found, the police closed the stores. In some cases the piracy appeared to be legal. For example, patents on proprietary pharmaceutical formulas can receive administrative protection in China, but first an open and lengthy public comment period was required in which drug patents were available for inspection

Article(s) XX and XXI of the GATT ________. a) set a framework for the elimination of quantitative restrictions on trade b) provide exceptions to the free trade provisions of the other articles c) are the subsidies code d) cover antidumping and countervailing duties

Outline the structure of the U.S. trade policy

Article 1, Section 8 of the Constitution gives Congress the power "to regulate commerce with foreign nations" and to "lay and collect duties." In 1934 in the aftermath of the disastrous Smoot- Hawley tariff, Congress passed the Reciprocal Trade Agreement Act, which delegated to the president the authority to negotiate trade agreements. The authority for U.S. trade negotiations has remained largely with the president. The Office of the U.S. Trade Representative (USTR), located in the Executive Office of the President, serves as the president's representative in trade negotiations. The United States has supported trade liberalization through the multilateral policies embodied in the WTO agreements, regional free trade agreements including NAFTA and APEC, and bilateral arrangements such as those promoting competition in international air transport. In the late 1980s, Congress began to assert its constitutional authority. The USTR is now required to consult with Congress on both trade policy and specific actions that implement that policy. Being closer to constituents than the president, members of Congress have been concerned with protecting their constituents' interests. The result has been a series of amendments to the trade laws that make it easier for industries both to obtain protection and to initiate action to open foreign markets to their products. U.S. trade laws establish rights of private parties to initiate trade actions to further their own interests, so U.S. trade actions have both public and private initiation. The politics of international trade takes place in four institutional arenas—cabinet departments, regulatory agencies, Congress, and the Office of the President. The administration of trade policy has been placed with executive branch agencies, primarily the Departments of the Treasury, State, and Commerce. The International Trade Administration (ITA) in the Department of Commerce and the International Trade Commission (ITC), an independent regulatory commission, have administrative responsibilities for certain sections of U.S. trade law. Cabinet departments participate in international trade policy, both administratively and politically, and regularly conduct policy research, provide congressional testimony, and lobby for their policy objectives and the interests they represent.

Discuss the Directive on Data Protection at the EU level.

At the EU level the Directive on Data Protection took effect in 1998 and required that a person grant explicit permission to a company before it could obtain personal information. In preparing its in-house telephone directory, General Motors had to obtain permission from each of its employees in the European Union to include their work telephone numbers, which were considered personal information. Individuals also have the right to inspect any files maintained and to correct any errors. Furthermore, an individual must be notified in advance if any personal information is to be sold. The Directive on Data Protection has caused some countries to issue new data protection rules that satisfy the EU requirements for data transfers. In this sense the EU has been driving regulation not just among its member states but also around the world. This has generated concerns in other countries about regulations driven by extreme caution. The United States refused to change its policies in response to the Directive on Data Protection and entered into negotiations with the EU, resulting in a safe harbor agreement.

A major achievement of the ________ Round was to establish the WTO Dispute Settlement Body (DSB) to hear disputes and issue binding orders to resolve them. a) Doha b) Uruguay c) Kennedy d)Tokyo

According to Adam Smith, the surest way to achieve societal well-being was to ________. a) facilitate centralized decision making and allow the government to decide on behalf of individuals b) place resources in the hands of individuals and allow them to transact in markets c) encourage public ownership of resources d) rely on goodwill rather than profit incentives

Article XVI of the GATT ________. a) allows for temporary safeguard relief from imports b) is the subsidies code c) covers antidumping and countervailing duties d) sets a framework for the elimination of quantitative restrictions on trade

Council decisions involving foreign and security policy require ________. a) qualified majority b) double majority c) unanimity d) partial consensus

How can the relative inefficiency of domestic industries be addressed? a) those injured may be compensated under the Reciprocal Trade Agreement Act b) those injured may be compensated under the Trade Adjustment Assistance Act c) relief can be granted in the form of permanent tariffs and the renewal of previously granted trade concessions d) protection is provided by stimulating imports

In natural monopoly, ________ is the economic inefficiency caused by the restriction of output which raises product prices above its marginal costs. a) moral hazard b) deadweight loss c) externalities d) consumer surplus

International concern about China's human rights have centered on which of the following? a) the persecution of the aged b) persecution of religious minorities c) the increasing economic inequities in the Chinese society d) the increasing rate of unemployment and underemployment

Most of the costs of environmental protection are borne by __________. a) the government b) private parties c) the EPA d) solid waste disposal board

The EU operates under the principle of ________, which is the intention to accomplish as much as possible at the level of the member states. a) mutual recognition b) subsidiarity c) comitology d) harmonization

The United States more frequently relies on the ________ approach to regulation, as in the case of Internet privacy. a) command-and-rule b) voluntary c) preemptive d) incentive-based

The World Bank provides an evaluation of the Ease of Doing Business in a country, which reflects the ________. a) relationship between economic prosperity and economic freedoms b) bureaucratic, regulatory, and administrative barriers a company can face c) demand size of corruption in a country d) freedom for countries around the world

Which of the following is an example of morally motivated social performance? a) An international retailer that sells diamond jewelry strengthened its sourcing and auditing policies after allegations that diamonds were being imported from conflict-ridden countries in Africa. b) A leading cosmetic company that supports animal rights presented a petition to the European Union against the use of whale oil in products to raise awareness about the issue. c) An infant formula manufacturer stopped exporting breast milk substitute baby food to developing countries after a boycott campaign that raised awareness of the product's health hazards. d) After a worldwide campaign against obesity, a leading fast food chain introduced healthy salads and options to buy smaller portions.

Which of the following is the first step of the three-component approach to managing policy risk? a) have a structure analogous to that of the intelligence community that can provide information and assessments. b) understand the preferences of the actors in the market and nonmarket environments c) provide a framework for identifying preferences and collecting information d) influence the risk through collective action and coalitions

Which of the following is true of risks in emerging markets? a) Domestic risks arise from a broader range of factors than do foreign risks. b) Risks in emerging markets can differ in magnitude and nature from those of developed countries. c) Risks are smaller in magnitude in emerging markets. d) Risks are independent of the country of origin for foreign direct investment and trade.

Although the concept of sustainability is appealing, it is subject to two principal issues, ________ and ________. a) the lack of private initiatives; high budget deficits b) how to increase the current employment rate; the challenges of attracting foreign investments c) how to think about population growth; the difficulty of predicting future technological progress and innovation d) the slow growth of the renewable energy industry; the difficulty in curbing emissions of greenhouse gases in developing countries

Confucius considered ________ as the ultimate object of moral self-cultivation. a) li b) danwei c) ren d) guanxi

Congress enacted the ________ to provide for public notice and comment prior to agency action. a) National Industrial Recovery Act b) Sherman Antitrust Act c) Administrative Procedures Act of 1946 d) Interstate Commerce Act of 1887

Solar power plants in California faced nonmarket opposition because ________. a) political lobbies encouraged the use of coal and natural gas b) most solar power plants failed to meet the specified safety regulations and standards c) of protests from environmentalists who claimed that such projects posed a veritable threat to the wildlife of the region d) the government failed to communicate the benefits of renewable energy to people residing in the region

Supply-side subsidies include ________. a) tax credits for households to install solar panels on rooftops b) tax credits for businesses to purchase electric cars c) high feed-in tariffs for power producers d) grants for households to purchase electric cars

TMX, a manufacturing company based in the U.S. decides to expand to emerging market countries in Africa. The company uses individualized incentives to motivate employees in its new branches but find that such incentive programs are not working. Which of the following is the most likely explanation for its failure? a) The transparency of regulation and the nonservicing of payments is high in emerging markets b) The demand side of corruption is high. c) The collectivist culture of the country is hostile to such incentive programs. d) The performance of employees in emerging markets is independent of the incentives provided

The Business Roundtable view of a corporation considers ________. a) managers the agents b) suppliers as the providers of revenue for the firm c) a corporation as an entity whose existence depends on society's approval d) shareholders as principals

The European Union took two approaches—harmonization and mutual recognition—to remove internal barriers to trade. Harmonization refers to the ________. a) formation of a single executive body to maintain the markets of member states b) development of a single centralized administration c) development of a common set of policies for all member states d) synchronization of markets in Eurasia

The Index of Economic Freedom is annually published by ________. a) Freedom House b) the World Bank c) the Heritage Foundation and the Wall Street Journal d) Transparency International

The International Trade Organization (ITO) was established by a group of nations, under the leadership of ________. a) Japan b) the USSR. c) the United States d) China

The Kyoto Protocol is associated with ________. a) reducing unemployment globally b) privatization of the renewable energy industry c) global climate change d) the prevention of oil spillage in oceans

The Uruguay Round negotiators reached a new Government Procurement Agreement (GPA), which is a ________ agreement among 39 WTO members. a) bilateral b) unilateral c) plurilateral d) multilateral

The ________ are a locus of expertise and play important roles in how a member state votes in the Council of Ministers. a) regional trade associations b) lobby unions c) national ministries d) petition committees

The ________ is the principal legislative institution of the European Union. a) European Commission b) Court of Justice c) Council of Ministers d) European Parliament

The competitive theory of international trade is based on the ________. a) budget deficits accumulated over a period of time b) trade deficits accumulated over a period of time c) gains from trade d) rate of investments

The economic rationale for international trade is based on the ________. a) Budget deficits accumulated over a period of time b) Trade deficits accumulated over a period of time c) Gains from trade d) Rate of investments

The framework for corporate social performance (CSP) begins with ________. a) managers who can strategically manipulate market forces to maximize shareholder value b) firms which have demonstrated consistent growth over a period of time c) individuals who can allocate their resources among consumption goods, investments in the shares of firms, and direct contributions to social causes d) firms which have a high rate of attrition

The progressive era of major regulatory change focused on the ________. a) introduction of social regulation b) introduction of economic deregulation to several industries c) extension of regulation to labor markets and industries d) regulatory bodies at the state level and extension to federal level

Which of the following allows the accumulation of resources through retained earnings and their allocation within the firm without having to incur the transactions costs of raising funds in the capital markets? a) market capitalism b) a welfare economy c) managerial capitalism d) cooperative socialism

Which of the following challenges did American renewable energy companies face in 2011? a) heavy taxation by a debt-ridden government b) diminishing competition in the market c) innovation and technological change d) public ignorance over environmental issues

Which of the following frameworks for management and strategy formulation in the nonmarket environment is NOT applicable to an authoritarian government? a) identifying issues b) identifying interests c) identifying electoral strategies d) identifying institutions

Which of the following is true about the cost of protectionism? a) Organized consumer groups have been largely active in cases involving protection of domestic industries. b) Ultimately, the cost of protectionism is borne by producers. c) The cost of protectionism is ultimately borne by consumers. d) Individual consumers are fairly likely to act politically on trade protection issues

Which of the following is true of microfinance? a) It is a not-for-profit concept. b) The effects of lending are lower for higher-income borrowers. c) It is subject to nonmarket risks. d) Those borrowing for non-business purposes decreased household consumption.

Which of the following is true with regard to boards of directors? a) The courts judge the discharge of the obligations of directors according to a civil law standard referred to as the duty of care. b) Under the business judgment rule, actions taken by the board are generally subject to judicial review. c) Board members have legal obligations that generally fall into categories referred to as the duty of loyalty and the duty of care. d) Directors cannot be held liable even when they do not exercise due care.

Which of the following is true with regard to social pressure as a motivator of corporate social performance (CSP)? a) Social pressure cannot affect the financial performance of a firm directly. b) Social pressure is rarely targeted to individual firms or industries. c) Responsive CSP could relieve social pressure that affects financial performance. d) The presence of social pressure discourages firms to conduct social activities

Which of the following is true with regard to the EPA enforcement process? a) The EPA does not have the authority to forward cases to the Department of Justice. b) As a rule, the EPA enforcement process does not allow the federal government to seek both civil and criminal convictions of polluters. c) The EPA enforcement process requires the filing of a notice of a complaint and a hearing before an administrative law judge (ALJ). d) Typically, the EPA seeks involuntary compliance.

Which of the following is true with regard to the Environmental Protection Agency (EPA)? a) The EPA typically seeks involuntary compliance. b) The EPA enforcement process does not require the filing of a notice of a complaint and a hearing before an administrative law judge. c) The EPA is responsible for administering the Food Quality Protection Act of 1996. d) The EPA was created by an executive order of President Clinton to control greenhouse gases emissions by the developing countries

Which of the following is true with regard to the NAFTA? a) NAFTA was an expansion of the United States-Japan Free Trade Agreement that had been in effect since 1981. b) NAFTA excluded transition provisions and favored a rapid phaseout of trade barriers. c) NAFTA was an expansion of the United States-Canada Free Trade Agreement that had been in effect since 1988. d) NAFTA did not provide for the elimination of tariff and nontariff barriers.

Which of the following is true with regard to the SOEs (State-Owned Enterprises)? a) The labor policies of the SOEs were in conflict with the socialist economic system. b) Since the late 1970s, SOE reform has been systematically ignored by the Chinese leaders. c) In addition to production, SOEs provided virtually all the major social services required by employees, their families, and retirees. d) Subsidies provided to SOEs increased steadily from 1989 to 1996.

Which of the following situations reflects a nonpecuniary externality? a) A chain of retail stores opens in an area which increases the demand and price of labor. b) The sudden steep rise in oil prices lead to the enactment of a complex regulatory system which instead stimulates the demand for oil. c) Toxic waste from a chemical manufacturing firm pollutes the water supply for a meat packaging industry in the area. d) Toxic waste from a chemical manufacturing firm pollutes the water supply in the area which leads to a steep fall in real estate prices in the area.

Which of the following statements is true from Friedman's perspective? a) The economic justification for Friedman's position is based on the premise that social causes cannot be served by firms, and citizens can never obtain complete satisfaction from corporate giving. b) Citizens cannot obtain satisfaction from their personal giving. c) The economic justification for Friedman's position is based on an environment in which citizens can both invest their funds in the capital markets and make personal gifts to social causes. d) Friedman's objection is to CSR that is anticipated since the shareholders bear the cost.

________ is present when the actions of one economic agent affect other economic agents through changes in the prices of goods and services. a) Natural monopoly b) Asymmetric information c) Pecuniary externalities d) Nonpecuniary externalities

________ predicts that regulation initially will be found where there are market imperfections and over time will evolve to serve the interests of the regulated industry. a) Adverse selection b) Asymmetric information c) Capture theory d) Rent-seeking theory

________ prohibits other parties from infringing the entitlement without the consent of the party holding it. a) The Environmental Protection Agency rule b) The Clean Air Interstate Rule (CAIR) c) A property rule d) A liability rule

____________ cap(s) the total allowed emissions of a particular pollutant and issue permits for that amount. a) Life-expectancy systems b) Command-and-control regulations c) Tradable permits systems d) The Superfund

A firm could be a soft target for social pressure because ________. a) it has, in the past, been largely unresponsive to social pressure b) it has, in the past, formed strategic alliance with several peak organizations c) it is financially strong d) it is vulnerable to brand or reputation damage

Can corporate social performance (CSP) be rewarded? If yes, how? If no, why?

CSP can be rewarded, although costs can accompany the rewards. Rewards could come directly from investors, consumers, or employees or other inputs to production. Rewards could also be indirect through relieving social pressure that could arise from either private politics or public politics. CSP that responds to the interests of stakeholders or the demands of NGOs can also build support for the firm in the market and the nonmarket environments. Firms may develop loyal customers, suppliers, and local communities whose support they may need for permits and approvals. Rewards can also come from government in the form of regulatory forbearance, as an example. Consumer rewards: Individuals could reward a firm in their roles as consumers. Consumers could prefer to buy a product from a firm with CSP rather than from a firm without CSP. That is, social activities could provide a form of product differentiation. Employee rewards: Individuals as employees could also reward a firm through higher productivity motivated by the social activities of their employees. Alternatively, a firm that conducts social activities could attract higher ability employees or find it easier to retain them. Policies such as allowing employees to volunteer in community organizations on company time can improve employee morale and may be rewarded through higher productivity and lower turnover. Investor rewards: Purchasing shares of a firm with CSP provides both a financial return and a social return, and the market value of the firm is composed of the value of its financial return and the value of its social return. Costly social activities may not be fully valued in the capital market, however, since investors may prefer to make personal contributions to social causes than to hold shares in firms with CSP. The market value of the firm thus could be less than if it eliminated the social activities. If the reward for those activities exceeds the cost, the market value could be higher. Investors thus may reward the firm in part for its social activities by holding its shares or may penalize a firm that engages in a business the investor dislikes. Government rewards: CSP could be rewarded by government. Politicians may be more willing to listen to a firm with good CSP, which can facilitate lobbying and other nonmarket strategies.

According to Confucian ethics, ________. a) self-cultivation sought a solution to social conflict in defining, limiting, and guaranteeing the rights and interests of the individual b) self-cultivation sought a solution to social conflict in the balance of power and interests between individuals c) the society is the ideal setting for moral self-cultivation d) self-cultivation sought the solution to social conflict from the self-sacrifice of the individual for the preservation of the group

After World War II, the reductions in trade barriers were primarily the result of which country's dominance? a) Great Britain b) China c) USSR d) the United States of America

An assessment of the nonmarket environment of an emerging market economy will include ________. a) demand and supply relations in the market b) competitiveness of incumbent companies c) assessment of the labor market d) understanding the impact of corruption

Cap-and-trade systems are also called ________. a) market systems b) governmental systems c) life-expectancy systems d) tradable permits systems

China censored the content on the Internet as well as blocked responses to searches on topics such as ________. a) Confucian ethics b) guanxi c) the Household Responsibility System d) the spiritual Falun Gong movement

Critics of the American Recovery and Reinvestment Act were of the opinion that ________. a) the government provided companies with low-cost loans from government supported banks b) the Department of Energy did not administer the loan guaranties based on applications by companies c) the subsidies offered by the government were fairly inadequate d) the government was trying to pick winners rather than allowing the market to determine the winners

How can socially responsible mutual funds make takeover of firms less likely? a) by discouraging diversification of firms and businesses that engage in social activities b) by discouraging innovation in bleeding-edge technologies c) by decreasing service convenience for competing firms that engage in social activities d) by raising the share price of firms that engage in social activities

Milton Friedman argued that the social responsibility of business is to ________ a) reduce the trust gap between global companies and NGOs b) identify duties based on conceptions of well-being, rights, and justice c) minimize shareholder value d) maximize profits

Most emerging markets countries are not well integrated into global markets, and this can increase the cost of capital yet provide a measure of insulation from risks in global markets. Which of the following types of risks is applicable here? a) regulatory risk b) financial restrictions c) political corruption d) market risk hedging

One of the most striking differences between Confucian and Western political thought is that the former does not conceive of a role for _______. a) the head of state b) family heads c) the family d) civil society

Protection applies to________, a) tax exemptions for promoting green technology b) high domestic wages c) stringent labor laws d) predatory trade practices

Regulation in the mobile phone industry was sought in part to serve the interests of incumbent firms and increase the profit margin by regulating prices and entry of new firms. This is an example of ________. a) deadweight loss b) moral hazard c) capture theory d) rent-seeking theory

Since the ________, which raised tariffs dramatically and contributed to the depth and duration of the Great Depression, the United States and other developed countries have supported reductions in tariffs and other barriers to international trade. a) Reciprocal Trade Agreement Act b) Neutrality Act of 1935 c) Trade Adjustment Assistance Act d) Smoot-Hawley Act of 1930

The Coase Theorem pertains to ________. a) distributive objectives and social justice b) energy, forests, and the environment more generally c) ecosystems, climate change, pollution, and habitats d) market imperfections, including externalities and public goods

The International Trade Organization (ITO) was formed at the conclusion of ________. a) World War I b) the Vietnam war c) the Gulf war d) World War II

The Single European Act represented a major step toward ________ within the Union. a) political segregation b) cultural assimilation c) ethnic compartmentalization d) economic integration

The ________ applies the law established by the Court of Justice, and its decisions may be appealed to the higher court. a) Committee of Permanent Representatives b) European Council c) Council of Ministers d) General Court

The fair trade movement was begun to improve the lives of poor farmers and workers trapped by ________ conditions. a) political b) social c) nonmarket d) market

Which of the following is the last step of the three-component approach to managing policy risk? a) have a structure analogous to that of the intelligence community that can provide information and assessments. b) understand the preferences of the actors in the market and nonmarket environments c) provide a framework for identifying preferences and collecting information d) influence the risk through collective action and coalitions

Which of the following is true of Friedman's conception of a corporation? a) The corporation engages in involuntary transactions with both resource providers and customers. b) In an inefficient capital market, shareholders will unanimously prefer that the firm be operated to maximize its market value. c) The corporation is managed by shareholders who act as agents. d) A corporation is a voluntary association of individuals who have joined together for a mutual purpose.

Which of the following is true of the Super 301? a) Super 301 convinced most countries to pursue market opening through unilateral negotiations under the WTO. b) Super 301 contributed substantially to the strengthening of trade relations between the United States and the European Union. c) Super 301 deems negotiation as the most effective means of addressing foreign barriers to trade. d) Super 301 provided for mandatory sanctions against countries that engaged in unfair trade practices that injured U.S. industries

Natural monopolies provide an efficiency rationale for regulation to align private and social costs.

False

Which of the following is true of the difference between the Business Roundtable's view and Friedman's theory with regard to the conceptions of social responsibility? a) In contrast to the Roundtable's basic view that does not admit constituencies, Friedman's theory identifies seven constituencies: customers, employees, financiers, suppliers, communities, society at large, and shareholders. b) The Roundtable views shareholders as principals, whereas Friedman views them as providers of capital risk. c) In contrast to the Roundtable's perspective, the principals in Friedman's theory are managers. d) The objective of a corporation is not as clearly identified in the Roundtable statement as it is in Friedman's theory.

Which of the following is true with regard to Deng Xiaoping's economic reforms? a) Deng's economic reforms did not focus on defense. b) Foreign investments were strongly discouraged in the Special Economic Zones. c) Small, household-run enterprises were made illegal. d) Deng's economic reforms were headlined by the "Four Modernizations."

Which of the following is true with regard to corporate social performance? a) Responsive corporate social performance increases social pressure that affects financial performance. b) Responsive corporate social performance is always rewarded by customers. c) Moral considerations do not motivate corporate social performance. d) Corporate social performance need not be motivated by moral considerations but instead could be strategic or a response to the social pressure a firm faces.

Which of the following is true with regard to the Regional Greenhouse Gas Initiative (RGGI)? a) RGGI was formed to deal with the United State's solid waste disposal crisis. b) RGGI failed to generate any funds through auctions. c) In 2006, 35 U.S. states formed the RGGI to address the problem concerning the fast-dwindling capacity of the nation's landfills. d) The failure of RGGI to affect environmental goals led states to consider withdrawing from the initiative.

Which of the following social activities can be referred to as corporate social performance? a) social activities that involve the public redistribution of private property b) social activities that increase the shareholder value c) social activities that increase sales and revenue d) social activities that involve the private provision of public goods or private redistribution

________ distorts economic activity and can substantially reduce GDP. a) Personal autonomy b) Competitiveness c) Economic freedom d) Corruption

________ take(s) into account the benefits and costs of attaining environmental objectives and achieve those objectives by aligning the social and private costs of pollution and its abatement. a) Life-expectancy approach b) Supply-chain approach c) Command-and-control regulations d) Incentive approaches

Command-and-control regulation does not impose uniform controls and standards on dissimilar sources of pollution.

False

Emerging market countries face financial restrictions, price controls, and regulatory risks when doing business in developed countries.

False

Firms seek federal regulations to avoid states imposing uniform regulations.

False

Firms that are financially weaker face lesser social pressure, which is inconsistent with the soft-target hypothesis.

False

For consumer industries, CFP is negatively correlated with CSP, whereas for industrial industries it is positively correlated with CSP.

False

Formal ties in the Chinese bureaucracy are often referred to as guanxi.

False

Friedman's objection is to corporate social responsibility that is anticipated.

False

From the Coasean perspective, social efficiency is a problem only when there are no impediments to bargaining.

False

From the perspective of Chicago school economists, regulation initially will be found where there are market imperfections and over time will evolve to serve the interests of the regulated industry.

False

Guanxi ties resemble legally circumscribed contracts or quid pro quo arrangements.

False

High dependence on foreign finance and a move toward external debt denominated in foreign currencies explains the breakdown of emerging market economies during the recent global financial and economic crisis.

False

High feed-in tariffs and RPS were more likely to be victims of the budget process

False

In a cap-and-trade system, companies are charged hefty fees for the permits.

False

In contrast to corporate social performance, corporate social responsibility need not be motivated by moral considerations but instead could be strategic or a response to the social pressure a firm faces.

False

In the aftermath of World War II, the sudden increase in trade barriers was largely the result of U.S. hegemony

False

Independent regulatory commissions are immune from Congressional oversight or interference in their affairs.

False

Interest groups (collective action) are active in China

False

Interested parties can participate in both formal and informal rule-making proceedings but are unable to attempt to influence agency actions outside the proceedings.

False

Interested parties such as firms are prohibited from participating in formal and informal rule-making proceedings

False

Investors prefer managerial capitalism to market capitalism

False

It is clear that the customers at the bottom of the pyramid, those who lived on less than $2 a day, are highly profitable

False

Late joiners to the EU follow the same timeline in terms of adopting and implementing the EU rules/standards

False

Mao Zedong's economic reforms were headlined by the "Four Modernizations."

False

Merger review by the European Commission is based solely on the extent of inflation

False

Microfinance is independent of nonmarket risks

False

Milton Friedman argues that the social responsibility of business is to maximize public welfare.

False

Write a short note on the war with Japan and the civil war that resulted in the founding of the People's Republic of China

In 1937 Japan invaded and Chinese armies were quickly routed by superior Japanese tactics and technology. Chinese resistance to Japan was highly fragmented in spite of the initial promise of a united front between the GMD and CCP. During the war and occupation, Mao was able to consolidate his leadership and develop his own distinctive brand of Marxism. As part of his program the CCP began to institute land reform in friendly areas, thus enlisting peasant support and swelling the ranks of CCP troops. As World War II drew to a close, both sides prepared for a civil war. In 1945 the CCP was stronger than at any point in its history, but its army had little foreign support and was only half the size of Chiang's American-equipped army. American support, however, could not forestall the subsequent rout of the GMD in the 1946-1949 civil war. By mid-1949 the communist victory was nearly complete, and on October 1, 1949, Mao proclaimed the founding of the People's Republic of China. As Chiang's losses mounted in 1948, he transferred the remains of the Republic of China to Taiwan, which as part of the Yalta agreements in World War II had been formally returned to the Republic of China after 50 years of Japanese colonization. The GMD instituted comprehensive land reforms and compensated landlords with government bonds. With American economic aid, it embarked on vigorous industrialization by attracting foreign investment and targeting export markets.

How did the United States of America respond to the Kyoto protocol? What were the principal approaches adopted by the United States of America with respect to the protocol?

In 1998 the Clinton administration signed the Kyoto Protocol on global climate change, which called for country-specific reductions in domestic carbon dioxide emissions averaging 5.2 percent from 1990 levels by 2012. The U.S. target was a 7 percent reduction from 1990 levels. The protocol had strong opposition in the Senate, which in 1997 adopted a resolution opposing the protocol unless developing countries, particularly China and India, made firm commitments to reduce their emissions. President Clinton chose not to submit the protocol to the Senate for ratification. The Clinton administration argued that the Kyoto agreement would have little effect on costs, but the Department of Energy predicted that gasoline prices would increase by nearly 40 percent and electricity prices between 20 and 86 percent in real terms by 2010. President Bush announced that the United States would not ratify the Kyoto Protocol, and instead a voluntary approach was adopted with a 2012 goal of an 18 percent reduction in emission per unit of GDP. The Obama administration sought to establish a national cap-and-trade system, and soon after taking office introduced legislation. Many U.S. businesses participated with environmental groups in the U.S. Climate Action Partnership (USCAP), which had actively sought cap-and-trade regulation of greenhouse gases. As the climate bill began to work its way through Congress, lawmakers were forced to be specific about provisions of the bill.

Discuss the various aspects of the Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Intellectual property rights include copyrights, patents, trademarks, brand names and logos, industrial designs, semiconductor circuit designs, and trade secrets. Such rights allow individuals and firms to capture the benefits from their efforts to create new concepts and products; infringement of these rights reduces the incentives to create. TRIPS provides broad protection and is included in the WTO dispute settlement system, allowing trade sanctions to be imposed in the event of violations. Because many countries had weak domestic laws for protecting intellectual property rights, developing countries were given 5 years to comply and the least developed countries were given 11 years. Intellectual property is a contentious issue between developed and developing countries. Many developing countries believe that intellectual property rights allow companies to unfairly preclude their countries from obtaining important products such as pharmaceuticals that are priced beyond their means. TRIPS includes sections that allow a country to invoke compulsory licensing and to import generic versions of drugs in the event of a public health emergency. As an example of the contentious nature of intellectual property rights, under the auspices of the World Intellectual Property Organization, a unit of the United Nations, a treaty providing protection for intellectual property was negotiated. Developing nations, however, initially refused to sign it, but a negotiated 2004 accord led to 183 signatories.

Write a short note on workers' rights in China. What are the different aspects of the Labor Contract Law?

Labor unions and human rights groups have been critical of working conditions in China and other countries that produced for the developed world. Labor unions complained because China denied "freedom of association," referring to the right to form a union that is independent of the government. NGOs and rights activists pressured firms in the United States and Europe to ensure that the factories that supply their brands meet certain minimal labor standards. These foreign firms have generally responded, having established codes and subjected factories to inspections. The Labor Contract Law took effect in 2008 and provided for basic rights, although those rights are not as extensive as those found in Europe and the United States. The law was vigorously opposed by foreign corporations that argued that costs would rise substantially, making Chinese factories less competitive. The law went through three drafts and received 190,000 comments before being enacted. The Labor Contract Law requires an employer to give a contract to a worker within 1 month of employment. The employer must also specify the nature of the job, working conditions, and compensation. Employees are also required to give 30 days' notice if they intend to terminate employment, and the circumstances under which a worker can be let go are limited to factors such as poor performance or theft, or changing circumstances, such as the loss of a supply contract or financial distress. Severance pay is due upon termination. Employers are required to consult with the worker or a worker's representative before terminating employment. Wages must be at least the minimum wage for the municipality where the place of employment is located. One effect of the law was to give individual workers the opportunity to stand up to their employers and take unresolved disputes to the courts.

Discuss lobbying as a nonmarket strategy in the European Union.

Lobbying is the principal political activity for implementing both representation and informational strategies in the European Union. A lobbyist's strategy is to demonstrate that the interests of a company or industry are aligned with those of the person or office being lobbied. In the case of the European Union, those interests are a mixture of economic efficiency and social objectives at the EU level; sectoral interests in the case of agriculture, steel, or computers; and local interests in the case of some members of the EP and the Council of Ministers. EU officials face pressures from their home country constituents and from their mandate for economic and political integration. Lobbyists are not required to register with the EU, but estimates put their number at around 15,000. In 2008 the EU adopted a code of conduct for lobbyists and established a voluntary registry. The European Parliament provides a 1-year pass to its premises in exchange for a lobbyist signing a code of ethical behavior. The EU does not require disclosure of lobbying activity, the funds spent on hired lobbyists, or the policy issue on which the lobbyists work. Former EU and national government officials have formed lobbying firms to represent interests. EU lobbyists have backgrounds similar to their counterparts in the United States. Companies hire former EU officials, trade negotiators, ambassadors, and former officials of national governments as lobbyists. Lobbying services are also provided by law firms and consultants. Companies have opened offices in Brussels to be close to the EU and to track its activities. Managers frequently participate in lobbying along with heads of industry associations and peak organizations. In addition, in a number of countries business leaders have close personal relationships with government officials. Peak associations play a number of roles, including the monitoring of government activities, the funneling of information and expertise from their members to the government, and lobbying. The key to successful lobbying is the provision of information useful to the institutional officeholders. Successful lobbying requires an understanding of their interests, the relationship between policy alternatives and consequences, and the procedures and practices of EU institutions. Lobbying also takes place within each member state in attempts to convince government officeholders of the importance of the interests affected.

Even Friedman's dictum to maximize profits is subject to the limits of the law and ethical custom, both of which leave a gray area between what is clearly responsible and what is clearly irresponsible. Under such circumstances, where should managers obtain guidance from?

On such issues managers obtain guidance from two primary sources. The first is government, which proscribes as well as prescribes certain actions and provides incentives to adopt certain types of policies. The tax deductibility of philanthropic contributions and the tax advantages provided for hiring disadvantaged youths are examples of such incentives. The second source of guidance is ethics. Ethics provides a basis for reasoning about and evaluating actions and policies. The content of social responsibility ultimately is found in these principles and their moral foundations. Moral foundations, however, do not always provide unambiguous prescriptions nor are the prescriptions provided by different ethics frameworks necessarily the same.

What are the two basic types of opportunities in emerging markets?

Opportunities in emerging markets are of two basic types. The first is to use a country to export goods to better developed countries and markets. The extractive industries are the prime example, as are the factories in Asia that supply the apparel and footwear markets. This requires foreign markets to be open, which is generally the case in developed countries. The second type of opportunity stems from the domestic economy. Emerging market economies have been growing rapidly and the middle class was emerging in many countries.

Write short notes on The Regional Greenhouse Gas Initiative (RGGI).

RGGI was formed in 2005 by 10 northeastern U.S. states to operate a cap-and-trade system for reducing greenhouse gases emissions. RGGI began operating in 2008, and auctioned 86 percent of the allowances generating $790 million through 2010. Most of the funds generated in the auctions were used by the states to fund energy efficiency programs and renewable power, as well as providing subsidies for low-income ratepayers. RGGI was supported by companies that benefited from the funds generated by the auctions, but other companies argued that it drove up costs and drove jobs away. The price of allowances had been set very low, and the recession reduced emissions below the RGGI cap, resulting in a price of allowances at the minimum allowed of $1.89 a ton of emissions. In addition the price of natural gas fell, and power companies burned gas instead of oil or coal, reducing emissions. RGGI had accomplished little in the way of emissions reductions. The failure of RGGI to affect environmental goals led states to consider withdrawing from the initiative.

Depending extensively on government subsidies for solar power is not free from risks.

True

Discuss the roles of regulation.

Regulation is provided in response to both market imperfections and nonmarket forces. One role of regulation is to correct market imperfections—natural monopoly, externalities, public goods, asymmetric information, and moral hazard—but regulation itself is imperfect and could be worse than the imperfection it is intended to correct. In some cases regulation is intended to protect incumbent firms and in other cases to redistribute income or provide fairness. The political economy perspective on the locus and form of regulation emphasizes the role of private interests as well as institutions in shaping regulation. Institutions and the regulatory agencies themselves have an important impact, and regulators at the federal level have actively worked for deregulation in the airline, electric power, natural gas transmission, surface transportation, and telecommunications industries.

Corporate social responsibility focuses on the responsibility of a firm for social performance. Where does that responsibility and duty originate?

Responsibility comes from a moral obligation; that is, the content of corporate social responsibility is found in moral principles. Corporate social responsibility thus arises from the combination of (1) an ethical failure that establishes a moral duty and (2) the assignment of that duty to the firm. The concept of a moral duty is developed from the perspectives of three foundational ethics systems—utilitarianism, moral rights, and justice—that correspond to basic moral intuitions. Some moral standards such as freedom of speech impose a duty on everyone to respect. In other cases the set of parties that can address an ethical failure may be small, and assigning of duty requires identifying the party, such as a firm, government, or an individual, that is best positioned to address the ethical failure.

Write a short note on the Coase theorem.

The Coase theorem pertains to market imperfections, including externalities and public goods. It focuses on the standard of social efficiency and provides a conceptual foundation for both regulation and the liability system. The theorem does not address other standards, such as distributive objectives and social justice, that could be used in evaluating alternative social arrangements and public policies. Coase's (1960) original exposition focused on externalities. Coase observed that an externality is reciprocal in the sense that at least two parties are required. In the case of noise pollution, there would be no externality without the polluter or in the absence of anyone to hear the noise. The Coase theorem states that, in the absence of transactions costs that would impede the bargaining over these private agreements, the socially efficient outcome can be realized if the entitlement is assigned to either party. The role of government thus is to clearly assign entitlements to the parties and allow them to reach private agreements that internalize the externality. Although social efficiency is attained with either assignment of the entitlement, the assignment affects the distribution of the social costs of the externality and its control.

Write a short note on the Superfund outlining its significance.

The EPA administers the Superfund for the cleanup of existing toxic waste disposal sites. Estimates placed the number of sites requiring Superfund cleanups as high as 20,000, and cost estimates were as high as $600 billion. Under the Superfund program the EPA attempts to identify the source of the dumping and force it to clean the site. If the EPA does the cleanup, it can go to court to recover the costs. In 2010 the EPA secured nearly $1.6 billion from private parties. As of 2010 the EPA had completed work on 1,098 of the over 1,627 sites on the National Priorities List and another 475 were "site wide ready for anticipated use." The Superfund program has been criticized both for moving too slowly and for spending funds where there was little hope of a successful cleanup. In recent years the pace of cleanup of toxic waste sites has increased. Of the $30 billion spent by business and government on the Superfund program, however, a third is estimated to have gone to lawyers in litigation over who is liable for the cleanup costs. Another criticism of the program is that it requires the same cleanup level of all sites, regardless of their future use or the costs of cleanup. In addition to the litigation costs the Superfund has been criticized for its "retrospective liability" feature that requires companies to pay for the cleanup of wastes that had been disposed of legally. The Clinton administration responded to this criticism by proposing to exempt small firms. The criticisms and disagreements over the Superfund caused its congressional reauthorization to be mired in politics for most of the 1990s, and the taxes imposed on firms to fund the program expired in 1995. The Superfund is now financed by the federal budget and by fees imposed on identified polluters. Approximately 70 percent of the cleanup costs are paid by the party held responsible for the pollution with the rest paid by the government.

Write a short note on the tasks of the European Commission and the Council of Ministers.

The European Commission is the executive and administrative body of the European Union. The Commission administers EU policies and enforces the various treaties. It is responsible for monitoring the implementation of EU legislation and ensuring that the member states comply with EU law. The Commission is responsible for trade negotiations and manages the EU budget. The Commission is the only body with the power to initiate legislation. The European Parliament and the Council of Ministers, however, can ask the Commission to review proposals and consider issues. The European Commission's role in initiating legislation and administering policies makes it a target for lobbying. Moreover, the Commission is obligated to consult with interest groups and to notify the Council of Ministers and the parliament that it has done so. The Council of Ministers is the principal legislative body of the European Union. In contrast to the Commission, whose members are obliged to serve the European Union, Council members are the individual member states. The Council consists of one minister from each state, but the nations have different voting weights based on population, with Germany having 16.5 percent of the population and the vote and Luxembourg and Malta having 0.1 percent. The presidency of the Council rotates among the member states every 6 months, and which ministers belong to the Council depends on the issue under consideration. On an issue involving economics and finance, the cognizant ministers of the member states meet as the Economic and Financial Affairs Council (ECOFIN). Twice a year, the heads of state or government of the member states meet as the European Council, which sets the general direction for the European Union. The President of the European Council serves for 2 1/2 years and has largely administrative responsibilities and represents the EU externally.

Write a short note on the Social Charter and European Labor Markets

The European Union adopted a Social Charter as part of the Treaty Establishing the European Community. The charter provides a vision for the free circulation of labor and the rights to fair wages, improvement of living and working conditions; social security; free association and collective bargaining; vocational training and education; equal treatment for men and women; information; consultation and participation for workers; health protection and safety in the workplace; protection for children, adolescents, and the elderly; and protection of the disabled. Translating the vision of the Social Charter into law has been marked by several disagreements between business and labor and by the reality of national policy differences. The SEA and other EU laws reflect the objectives of empowering labor and protecting individuals from risk and hardship through extensive social programs. Much of the European labor force is well educated and highly skilled, and labor costs in many EU member states are high. With labor costs in the new EU member states far lower than those in the other member states, two threats faced the high-wage countries. One was that jobs could flow east to take advantage of both low wages and low taxes. This would increase unemployment and force wage concessions in the west. The other was that workers would flow west seeking higher wages.

Describe the EU legislative process. What changes did the Single European Act make to it?

The European Union has three basic procedures—consultation, co-decision, and assent—for developing directives and regulations. The SEA established the assent procedure, which gives the EP a veto over council action. The assent procedure is used for decisions about admission of new member states, international agreements, and the structure of the European Central Bank. The consultation procedure was used for nearly all important issues prior to the SEA, and subsequent treaties replaced it with the co-decision procedure. The Maastricht Treaty established the co-decision procedure, and the scope of its use was expanded in the Treaty of Amsterdam and the Treaty of Nice, and further expanded in the Treaty of Lisbon, which renamed it the ordinary legislative procedure. This procedure gives the EP a greater role and more power relative to the Commission and the Council. This procedure begins as in the consultation procedure, but once the opinions of the EP and the EESC have been obtained, the Council develops by qualified majority a "common position" on the proposal. It is then sent to the EP for a second reading. If the EP approves the proposal, it is enacted. If an absolute majority of the EP votes against the common position, it is defeated and the process ends. If the EP amends the common position, the Council can accept the amendments, thereby enacting the proposal. If the Council rejects the amendments, a conciliation committee composed of members of the Council and the EP is formed. If they reach agreement, the amended proposal is enacted by qualified majority of the Council and a simple majority of the Parliament at the third reading. If no agreement is reached, or if either the Council or the Parliament fails to approve the amended proposal, the proposal fails. The ordinary legislative procedure is said to be bicameral, since approval by both the Council and Parliament is required. The procedure is not fully "democratic," however, because the popularly elected Parliament cannot enact laws itself. The ordinary legislative procedure is thus best viewed as a legislative process in which both the Parliament and the Council have a veto.

What is an SOE? What is its importance in China?

The SOE is a unique entity that has represented the single most important type of company in China in terms of employment, as well as in problems for the country. The SOEs are not the future of the Chinese economy, however, nor have they been responsible for China's growth in the reform era. Economic growth has been fueled on the demand side by both domestic and export demand and on the supply side by foreign direct investment and local companies formed by entrepreneurs and local governments. Strong economic growth has been essential for China, since growth absorbed the unemployed as SOEs were forced to improve their efficiency. China has privatized many of the SOEs, but in 2008 there were still 154,000 SOEs. The SOEs held 44 percent of the assets in the industrial sector. With the consolidation of SOEs their average size has increased dramatically, in part because of continued government support and funding. The labor policies of the SOEs were the heart of the socialist economic system and gave SOEs a distinctive dual purpose. In addition to production, SOEs provided virtually all the major social services required by employees, their families, and retirees, including education, health care, and housing. Moreover, because many goods such as housing and food staples were rationed, workers could only receive necessities through enterprise-issued coupons. This set of services essentially served as China's social welfare system and became known as the "iron rice bowl." A major constraint on the Chinese government's willingness to take strong measures to reform SOEs has been the lack of social security and welfare systems for its citizens.

Write a short note on the costs of subsidization

The direct costs of subsidies such as grants and loan guaranties are the corresponding government budget expenditures and liabilities. Those expenditures ultimately require higher taxes, which distort economic activity, resulting in inefficiencies. Subsidization in the form of high feed-in tariffs raises electricity prices, which also distorts economic activity. Higher costs to businesses reduce their competitiveness, which reduces employment. Higher electricity prices also were regressive, harming low-income households more than high-income ones. U.S. consumers had benefited from the cost-efficient location of production in China and other low-cost countries, even though it meant the loss of high-paying jobs in the United States. Direct grants required annual appropriations by a legislature whose members faced elections. High feed-in tariffs were authorized by legislatures but once authorized remained in place. The tariffs required no appropriations and were set by regulators who in most states were appointed rather than elected. The cost of the high feed-in tariffs was paid by electricity customers through higher prices, and households were poorly organized to deliver political action to reduce the cost. Moreover, many consumers were happy to pay higher prices to support renewable power. Commercial and business customers, however, were better organized and motivated by competitiveness considerations. These customers posed a threat to high feed-in tariffs. Although renewable energy production such as solar and wind power was not cost competitive and hence was dependent on subsidies, many smart grid applications were driven more by opportunities for efficiency than by government support.

Analyze the economic and political rationales behind subsidization.

The economic rationales for the subsidization of renewable power are three fold. First, subsidization provides environmental improvements by displacing carbon-based power generated from coal or natural gas. Second, subsidization provides security benefits to the extent that it reduced the dependence on imported fuels. Third, the subsidies could enable producers to realize economies of scale that would reduce costs and allow output to expand. The first and second rationales are based on positive externalities, whereas the third is intended to achieve cost efficiencies and increased output. The political rationales for the subsidization of renewable power had two aspects to them. First, the positive externalities for the environment and security benefitted constituents, although those benefits were often difficult to observe. Second, subsidization generated pork, since the recipients of the subsidies and their suppliers earned rents from the economic activity stimulated by the subsidization. Demand-side rents were earned by installation companies and their employees, power producers and their employees, and suppliers. Rents from supply-side subsidization were earned by power producers and the producers of power generation inputs, such as solar panels. The U.S. government regularly cited the number of jobs created in the solar panel production and installation industries. An associated political rationale was that subsidies built interest group support for continued subsidization in a manner that the dispersed environmental and security benefits typically could not build. Demand-side subsidies differed from supply-side subsidies in a way important for nonmarket risk analysis. The additional demand generated by demand-side subsidization could be satisfied by production located in the United States or overseas. The first political rationale thus was satisfied because the higher demand generated positive environmental externalities. The second political rationale of creating jobs, however, could only be realized by production located in the United States. Supply-side subsidization more directly served the second political rationale.

Explain the idea behind the concepts of ren and li

The objectives of self-cultivation are two interrelated concepts: ren, or humanity, and li, or propriety. Loosely speaking, the former refers to one's internal discipline, whereas the latter concerns one's social relations. Confucius regarded ren as the more fundamental of the two concepts and considered it the ultimate object of moral self-cultivation. In its most abstract sense, the concept refers to the love of all human beings, and all people were thought to have an innate capacity for it. Li is the external, or social, manifestation of ren. Although li is most commonly interpreted as "propriety," the term is also synonymous with "ceremony," "ritual," "decorum," and "good form," since it addresses all aspects of human behavior, including personal, familial, social, religious, and political conduct. The Confucian tradition places a strong emphasis on behavioral minutiae because of its belief that self-cultivation is not a solitary endeavor, but rather occurs in a social context.

Discuss the sources and types of risks in emerging market countries.

The immediate source of many risks is the weak rule of law in a country. This means that agreements and contracts may not be enforced, even if their terms are unambiguous. It can also mean that the law is not enforced impartially and that regulations can be applied in a discriminatory manner. Moreover, politics and political ties can override the rule of law. Following are the set of risks in emerging markets that differ from those in most developed countries. -Coups: Sudden changes can occur because of military coups that can result in a complete shift in economic as well as political policies. -Democratic revolution: A change in government brings a change in policies that may not be friendly to foreign investment. -Festering Anger and Revolution: The sources of the revolutions were varied and differed across the countries. Some protesters sought to rid the country of an autocratic ruler. Some sought democracy. Some sought an Islamic state. Some women sought liberation and greater freedom or to protect the liberties they had. Some sought greater freedoms. Many of the young sought change. Most sought a better life. The Arab Spring was an unexpected event at least with respect to its timing, and the underlying anger and forces were varied, making predictions of the outcomes uncertain. In Egypt, Libya, and Tunisia elections and new constitutions were the initial steps of the revolution, but where that would lead was uncertain. -Policy Risk: This arises from the ambiguous and unsettled political situations in emerging market countries. -Regulatory Risk -Price controls -Financial restrictions: Emerging markets countries have imposed a variety of restrictions on foreign direct investment, foreign exchange transactions, and the repatriation of earnings. Some of these restrictions are temporary, but many are long lasting. -Nationalization and seizures: This discourages investments and may lead to mismanagement of the expropriated companies. -Political megalomania -Political corruption -Ethnic and religious conflict -Media restrictions -Environmental risks: Environmental risks center on both harm to the environment in an emerging markets country and the harm from cross border externalities such as global climate change. -Market Risk Hedging: Most emerging markets countries are not well integrated into global markets, and this can increase the cost of capital yet provide a measure of insulation from risks in global markets.

What are the factors that enabled China to assume market leadership in the solar panel market? What were the market signals for solar panels in Europe and the United States?

The market for solar panels is global, and firms in many countries are capable of producing the panels. Photovoltaic solar cells are based on a technology similar to that used to produce semiconductors, and most semiconductors are produced in East Asia with some production in Europe and the United States. Chinese manufacturers with conventional photovoltaic technology set the cost standard for the industry. Moreover, China maintained a lower dollar-yuan exchange rate than if the market were allowed to set the rate, although China had allowed the exchange rate to rise somewhat in 2010. Another factor in China's favor was its government. The Chinese government is authoritarian and can act quickly and decisively. The size of the Chinese economy also means that resources can be readily mobilized by government in the domestic capital and factor input markets. The Chinese government views renewable energy as an attractive industry for growth and also for dealing with China's substantial pollution problems and its high-energy usage. That the Chinese government would provide incentives for renewable energy companies, and even generous subsidies, was not surprising. The market for solar panels in Europe and the United States slowed to a crawl in 2010, while the market in China grew at a rapid pace. Although the short-term prospects in the Unites States were modest, the longer-term prospects were substantial. Analysts anticipated a fivefold increase in the market for solar panels and related technologies over the next 5 years. For instance, General Electric, which was a major supplier of wind turbines, decided to become a major supplier of solar panels as part of its renewable energy strategy. In April 2011, GE announced that it would build a solar panel plant with a capacity of 400 megawatts, making it the largest plant in the United States. GE's announcement followed its acquisition of PrimeStar Solar, which according to the Department of Energy produced the highest efficiency thin-film solar panels. The long-run prospects for solar panels anticipated by GE were soon after confirmed as Total SA of France, the world's sixth largest oil company, bought 60 percent of SunPower for $1.37 billion, representing a 40 percent premium above the company's share price. The actions by GE and Total represented good and bad news for other solar panel producers. The good news was that two huge companies were optimistic about the growth of the solar panel market in the United States and worldwide. The bad news was that solar power start-ups now faced two more large competitors with deep pockets and access to alternative technologies.

Beijing lifted import restrictions in 1978 under its open-door policy recognizing China's need for exposure to Western products, ideas, and capital.

True

Write a short note on the different means to deal with market imperfections in the case of moral hazards.

The principal means of dealing with this market imperfection is to structure incentives so that the moral hazard is taken into account in decision making. Moral hazard can also be addressed by monitoring the behavior of individuals to increase the likelihood that they take proper care. Imposing fines for not wearing a seat belt is an example of monitoring. Moral hazard is also reduced by breaking the link between cost increases and the prices charged for services, as in price cap regulation used in some states for local telecommunications services. Markets can also resolve some potential moral hazard problems. A common problem in markets is the incentive for sellers to shirk on the quality of the goods or services they sell. For example, if quality can be observed only through use, a seller may have an incentive to shirk. If, however, consumers can sully the reputation of the firm by informing other consumers that the firm shirked on quality, shirking can be reduced or eliminated. The cost of harming a reputation has been dramatically reduced by the development of social media. Consumers can follow the strategy of purchasing from the firm as long as its reputation for producing high-quality products is unsullied and not purchasing from it if its reputation is ever sullied. If the potential gain from future sales is sufficiently great, the firm will have no incentive to shirk on quality.

Define corporate social performance (CSP)

The term corporate social performance (CSP) is used to refer to social activities that satisfy two conditions. First, the social activities extend beyond the requirements of the law and regulations. Second, the social activities involve the private provision of public goods or private redistribution. A firm that undertakes social activities only for strategic reasons or because of social pressure will act only when there is an opportunity for profits or when forced to act by its nonmarket environment. A firm motivated by moral principles can act in the absence of a profit opportunity or social pressure.

China has no tradition of an independent judiciary.

True

Discuss the political economy theory of regulation.

This political economy theory views regulation as shaped by market imperfections, institutions and their officeholders, and the nonmarket action of private interests. The impact of nonmarket action on regulatory agencies is direct, as well as indirect through Congress and the executive branch. In addition, regulation has procedural requirements imposed by both legislation and due process rights. The economic efficiency objective of addressing market imperfections also influences the policymaking process, particularly if that objective is embraced by the presidential administration. The civil service personnel of the agencies and the nature of bureaucracy also play a role.

A market is the logical extension of a decentralized system in which entitlements are assigned and can be traded.

True

Although regulation is one response to moral hazard problems, but regulation can also cause moral hazard problems.

True

What were the factors responsible for the formation of the General Agreement on Trade in Services (GATS)?

U.S. service industries had complained that their international expansion was hindered by the protection many countries provided for their domestic industries. The effort to reduce barriers to trade in services was led by a number of CEOs, including James Robinson of American Express, who for years personally campaigned to open foreign markets. In 1982 the Coalition of Service Industries was formed and was successful in including trade in services in the Uruguay Round agenda. The result was the General Agreement on Trade in Services (GATS), which covers all services and provides for MFN and national treatment. The agreement also requires countries to make transparent all regulations and conditions of service. Since the services markets of many countries were largely closed to foreign firms, GATS temporarily allowed countries not to apply MFN treatment. Two services, telecommunications and finance, posed particular problems because of heavy regulation and the government ownership of firms. The Uruguay Round and GATS agreements were signed while negotiations on telecommunications and financial services continued. In 1997 over 68 countries agreed to open their telecommunications market in various degrees. The telecommunications agreement provided opportunities for telecommunications companies by requiring that countries grant licenses through a mechanism open to foreign firms, as in the Chapter 17 case MTN Group Limited. Later in 1997, 102 countries reached agreement to open banking, insurance, investments, and other financial services to international competition. Some countries, however, limited foreign ownership stakes in their financial services companies. GATS now covers all international trade in services

Who bears the cost of protectionism and how?

Ultimately, the cost of protectionism is borne by consumers. Hufbauer and Elliott (1994) estimated that in 1990 special trade protection cost consumers over $70 billion, or approximately $280 per capita. U.S. producers were estimated to have captured approximately 45 percent of that amount as additional profits. Of the 21 cases of protection they studied, the annual cost per job saved ranged from $3,000 to $256,000, with an average of $54,000 for the 192,000 jobs saved by the protection. Over 152,000 of those jobs were in the apparel industry, and the cost to consumers per job was over $50,000 per year. Although they bear the cost of protectionism, consumers are costly to organize, and individual consumers are unlikely to act politically on trade protection issues. Furthermore, organized consumer groups have largely been inactive in cases involving protection of domestic industries. This leaves the political arena open to domestic industries, with political opposition coming primarily from importers, U.S. exporters, and those in government who support free trade and economic efficiency. For example, in the Section 201 petition, the U.S. textile manufacturers and unions were opposed by the United States Association of Importers of Textiles and Apparel.

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