CH 3

Problems that confront businesses that enter a market after other businesses are already in place are called ______.

late-mover disadvantages Note: First-mover advantages are the advantages that accrue to early entrants into a market. Late-mover disadvantages are the handicaps that late entrants might suffer.

It is_____________ for the government to expropriate (take away (property) from owner) from innovation through excessive taxation. (Choose between legal or illegal)

legal note: strong legal protection of property rights is a requirement for a business environment to be conducive to innovation, entrepreneurial activity and hence economic growth. Without property rights protection, businesses and individuals run the risk that the profits from their innovative efforts will be expropriated, either by criminal elements or by the state.

Francis Fukuyama's argument regarding the new world order was that

liberal democracy has triumphed and will become the final form of human government.

What is one of the three measures used to determine the Human Development Index (HDI) of a country?

life expectancy at birth

South Korea was considered an impoverished country in 1960. Yet in 2019, it was the world's 11th largest economy. International businesses must consider the present wealth of customers as well as the

likely future wealth of the consumers.

Innovators and entrepreneurs flourish most in a _____ because _____.

market economy; it grants existing businesses and entrepreneurs the freedom to improve their operations through innovation

Property rights are only truly secure when a _____ exists.

mature democratic state Only in a well-functioning, mature democracy are property rights truly secure.

In many nations, which social class has benefited from economic advances and seen the emergence of prosperity?

middle class

It would probably be _____ costly to do business in a relatively underdeveloped economy.

more

From 2003 to 2015, ___________ in Argentina.

state intervention increased

Ocean Athletics is hesitant about entering Ukraine, because the country has been experiencing social unrest in recent years. Based on this information, what type of risk is Ocean Athletics trying to avoid?

political

Economist Hernando de Soto believes that the benefits of capitalism will not be achieved until

property rights are better protected

The long-run monetary benefits of doing business in a country are influenced by the

purchasing power of consumers. Note: The long-run monetary benefits of doing business in a country are a function of the size of the market, the present wealth (purchasing power) of consumers in that market, and the likely future wealth of consumers.

Which four countries have high gross national income (GNI) per capita based on 2019 data?

-Japan -Switzerland -Sweden -Australia

To determine which country is attractive for potential investments, you need to balance which three considerations? (Check all that apply.)

-Risk -Benefits -Costs Overall Attractiveness: Benefits- size of economy, likely economic growth Costs: corruption, lack of infrastructure, legal costs Risks: Political risks- social unrest, Economic risks- economic mismanagement Legal Risks- failure to safeguard property rights

The Heritage Foundation index of economic freedom is based on 10 indicators. Which of the following are included in that index? (Check all that apply.)

-trade policy -taxation rules -foreign investment regulations -labor freedom

The ______ adjustment helps provide a more direct comparison of the living standards found in different countries.

purchasing power parity (PPP)

ECONOMIC or POLITICAL trend??? 1.) Markets move more freely, and private enterprise grows in a supportive environment. 2.) The Internet is allowing democratic ideals to penetrate closed societies as never before. 3.)The end of the Cold War ushered in a "new world order." 4.) Privatization is a way to stimulate growth and efficiency by offering private investors the incentive of profits. Privatization can mean increases in productivity, entering new markets, and leaving losing ones. 5.) States choose their levels of participation in the economic system. The number of centrally planned economies—centrally planned by the state—is declining.

1.) economic 2.) political 3.) political 4.) economic 5.) economic

EVALUATE risk, benefit or cost: 1. The laws on business practices are evolving, but you see potential problems in ensuring contract disputes are resolved fairly. 2. The current leader of the country has been in power for decades, but his health is failing. Social unrest may affect the leadership transition, and there are several opposition groups. 3. You see an opportunity to establish a strong market presence before your competitors, and you will be able to set product standards. 4. Political entities in the government expect to receive what may be considered bribes in order to be able to get the necessary business licenses and permits. 5. Distribution systems are not well developed, and you may have to create your own. While this could create a competitive advantage, it is expensive to set up. 6. Property rights seem to be well protected as part of a total system that shows few signs of state control of key sectors. 7. You are looking at a country's population growth. You are concerned not only about the total population, but also about the growth of the middle class and its consumers. 8. Social unrest has been triggered by rising prices for food and essentials. The government, which already has a large debt burden, may need to borrow more.

1.) evaluate costs 2.) evaluate risks 3.) evaluate benefits 4.) evaluate costs 5.) evaluate costs 6.) evaluate benefits 7.) evaluate benefits 8.) evaluate risks

In which of these countries is the cost-benefit-risk trade-off likely to be MOST favorable?

A country with a free market system note: economic growth appears to be a function of a free market system and a country's capacity for growth. The benefit - cost- risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems and no dramatic upsurge in either inflation rates or private-sector debt,

Purchasing Power Parity (PPP)

An adjustment in gross domestic product per capita to reflect differences in the cost of living.

Human Development Index (HDI)

An attempt by the United Nations to assess the impact of a number of factors on the quality of human life in a country.

Which statement accurately describes the economic prospects in a country?

Countries with free market economies in which property rights are protected tend to achieve greater economic growth rates than other economies.

Which of these situations relates to Sachs's view on a country's economic development?

Country A has the benefit of nutrient-rich soil which provides a competitive advantage for the country's tobacco industry.

What is one of the steps that pave the way for a shift toward a market-based economic system?

Creation of a legal system to safeguard property rights Note: The shift toward a market-based economic system often entails a number of steps: deregulation, privatization, and creation of a legal system to safeguard

______ involves removing legal restrictions, typically in the economic sphere.

Deregulation

What economic tactic was used when former communist countries removed price controls and allowed prices to be set as the result of supply and demand?

Deregulation Note: deregulation involves removing legal restrictions to the free play of markets, the establishment of private enterprise, and the manner in which private enterprises operate

A(n) ______ risk is the chance that conditions like a change in exchange rates will affect an investment.

Economic

The Peruvian development economist Hernando de Soto has argued that much of the developing world will fail to reap the benefits of capitalism until they relax the property rights offered by their legal systems.

False

True or False: Economic risks are independent of political risks.

False Note: Economic mismanagement may give rise to significant social unrest and hence, political risk.

True or false: Market-based economic systems have failed to produce the same high level of economic performance that command and mixed economies have.

False The opposite is true. Command and mixed economies fail to produce the same high level of economic performance that market-based economic systems do.

______ are the benefits earned by early entrants into a market.

First-mover advantages

The total annual income received by residents of a single nation is reflected in which official measure?

Gross National Income (GNI) Note: GNI is regarded as a yardstick for the economic activity of a country; it measures the total annual income received by residents of a nation

______ measures the total annual income received by residents of a country.

Gross national income

How does Samuel Huntington's argument about the new world order differ from the view of Fukuyama?

Huntington believed the world would be split into different civilizations with their own ideology. Note: as for terrorism, Huntington's thesis says that global terrorism is a product of the tension between civilizations and the clash of value systems and ideology

Which of these nations had a lower GNI per capita than the United States in 2019?

India

In many European nations, the title to agricultural property is not known because there are no official records indicating who has title. This detracts from the incentive to engage in economic activity. What is causing this lack of incentive?

Insufficient legal system

A(n) ______ risk is one that arises from failure to follow statutory or regulatory obligations and, therefore, one that can impact a trading partner.

Legal Note: A legal risk can be defined as the likelihood that a trading partner will opportunistically break a contract or expropriate property rights. When legal risks in a country are high, an international business might hesitate entering into a long-term contract or joint-venture agreement with a firm in that country.

Which economic system is MOST conducive to innovation and entrepreneurial activity?

Market economies note: Economic freedom associated with a market economy creates greater incentives for innovation and entrepreneurship than either a planned or a mixed economy. In a market economy, individuals and established businesses have the freedom to start businesses or improve their current innovations. Thus, market economies contain enormous incentives in the form of high profits, to develop innovations.

Joaquin is worried about his company locating a manufacturing facility in Indonesia because of the unstable government which could devastate their business. Which type of risk is affecting Joaquin's decision?

Political Note: The risks of doing business in a country are determined by a number of political, economic and legal factors. Political risk has been defined as the likelihood that political forces will cause drastic changes in a county's business environment that adversely affect the profit and other goals of the business.

The likelihood that political forces will cause drastic changes in a country's business environment and adversely affect the potential for a company to make a profit is called a _____ risk.

Political Note: Political risk tends to be greater in countries experiencing social unrest and disorder or in countries where the underlying nature of a society increases the likelihood of social unrest. Such unrest (including strikes, terrorism, violent conflict, etc) is more likely to be found in countries that contain more than one ethnic nationality, where competing ideologies are battling for political control.

______ is one of the steps necessary for a country to shift toward a market-based economic system.

Privatization Note: the shift toward a market-based economic system often entails a number of steps: deregulation, privatization, and creation of a legal system to safeguard property rights

______ is seen as a transfer of ownership of a business, property, or enterprise from the public sector to the private sector.

Privatization note: Privatization transfers the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction.

The government of a foreign nation had controlled the oil and gas industry for many years but recently transferred the business into the hands of several small businesses. These companies are now motivated to increase productivity and enter new markets to achieve greater profits. What tactic did this nation use to help it move toward a market-based economic system?

Privatization note: privatization transfers the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction. Privatization is seen as a way to stimulate gains in economic efficiency by giving new private owners a powerful incentive- the reward of greater profits- to search for increases in productivity, to enter new markets and to exit losing ones

Anastasia asked her assistant to determine the gross national income of six different countries by evaluating the GNI against the cost of living in the United States. What measure is Anastasia asking her assistant to use?

Purchasing Power Parity

Which of the following factors help determine the Human Development Index (HDI) of a country?

The HDI is based on 3 measures: -educational attainment (measured by a combo of the adult literacy rate and enrollment in education) -average incomes (adequate food, shelter and health care) -life expectancy at birth (a function of health care)

To account for differences in the cost of living, one can adjust GNI per capita by purchasing power, referred to as Purchasing Power Parity (PPP) adjustment., it allows a more direct comparison of living standards in different countries.

The PPP for different countries is then adjusted (up or down) depending on whether the cost of living is lower or higher than in the U.S. (if the U.S. is what we are comparing)

The GNI per capita of a country is $5,000, but the PPP per capita is $8,000. What can be inferred from the given data?

The cost of living is lower in that country than the United States. Note: suggesting that the cost of living is lower and that $5,000 would buy as much as $8,000 in the U.S.

Which trend has been seen in the political systems of nations since the late 1980s?

There is more emphasis on the free market economy approach and less on centrally planned and mixed economic models.

A nation that has inadequate enforcement of property rights reduces the motivation for innovative activity.

True

A totalitarian regime can promote economic growth if it commits to a market system and values strong protection of property rights.

True

True or False: The world today remains a more democratic place with a much greater adherence to a market-based economic system.

True

True or False: The recent fast-paced economic growth in some Asian economies can be attributed to their adoption of more totalitarian forms of government.

True Reason: These countries have adopted more democratic governments. While it is possible to argue that democracy is not a necessary precondition for a market economy in which property rights are protected, subsequent economic growth often leads to establishment of a democratic regime.

Legal risk is evident in a country that has _____.

a violation of property rights Note: Legal risk is the likelihood that a trading partner will opportunistically break a contract or expropriate (take away from owner) property rights.

An international firm, entering a country's market early, may achieve a significant payback if that country:

achieves sustained high economic growth rates. note: by identifying and investing early in a potential future economic star, international firms may build brand loyalty and experience in that country's business practices. In the language of business strategy, early entrants into potential future economic stars may be able to reap substantial first-mover advantages, while late entrants may fall victim to late-mover diadvantages

Economic progress often leads to

adoption of a democratic government.

With the collapse of communism in eastern Europe, many countries didn't have a legal structure in place to protect property rights because

all property had previously been held by the state.

To foster innovation in the business environment, it is important that strong legal protection of property rights is in place. Inadequately enforced property rights can lead to an increase in the

risk of expropriation of profits.

More nations have gravitated toward the market-based model because

command and mixed economies failed to deliver sustained economic performance

Gross national income (GNI) per person figures can provide an incomplete picture because they ____. This is the role of the PPP adjustment.

don't factor in the cost of living NOTE: the cost of living in Switzerland for example in 2019, is higher than living in the US. U.S. citizens could actually afford almost as many goods and services as the average Swiss citizen.

When comparing early and late entrants into a market, it can be said that

early entrants build brand loyalty and gain experience in a country's business practices.

One reason for the spread of democracy across the globe is the

failure of totalitarian regimes to provide economic progress to the majority of their citizens.

Jeffrey Sachs argued that the ______ of a nation can have an impact on economic development.

geography note: by virtue of favorable geography, certain societies are more likely to engage in trade than others and are thus more likely to be open to and develop market-based economic systems. Sachs found that landlocked countries grew more slowly than coastal economies and that being entirely landlocked reduced a country's growth rate by .7% per week. He also found that tropical countries grew 1.3% more slowly each year than countries in the temperate zone.

When analyzing the process of innovation, it can be said that it

goes hand-in-hand with entrepreneurship. Note: innovation and entrepreneurship are the engines of economic growth. Innovation is seen as the result of entrepreneurial activity.

A country's economic system and property rights regime are _____ predictors of economic prospects.

good

Argentina's economic development has been hampered because since 1950, Argentina

has consistently run a budget deficit.

Which was not a factor contributing to Argentina's prosperous economy in the early 1900s?

high barriers to foreign investment

As defined in the text, _____ includes a company's new products, new processes, new organization, new management practices, and new strategies.

innovation

The development of new products, processes, organizations, management practices, and strategies is called

innovation

When assessing the legal factors that determine the cost of doing business in a country, it's important to know that

it can be more costly to do business in a country where local laws and regulations set strict standards with regard to product safety. Note: or safety in the workplace, environmental pollution and the like bc adhering to such regulations can be costly

A major factor leading to Argentina's current economic problems is its

lack of strong governance

Miller Plastic Group is considering two different countries for their upcoming expansion. When the board was reviewing the financial figures of the countries, the chief financial officer reminded board members that the figures might not tell the entire story as some economic activity could be taking place in the form of barter agreements and cash transactions that are never recorded. What is the CFO referring to?

the shadow economy

One change in the political systems of nations since the late 1980s is that

totalitarian governments failed and were replaced by democratically elected governments usually supportive of free market capitalism.

When discussing the changes in the political and economic systems of the world, it can be said that

the battle between the ideologies of collectivism and individualism is less distinct today.

The base used to make the purchasing power parity (PPP) adjustment is

the cost of living in the United States.