Chapter 5 Bank, Chapter 4 Bank, Chapter 6 Bank

Agricultural subsidies by developed countries impede the competitiveness of agricultural exports by developing countries.

TRUE

An economic system is the set of structures and processes that guides the allocation of resources and shapes the conduct of business activities within a country.

TRUE

An exception to the PLC theory in terms of production location is often a product with very rapid change in innovation.

TRUE

At present there is little reciprocal recognition of professional licensing among countries

TRUE

Many products' location of production will shift internationally as the products go through their life cycle.

TRUE

The Human Development Index measures the average achievements in a country on three basic dimensions of human development: mortality, knowledge, and standard of living.

TRUE

The collapse of communism in the late 1980s and early 1990s led to a more widespread adoption of the principles of capitalism.

TRUE

The term protectionism, when applied to international trade, refers to governmental restrictions and incentives to affect trade flows.

TRUE

There is a positive correlation between economic freedom and economic growth.

TRUE

There is a strong relationship between skewed income distributions and the split between those who live in urban settings versus those who live in rural areas.

TRUE

Under mercantilism, colonial powers sought to run trade surpluses with their colonies by preventing the colonies from manufacturing.

TRUE

Understanding trade theories helps companies know if they will need to compete against goods and services produced abroad.

TRUE

When analyzing the key elements of a country's economic environment, it is best to apply a systems perspective.

TRUE

The most common type of tariff is the ________ tariff

import

The Gini coefficient estimates a country's ________.

income inequality

Imports can stimulate exports by ________.

increasing foreign income

According to the PLC theory, at an early stage of a product's life cycle the product is likely to be made in a more ________ method than in its later stages.

labor-intensive

A voluntary export restriction (VER) refers to ________.

limits placed on exports by a government of an exporting country at the request of the government of an importing country

Taylor Enterprises wants to expand its operations into Asia. Managers are focusing on countries with high degrees of economic freedom most likely because the firm is interested in a country with ________.

minimal government intervention

Market economies are primarily characterized by ________.

minimal governmental participation

In a ________ economy, certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning.

mixed

As a leading exporter of luxury automobiles, Germany has built a strong reputation in engineering. Germany's trade most likely relies on a(n) ________.

acquired advantage

Trade protectionism will most likely affect which aspect of a company's operations?

acquiring foreign supplies

Which of the following is most likely a basis for a Jamaican natural advantage in international trade?

beautiful beaches and climate

Eight of the top 10 exporting and importing countries are countries with ________.

developed economies

Communism primarily relies on a system of ________.

government controlled economic activity

Pender Pharmaceuticals is considering expanding overseas and is focusing primarily on the BRICs. Which of the following countries is one that Pender is considering?

) Russia

Which of the following governmental actions is LEAST likely to increase national debt?

) T-bond sales

Research shows that urbanization leads to higher productivity. Which of the following is the LEAST likely reason for this?

) Urbanization establishes an inflow of immigrants who will work for less money

One way that developed countries specialize in order to gain acquired advantages is by ________.

) allocating research efforts more heavily in specific sectors

In addition to protection, tariffs serve to ________.

) generate revenue

All of the following are reasons a country might institute import restrictions to improve its balance of trade position with other countries EXCEPT to ________.

) maintain essential industries

Unlike the infant-industry argument, the industrialization argument for trade protection ________.

) presumes that economic growth will occur even if domestic manufactured prices are not globally competitive

) The World Bank reports that approximately ________ percent of the world's population is poor.

80

What are common reasons that governments enact export restrictions? What are the possible negative consequences of such restrictions?

A country may limit exports of a product that is in short supply worldwide in order to favor domestic consumers. Typically, greater supply drops local prices beneath those in the intentionally undersupplied world markets. However, this discourages domestic producers from increasing output and encourages them to smuggle output to sell abroad. It also encourages foreign producers to develop substitutes or production of their own. Countries also fear that foreign producers will price their exports so artificially low that they drive domestic producers out of business, after which they charge monopoly prices. However, competition among foreign producers limits their ability to charge exorbitant prices. The ability to price low abroad may result from high domestic prices due to a lack of competition at home or from home country governmental subsidies.

Describe and compare the different types of tariffs (duties).

A tariff, or duty, the most common type of trade control, is a tax that a government levies on a good shipped internationally. If collected by the exporting country, it is known as an export tariff; if collected by a country through which the goods have passed, it is a transit tariff; if collected by the importing country, it is an import tariff. The import tariff is by far the most common. Import tariffs primarily serve as a means of raising the price of imported goods so that domestically produced goods will gain a relative price advantage. A tariff may be protective even though there is no domestic production in direct competition. Tariffs also serve as a source of governmental revenue. Import tariffs are of little importance to large industrial countries, but are a major source of revenue in many developing countries. Transit tariffs were once a major source of revenue for countries, but they have been nearly abolished through governmental treaties. A government may assess a tariff on a per-unit basis, in which case it is a specific duty. It may assess a tariff as a percentage of the value of the item, in which case it is an ad valorem duty. If it assesses both specific and an ad valorem duty on the same product, the combination is a compound duty. A specific duty is easy for customs officials who collect duties to assess because they do not need to determine a good's value on which to calculate a percentage tax. Because an ad valorem tariff is based on the total value of the product, meaning the raw materials and the processing combined, developing countries argue that the effective tariff on the manufactured portion turns out to be higher than the published tariff rate.

What is the difference between the free trade theories of absolute advantage and comparative advantage? How can free trade improve global efficiency?

Absolute advantage holds that different countries produce some goods more efficiently than other countries; thus, global efficiency can increase through free trade. Based on this theory, Adam Smith questioned why the citizens of any country should have to buy domestically produced goods when they could buy those goods cheaper abroad. But what happens when one country can produce all products at an absolute advantage? David Ricardo examined this question and expanded on Adam Smith's theory of absolute advantage to develop the theory of comparative advantage. Ricardo reasoned that there may still be global efficiency gains from trade if a country specializes in products that it can produce more efficiently than other products—regardless of whether other countries can produce those same products even more efficiently.

The ________ view calls for companies to develop low-cost, high-powered, resource-minimizing innovations that can be marketed to the billions of people living on less than a few dollars a day.

Base of the Pyramid

From an economic standpoint, why do production factors move from one country to another? How does factor movement affect international trade?

Capital, especially short-term capital, is the most internationally mobile production factor. Companies and private individuals primarily transfer capital because of differences in expected return. Short-term capital is more mobile than long-term capital, especially direct investment, because there is more likely to be an active market through which investors can quickly buy foreign holdings and sell them if they want to transfer capital back home or to another country. Furthermore, investors feel more certain about short-term political and economic conditions in a foreign country than about long-term ones. People are also internationally mobile. Unlike funds that can be cheaply transferred by wire, people must usually incur high transportation costs to work in another country. Although international mobility of production factors may be a substitute for trade, the mobility may stimulate trade through sales of components, equipment, and complementary products. If trade could not occur and production factors could not move internationally, a country would have to either forego consuming certain goods or produce them differently, which in either case would usually result in decreased worldwide output and higher prices. In some cases, however, the inability to gain sufficient access to foreign production factors may stimulate efficient methods of substitution, such as the development of alternatives for traditional production methods.

According to research, which of the following countries is the strongest supporter of free markets?

China

Why is the United States both an exporter and importer of such products as vehicles and passenger aircraft?

Companies differentiate products to appeal to different consumers

What are the main arguments for limiting trade in services? What is your opinion on limiting trade in services?

Countries restrict trade in services for three reasons: a. Essentiality: Countries judge certain service industries to be essential because they serve strategic purposes or because they provide social assistance to their citizens. They sometimes prohibit private companies, foreign or domestic, in some sectors because they feel the services should not be sold for profit. b. Standards: Governments limit foreign entry into many service professions to ensure practice by qualified personnel. The licensing standards of these personnel vary by country. At present, there is little reciprocal recognition in licensing from one country to another because occupational standards and requirements differ substantially. c. Immigration: Satisfying the standards of a particular country does not guarantee that a foreigner can then work there. Governmental regulations often require that an organization—domestic or foreign—search extensively for qualified personnel locally before it can even apply for work permits for personnel it would like to bring in from abroad.

Which of the following is NOT a reason that international trade theory is useful for managers to understand?

Countries use laissez-faire policies to intervene in the free movement of international trade, thus affecting where companies can produce most efficiently.

Why do developing countries sometimes impose import restrictions to increase their levels of industrialization?

Countries with a large manufacturing base generally have higher per capita incomes than do countries without such a base. Moreover, a number of countries, such as the United States and Japan, developed an industrial base while largely preventing competition from foreign-based production. Many developing countries use protection to increase their level of industrialization because of industrial countries' economic success and experience. Specifically, they believe: a. surplus workers can more easily increase manufacturing output than they can increase agricultural output. b. inflows of foreign investment in the industrial area will promote growth. c. prices and sales of traditional agricultural products and raw materials fluctuate too much, harming economies that depend on too few of them. d. markets and prices for industrial products will grow faster than those for agricultural products. Diff: 3

Why should managers in international business understand international trade theories?

Countries' trade policies, based on trade theories, influence which products companies might export to given countries.

Country X brings in a large number of unskilled immigrants to meet its labor needs. Which of the following is the LEAST likely to occur in Country X as a result?

Country X will experience a significant transfer of knowledge and a resulting rise in start-up businesses.

People who argue for lifting the U.S. trade embargo with Cuba claim all of the following EXCEPT which one?

Cuba has largely become a market economy already

________ typically results when demand decreases and supply increases.

Deflation

What is the difference between import substitution policies and export-led development policies?

Developing countries promote industrialization by restricting imports in order to encourage local production for local consumption goods which they formerly imported. This is known as import substitution. If the protected industries do not become efficient, consumers may have to support them by paying higher prices or higher taxes. In contrast to import substitution, some countries have achieved rapid economic growth by promoting export industries, an approach known as export-led development. These countries try to develop industries for which export markets should logically exist. Industrialization may result initially in import substitution, yet export-led development of the same products may be feasible later.

Why is economic freedom an important factor to consider when analyzing a country's economic development, performance, and potential?

Economic freedom helps explain a country's development, performance, and potential. Higher-rated countries generally outperform laggards on a variety of measures. Countries with high economic freedom have higher rates of growth and productivity. Income is higher in countries with higher economic freedom; it more than doubles the worldwide average and is 7 times higher than in mostly unfree and repressed economies. Positive relationships exist between economic freedom inflation, and employment. Economic freedom pays social dividends. Life expectancy, literacy, political openness, and environmental sustainability show positive relationships with economic freedom. Collectively, data indicate a positive relationship between economic freedom and various measures of economic performance and quality of life. The data support the argument that liberating resources from government control improves financial performance, economic stability, and standards of living.

Which of the following is most likely a true statement about the global economy since the 1980s?

Emerging economies are adopting the principles and practices of free markets.

Which of the following statements most likely undermines the arguments for a strategic trade policy?

Entrepreneurs, rather than governments, should take business risks.

Why are offsets considered protectionist measures

Exporters must often find markets for goods outside their lines of expertise

A strategic trade policy is one that develops industries to lessen dependence on foreign military goods.

FALSE

According to the PLC theory of trade, most new products are produced in countries where wage rates are low.

FALSE

According to theories of specialization in international trade, gains occur because specialized workers move to countries that can use their skills more effectively.

FALSE

An objective of neomercantilism is to build up gold reserves

FALSE

Companies that have integrated their supply chains internationally tend to lobby their home governments for increased protectionist measures.

FALSE

Comparative advantage theory holds that gains from trade are the result of capital movements from countries with low interest rates to countries with higher interest rates.

FALSE

Countries typically establish export restrictions to encourage the development of substitute products.

FALSE

Every time countries enter a new trading agreement, service trade tends to grow more rapidly than merchandise trade.

FALSE

Export controls are highly effective for digital products, such as computers, TVs, and cameras

FALSE

Export prices of primary products fluctuate less than export prices of manufactured products.

FALSE

Export-led development refers to the off-shoring of production.

FALSE

External debt results when the government spends more than it collects in revenues, whereas internal debt results when a government borrows money from foreign lenders.

FALSE

Home country consumers are typically active in preventing their domestic companies from dumping products into foreign markets.

FALSE

Import trade controls, but not export trade controls, can be used as a weapon of foreign policy

FALSE

In a country's balance of payments, the current account and the capital account represent equal values.

FALSE

In a mixed economy, all dimensions of economic activity, including pricing and production decisions, are determined by a central government plan.

FALSE

In most cases, trade protectionism makes it easier for a company to buy what it needs and to sell products in global markets.

FALSE

In response to the global credit crisis, the United States government took actions that increased economic freedom.

FALSE

In the aftermath of the recent worldwide credit crisis, there has been a significant reduction in the level of government involvement in economic affairs.

FALSE

Inflation occurs because aggregate demand is growing as fast as aggregate supply

FALSE

Luxury products are the most likely types of products to behave according to the product life cycle theory of trade.

FALSE

Most world trade takes place between raw material exporters and manufacturing exporters

FALSE

On average, workers displaced by imports earn higher wages in the new jobs they accept.

FALSE

The BRICs are the strongest developed economies in the world

FALSE

The Happy Planet Index measures well-being and perceptions of living conditions by assessing areas such as housing, incomes, security, and work-life balance.

FALSE

The argument for using protectionism to bring about industrialization in developing countries presumes that gains will occur because the industry will become internationally competitive. Answer: FALSE

FALSE

The balance of trade records is a record of a country's international transactions that take place among companies, governments, or individuals.

FALSE

The calculation of GNI per capita takes into account the differences in the cost of living from one country to another.

FALSE

The comparable access argument for import restrictions is a more valid economic argument for products using small-scale technology than for products requiring substantial economies of scale to be competitive.

FALSE

The essential-industry argument holds that industries with potential export capabilities should be protected.

FALSE

The factor proportions theory holds that countries should improve their competitiveness by importing capital and skilled employees from abroad.

FALSE

The finite nature of natural resources should work as a disadvantage for the export prices of developing countries.

FALSE

The free trade theories of specialization assume that countries will be better off even though some people are unemployed.

FALSE

The government considers itself a better judge of resource allocation than businesses or citizens in a market economy.

FALSE

The group most likely to become involved in disputes concerning trade protectionism is consumers.

FALSE

The international mobility of labor includes workers, students, tourists, and retirees who travel to another country.

FALSE

The most common type of tariff is the export tariff

FALSE

The purpose of "Made in" labels on imported products is to enable countries to keep records of the origin of imports.

FALSE

The range of economic systems in the world today, when represented on a spectrum, has one end anchored by the idea of capitalism, the other with that of socialism.

FALSE

The term brain drain describes the export of high-technology products in exchange for low-technology products.

FALSE

The top 10 exporting countries are dominated by developing countries

FALSE

Trade occurs more between culturally dissimilar countries than between culturally similar countries

FALSE

Under the theory of absolute advantage, countries hold two types of advantages—acquired advantages and technological advantages.

FALSE

Uneven income distribution is largely a problem confined to poorer nations.

FALSE

Which of the following countries is the best example of a mixed economic model?

France

Many companies and industries argue that they should have the same access to foreign markets as foreign industries and companies have to their markets. In a short essay, discuss this issue of "comparable access" or "fairness."

From an economic standpoint, comparable access argues that in industries in which increased production will greatly decrease cost, either from scale economies or learning effects, producers that lack equal access to a competitor's market will have a disadvantage in gaining enough sales to be cost-competitive. The argument for equal access also is presented as one of fairness. There are at least two arguments against this fairness doctrine. First, there are advantages of freer trade, even if imposed unilaterally. Restrictions may deny one's own consumers lower prices. Second, governments would find it cumbersome and expensive to negotiate separate agreements for each of the many thousands of different products and services that might be traded.

To determine whether the standard of living within a country is rising or falling, economists would most likely use which of the following measures?

GNI growth rate

Which of the following is most likely a FALSE statement about income inequality

GNI is the most effective tool for estimating the relative wealth of a nation's citizens

The ________ starts with the same accounting framework used to calculate GDP but then adjusts for values assigned to environmental quality, population health, livelihood security, equity, free time, and educational attainment.

Genuine Progress Indicator

Which of the following best supports a nation's decision to implement a strategic trade (industrial) policy?

Government actions should target industries that are believed to give the country its best export advantages.

What is gross national income? How is it calculated? Illustrate your answer with a specific example.

Gross National Income is the broadest measure of economic activity. It is the market value of final goods and services newly produced by domestically owned factors of production, which includes the international production activities of national companies. For example, the value of a Ford car manufactured in the United States and the portion of the value of a Ford manufactured in Mexico using U.S. capital and management counts in U.S. GNI. However, the portion of the value of a Japanese Toyota manufactured in the United States using Japanese capital and management would not be counted in U.S. GNI, but it would be counted in Japanese GNI.

Which of the following statements most likely undermines the infant-industry argument?

High tariffs to prevent foreign competition increase government revenues in the protected country

All of the following are reasons that foreign investment may stimulate exports from the home (donor) country EXCEPT which of the following?

Home-country aid usually goes where the investments are made

Managers at Morrison Manufacturing are considering expanding the firm's production overseas and want to ensure that the firm is located in a country with a high degree of economic freedom. Presently, which of the following locations would most likely offer Morrison the highest economic freedom?

Hong Kong

The United Nations' ________ measures life expectancy, educational attainment, and the standard of living in a given country.

Human Development Index

Which of the following is a problem with the infant-industry argument for protection

If the industry does not lower costs sufficiently to be competitive, it becomes a formidable pressure group for continued protection.

What is inflation? How does inflation affect international business?

Inflation means that prices are going up as measured against a standard level of purchasing power. The inflation rate is the percentage increase in the change in prices from one period to the next, usually a year. Economists use different types of indices to measure inflation. In the United States, the Consumer Price Index is the official measure of inflation. The CPI measures a fixed basket of goods and compares their prices from one period to the next. A rise in the index results in inflation. Inflation affects interest rates, exchange rates, the cost of living, and the general confidence in a country's political and economic system.

What issues complicate international economic analysis?

International economic analysis uses many scientific principles but still relies on a variety of behavioral assumptions to interpret activity. Assessments are often more conditional than universal because the complexity of even the simplest economic system defies straightforward classification. Stipulating indicators that definitively represent a country's economic performance and potential is difficult. Secondly, marketplace dynamism means that today's valid measures may prove invalid tomorrow. Third, countries are not isolated. The consequence of connections is an integrated system of markets in which actions in one influences outcomes in others. Interdependencies complicate interpretations. Adjusting analysis for actions and reactions across a broad scope of markets is difficult.

Which of the following assumptions was made in the original theories of absolute and comparative advantage?

Labor resources are fully employed.

Presently, which of the following countries is best characterized as a pure example of a command economy?

Libya

What is the difference between a developing country and a developed country? What significant trends are occurring in each type of market that relate to international business decisions?

Low- and middle-income nations are known as developing countries. This type has low per capita income--an average of $2,963 in 2009. The vast majority of their citizens have a low standard of living with limited access to few goods and services. Developing countries comprise the largest number of countries (151 or so, according to the World Bank) and have the highest number of inhabitants (a combined 5.5 billion) in the world. In contrast, developed countries are those with high per capita income-- an average of $37,970 in 2009. Their citizens have a high standard of living with access to a variety of goods and services. Emerging economies are developing rapidly and have increased their share of the world's foreign exchange reserves by 70% since the mid-1990s. Since 2001, annual growth in emerging markets has averaged 6.4 percent; in contrast, the rich economies have averaged 1.6 percent. While they expand, the global financial crisis slows and shrinks many developed economies.

What general characteristics of a country should managers consider when analyzing an economic environment? What specific indicators help managers measure the economic development, performance, and potential of a country?

Managers apply three perspectives to help make sense of the economic environments of various countries. First, they estimate how much freedom they will have to make investments and run operations as they see fit. Second, they evaluate the type of economic system in the country, studying how current policies shape development and performance. The third investigates the points of change that drive economic change, assessing the conditions that moderate economic freedom as well as move a country from one economic system to another. Collectively, the insights help managers pinpoint where investments should go and, perhaps more importantly, where they should not. The key dimension used to distinguish one country from another is the gross national income (GNI). In particular, countries are classified according to per capita GNI, or the size of GNI of a nation divided by its total population. Those countries with high populations and high per capita GNI are generally most desirable in terms of market potential. A country's GNI growth rate also indicates its economic potential. Businesses comparing markets will also likely examine the purchasing power parity (PPP) of a possible foreign market.

According to the PLC theory, what is the most likely reason that companies manufacture products in locations with high labor rates during the introductory stage of a product's life cycle?

Many consumers are willing to pay high costs for the newest products

Which of the following is most typical of a command economy

Many products are usually in short supply

In a short essay, discuss the theory of mercantilism, and discuss favorable and unfavorable balances of trade as they apply to international business.

Mercantilism holds that a country's wealth is measured by its holdings of treasure, which usually meant gold. According to the theory, countries should export more than they import and, if successful, receive gold from countries that run deficits. To export more than they imported, governments imposed restrictions on most imports and subsidized production of many products that could otherwise not compete in domestic or export markets. A favorable balance of trade indicates that a country is exporting more than it is importing. An unfavorable balance of trade indicates that a country is importing more than it is exporting, which is known as a deficit. However, it is not necessarily beneficial to run a trade surplus nor is it necessarily disadvantageous to run a trade deficit. A country that is running a surplus, or favorable balance of trade, is, for the time being, importing goods and services of less value than those it is exporting. In effect, the surplus country is granting credit to the deficit country. If that credit cannot eventually buy sufficient goods and services, the so-called favorable trade balance actually may turn out to be disadvantageous for the country with the surplus.

Which of the following is the LEAST likely result of outward migration

Nations receive more foreign aid.

What is the country similarity theory? According to this theory, what factors affect trade patterns?

Observations of trade patterns reveal that most of the world's trade occurs among countries that have similar characteristics, specifically among industrial, or developed, countries. The country similarity theory says that once a company has developed a new product in response to observed market conditions in the home market, it will turn to markets it sees as most similar to those at home. In addition, markets in industrial countries can support products and their variations. Thus, companies from different countries produce different product models, and each may gain some markets abroad.

What are the disadvantages of import restrictions in regards to creating domestic employment opportunities?

One problem with restricting imports in order to create jobs is that other countries might retaliate with their own restrictions. New import restrictions by a major country have usually brought quick retaliation, sometimes causing more job losses than gains in industries protected by the new restrictions. Even if no country retaliates, the restricting country will gain jobs one place and lose them somewhere else, such as in import-handling jobs. Imports may also help create jobs in other industries, and these industries may form pressure groups against protectionism.

All of the following are potential problems of using export controls EXCEPT which one?

Prices go up in the country imposing the controls

People who argue for keeping the U.S. trade embargo with Cuba claim all of the following EXCEPT which one?

Removal of the embargo will cause much more Cuban immigration to the United States

What is the primary difficulty associated with dismantling developed countries' agricultural subsidies?

Rural areas in the United States, the European Union, and Japan are disproportionately represented in their governments.

What is the difference between a command economy and state capitalism?

State Capitalism is an economic system whereby the State decides how, when, and where assets will be valued and resources allocated. The State develops national champions, manages trade relations and exchange rates to promote exports and punish imports, leverages control of the financial system to provide low-cost capital to domestic industries, and maintains accommodative legal and regulatory systems. In a command economy, the government owns and controls resources, commanding the authority to decide what products to make, in what quantity, at what price, and in what way. Unlike the command economy, State Capitalism is a system whereby the government explicitly manipulates market outcomes for political purposes. Politics has a profound and pervasive impact on the performance of markets. The government uses markets to promote stability and growth, thereby creating the prosperity and wealth that maximize state power and supports its continued rule. State Capitalism does not have an ideological component--the government manages markets for long-term political survival and power projection, not to enforce an abstract ideal or promote the cult of personality as with the command economy.

What is state capitalism? Why do you think state capitalism is becoming increasingly popular around the world?

State Capitalism is an economic system whereby the State decides how, when, and where assets will be valued and resources allocated. The State develops national champions, manages trade relations and exchange rates to promote exports and punish imports, leverages control of the financial system to provide low-cost capital to domestic industries, and maintains accommodative legal and regulatory systems. The global credit crisis has expanded the scale and scope of State Capitalism. Countries that favored a larger state presence, higher taxes, heavier regulation, tougher job-protection laws, and more generous social safety programs dealt more successfully with market disruptions than did their free-market counterparts. More fundamentally, State Capitalism professes to better protect protected social values, equalize income distribution, and prevent the accumulation of vast wealth and powerful self-interests that threaten social harmony.

A car manufactured in the U.S. by Toyota would be included in the calculation of the GDP for the United States.

TRUE

A market economy gives individuals the freedom to decide where to work doing what, how to spend or save money, and whether to consume now or later.

TRUE

A market economy is one in which resources are primarily owned and controlled by individuals and companies.

TRUE

A mixed economy is a system where economic decisions are largely market driven and ownership is largely private, but the government intervenes in many private economic decisions.

TRUE

A quota is a quantitative limit on the amount of a product that can be traded

TRUE

Between 2000 and 2008, China's economy grew at a faster rate than Japan's economy.

TRUE

Companies and individuals transfer capital internationally primarily because of expectations of earning higher returns.

TRUE

Countries enact trade policies based on trade theories, which, in turn, affect companies' optimum production locations.

TRUE

Countries with large land areas are generally less dependent on trade than countries with small land areas.

TRUE

Economic indicators such as GNI, and its expression in terms of per capita, growth rate, and PPP, are not sufficient to develop a clear picture of the overall quality of life in a country.

TRUE

Governments sometimes prohibit operations of private companies, foreign or domestic, in some sectors because they feel these services should not be sold at a profit.

TRUE

Gross domestic product is the value of production that takes place within a nation's border, without regard to whether the production is done by domestic or foreign factors of production.

TRUE

Helping a struggling domestic company through import restrictions frequently causes other countries to retaliate.

TRUE

Import substitution is a program promoting local production of products that would otherwise be imported.

TRUE

In a command economy, the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold are all planned by the government.

TRUE

In most cases, if the misery index of a country is high, then consumers and businesses are less likely to spend and invest.

TRUE

Infant-industry protection requires some segment of the economy to incur the higher costs when local production is inefficient.

TRUE

Inflation affects interest rates, exchange rates, the cost of living, general economic confidence, and the stability of the current political system.

TRUE

The argument for using import controls to promote exports is partially premised on the assumption that other countries will remove their import restrictions as a result.

TRUE

The combination of free trade and free movement of production factors offers maximum production efficiency.

TRUE

The comparative advantage theory holds that a country will gain from trade even though it can produce all goods more efficiently than other countries.

TRUE

The countries most likely to be successful at using trade retaliation are large trading countries

TRUE

The existence of the four favorable conditions of the diamond of national advantage does not guarantee that an industry will develop in a given locale.

TRUE

The factor proportions theory holds that countries should concentrate production on those products that use their most abundant production factors

TRUE

The foreign-born population as a percentage of total population is substantial for some countries and insignificant for others.

TRUE

The four favorable domestic conditions of the diamond of national advantage help to explain how and where globally competitive companies develop and sustain themselves.

TRUE

The growth of small-scale production technology will most likely enable small countries to produce products efficiently for their own consumption.

TRUE

The infant-industry argument for trade protection holds that an industry needs government protection from imports until it becomes competitive enough in world markets.

TRUE

The international regulatory situation for trade is becoming more, rather than less, complex.

TRUE

The lowering of a foreign producer's price as a result of an imposed import tax is known as an optimum tariff.

TRUE

The so-called "misery index" is the sum of a country's inflation and unemployment rates.

TRUE

The theory of absolute advantage holds that there are advantages to trade because different countries can produce different goods more efficiently than others.

TRUE

When a company is seeking protection from imports, it can usually improve its chances of getting that protection if it allies with most of the companies in the industry.

TRUE

When customs officials set a value on which to place an import tariff, they ordinarily use the declared invoice price unless they doubt its authenticity

TRUE

Which of the following hypothetical examples would be a restriction on the import of services

The U.S. restricts foreign companies from carrying cargo between two U.S. cities

What assumptions underlie the theories of specialization in international trade? What are the limitations of these assumptions?

The assumptions that underlie the theories of specialization in international trade include the following: a. Full employment: When countries have many unemployed or unused resources, they may seek to restrict imports to employ or use idle resources. b. Economic efficiency: Countries may pursue objectives other than output efficiency. They may avoid overspecialization because of the vulnerability created by changes in technology. c. Division of gains: If a country perceives a trading partner is gaining too large a share of benefits, it may forgo absolute gains for itself so as to prevent relative losses. d. Two countries, two commodities: Two countries trading only two commodities is unrealistic. e. Transport costs: If it costs more to transport the goods than is saved through specialization, then the advantages of trade are negated. f. Statics and dynamics: The relative conditions that give countries advantages or disadvantages in the production of given products are dynamic, not static, as the theories view countries' advantages. g. Services: An increasing portion of world trade is in services, and the theories deal with commodities. h. Production networks: Specialization may take place by function or by component as well as by final product. i. Mobility: The assumption that resources can move domestically from the production of one good to another, and at no cost, is not completely valid.

All the following are reasons for the lower international mobility of people than capital EXCEPT which one?

The differences in economic return between countries are lower for people than for capital

A government increases its internal debt for all of the following reasons EXCEPT which of the following reasons EXCEPT ________.

The government borrows money from international financial institutions

Country X has a significant amount of external debt. Which of the following is the most likely cause?

The government of Country X borrowed money from other governments

Which of the following statements is most likely FALSE?

The greater the geographic distance between countries the greater the trade

Explain the rationale for and problems with making the infant-industry argument work as intended

The infant-industry argument holds that a government should guarantee an emerging industry a large share of the domestic market until it becomes efficient enough to compete against imports. Developing countries still use this argument to support their protectionist policies. The infant industry argument is based on the logic that although the initial output costs for an industry in a given country may be so high as to make it noncompetitive in world markets, over time the costs will decrease to a level sufficient to achieve efficient production. The cost reductions may occur for two reasons: As companies gain economies of scale and employees become more efficient through experience, total unit costs drop to competitive levels. Although it is reasonable to expect costs to decrease over time, they may not go down enough, which poses two problems for protecting an industry. First, governments have difficulty identifying those industries that have a high probability of success. If infant-industry protection goes to an industry that does not reduce costs enough to make it competitive against imports, chances are its owners, workers, and suppliers will constitute a formidable pressure group that may prevent the importation of a cheaper competitive product. Second, even if policymakers can ascertain which industries are likely to succeed, it does not necessarily mean that companies in those industries should receive governmental assistance. Entrepreneurs may incur the costs and reap the benefits instead. For the infant-industry argument to be fully viable, future benefits should exceed early costs.

In a short essay, discuss the four stages of the international product life cycle

The international product life cycle theory of trade states that certain kinds of products go through a continuum, or cycle, that consists of four stages—introduction, growth, maturity, and decline. The location of production will shift internationally depending on the stage of the cycle. a. Introduction: Most new products are produced in and exported from developed countries because of their combined demand conditions and labor skills. Many reasons account for the dominant position of developed countries, including competition, demanding consumers, the availability of scientists and engineers, and high incomes. Early production also generally occurs in a domestic location so the company can obtain rapid market feedback, as well as save transport costs. b. Growth: As sales of the new product grow, competitors enter the market. At the same time, demand is likely to grow substantially in foreign markets, particularly in other developed countries. In fact, demand may be sufficient to justify producing in some foreign markets to reduce or eliminate transport charges, but the output at this stage is likely to stay almost entirely in the foreign country with the additional manufacturing unit. The original producing country will also increase its exports in this stage but lose certain key export markets in which competitors commence local production. c. Maturity: In this stage, worldwide demand begins to level off, although it may be growing in some countries and declining in others. There is often a "shake-out" of producers such that product models become highly standardized, making cost an important competitive weapon. Longer production runs become possible for foreign plants, which in turn reduce per-unit cost for their output. The lower per-unit costs create demand in developing countries. d. Decline: As a product moves to the decline stage, those factors occurring during the mature stage continue to evolve. The markets in developed countries decline more rapidly than those in developing countries as affluent customers demand newer products. By this time, market and cost factors have dictated that almost all production is in developing countries, which export to the declining or small-niche markets in developed countries. In other words, the country in which the innovation first emerged and exported from then becomes the importer.

In a short essay, discuss the theory of absolute advantage and the reasons a country's efficiency improves based on this theory.

The theory of absolute advantage holds that different countries produce some goods more efficiently than other countries; thus, global efficiency can increase through free trade. Developed by Adam Smith, the theory of absolute advantage says the real wealth of a country consists of the goods and services available to its citizens. Smith reasoned that if trade were unrestricted, each country would specialize in those products that gave it a competitive advantage. Each country's resources would shift to the efficient industries because the country could not compete in the inefficient ones. Through specialization, countries could increase their efficiency because of three reasons: a. Labor could become more skilled by repeating the same tasks. b. Labor would not lose time in switching from the production of one kind of product to another. c. Long production runs would provide incentives for the development of more effective working methods.

What is the theory of country size? How is country size determined? How does country size affect national trade patterns?

The theory of country size says that countries with large land areas are more likely to have varied climates and an assortment of natural resources than smaller countries, thus making them more self-sufficient. Although land area is the most obvious way of measuring a country's size, countries also can be compared on the basis of economic size. Distance to foreign markets affects trade patterns in large and small countries differently. Normally, the farther the distance, the higher the transport costs, the longer the inventory carrying time, and the greater the uncertainty and unreliability of timely product delivery. In addition, large countries' production and market centers are more likely to be located at a greater distance from other countries, raising the transport costs of foreign trade.

The relationship between import substitution policies and export-led development policies is best characterized by which of the following?

The two are hard to distinguish because production under import substitution may eventually be exported.

What are the arguments for and against nations developing and implementing strategic trade policies?

The two basic approaches to government policy are to alter conditions that will affect industry in general—a non-strategic approach—and to alter conditions that will affect a targeted industry—a strategic approach. Regardless of whether a government takes a general or specific approach, it may alter the competitive positions of specific companies and production locations. The first approach means altering conditions that affect factor proportions, efficiency, and innovation. A country may upgrade production factors by improving human skills through education, providing infrastructure, promoting a highly competitive environment so that companies must make improvements, and inducing consumers to demand a higher quality of products and services. The second approach is to target specific industries. This approach has usually resulted in only small payoffs, largely because governments find it difficult to identify and target the right industries. Moreover, too many countries may identify the same industries.

In nearly half the cases in which U.S. firms have requested protection from imports, one or more U.S. companies in the industry opposed the protection. What was the reason for opposing protection?

They believed that they could compete against global and domestic rivals.

All of the following are generally true about trade-displaced workers EXCEPT which one?

They move abroad to take new jobs

Most countries have agreed on how to assess values when their customs agents levy tariffs. Which of the following best expresses this agreement?

They should use the declared invoice price unless they doubt its authenticity

As an international business manager, how can you benefit from an understanding of international trade theories?

Trade policies have an impact on business because they affect which countries can produce given products more efficiently and whether countries will permit imports to compete against their domestically produced goods and services. In turn, a country's policies influence which products companies might export to given countries, as well as what and where companies can produce in order to sell in the given countries.

Why should managers have an understanding of trade protectionism

Trade protectionism affects a company's ability to sell abroad and ability to compete at home

What is the most likely reason that consumers rarely protest import restrictions that raise the prices they pay for a specific product?

Typically, although the added costs to consumers for a given product are high in aggregate, they are fairly trivial for most individual consumers.

Kyle, an international manager for Apex Industries, has been given the task of analyzing the economies of three different emerging countries for the firm's potential expansion. Which of the following questions is LEAST relevant to Kyle's assignment?

What is the likelihood that Apex can fill manufacturing positions with locals?

What is dumping? What are the possible effects of dumping on a country's economy?

When companies export below cost or below their home country price, this is called dumping. Most countries prohibit imports of dumped products, but enforcement usually occurs only if the imported product disrupts domestic production. If there is no domestic production, then the only host country effect is a low price to its consumers. Companies may dump because they cannot otherwise build a market abroad. They can afford to dump if the competitive landscape allows them to charge high domestic prices or if their home country government subsidizes them. They may also incur short-term losses abroad if they believe they can recoup those losses after eliminating competitors in the market. Home country consumers or taxpayers seldom realize that they are, in effect, paying so that foreign consumers have low prices. A company believing it is competing against dumped products may ask its government to restrict the imports.

The diamond of national advantage would be best used to answer which of the following questions

Why do specialized competitive advantages differ among countries

Which of the hypothetical new products, if successful, would most likely diffuse its production and sales according to the product life cycle theory?

a Sony television that receives global transmissions without a satellite dish or cable connection, introduced at a high price but targeted eventually for sale to a mass market

All of the following are examples of international labor mobility EXCEPT ________.

a college student on a study abroad program

All countries face the questions of what, how much, and with whom they should import and export. How they answer these questions primarily affects whether ________.

a company's present production location will be competitive

Brain drain is a term that describes ________.

a country's loss of educated, productive people

The U.S. catfish industry successfully petitioned the U.S. government to require that catfish varieties imported from Vietnam be labeled as tra, basa, or pangasius. This is an example of which of the following?

a nontariff barrier

Export-led development refers to ________.

a program to promote industries with export potential

In international trade, what is a quota?

a quantitative limit on the amount of a product that can be imported or exported

An import license is ________.

a requirement that permission be secured from governmental authorities before importation can be undertaken

Costa Rica's recent economic transformation to depend more on high-tech manufacturing is largely due to its adoption of ________ trade policy.

a strategic

What is meant by the idea of economic freedom? What factors are used in the Economic Freedom Index? For managers, what role does the Economic Freedom Index play in analyzing the potential of a country?

a. Economic freedom is the "absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself." Rather than the state, individuals decide how they wish to work, produce, consume, save, and invest. Importantly, that freedom is both protected by the state as well as unconstrained by the state. b. The economic factors on which the index of economic freedom is based are trade freedom, business freedom, monetary freedom, investment freedom, freedom from corruption, freedom from government, property rights, financial freedom, and labor freedom. c. The study is helpful in that it identifies ways that governments control economic activity and the degree to which they do so. Operationally, this index helps managers understand the degree to which the government of a country intervenes with the principles of free choice, free enterprise, and free prices for reasons that go beyond the basic need to protect property, liberty, citizen safety, and market efficiency. This information helps managers make better plans to invest funds and run operations in a particular country.

Briefly discuss the four noneconomic rationales for governmental intervention in the free movement of trade: maintaining essential industries, preventing shipments to unfriendly countries, maintaining or extending spheres of influence, and preserving national identity.

a. Maintenance of essential industries (especially defense): A major consideration behind governmental action on trade is the protection of essential domestic industries during peacetime so that a country is not dependent on foreign sources of supply during war. This is called the essential-industry argument. This argument for protection has much appeal in rallying support for import barriers. However, in times of real crisis or military emergency, almost any product could be essential. Because of the high cost of protecting an inefficient industry or a higher-cost domestic substitute, the essential-industry argument should not be accepted without a careful evaluation of costs, real needs, and alternatives. Once an industry becomes protected, that protection is difficult to terminate because protected companies and their employees support politicians who will support their protection from imports. b. Prevention of shipments to unfriendly countries: Groups concerned about security often use defense arguments to prevent exports, even to friendly countries, of strategic goods that might fall into the hands of potential enemies or that might be in short supply domestically. Export constraints may be valid if the exporting country assumes there will be no retaliation that prevents it from securing even more essential goods from the potential importing country. Trade controls on nondefense goods also may be used as a weapon of foreign policy to try to prevent another country from easily meeting its economic and political objectives. c. Maintenance or extension of spheres of influence: Governments frequently give aid and credits to, and encourage imports from, countries that join a political alliance or vote a certain way within international bodies. A country's trade restrictions may also coerce governments to follow certain political actions or punish companies whose governments do not follow the actions. d. Conservation of activities that help preserve a national identity: Countries are held together partially through a common sense of identity that sets their citizens apart from other nationalities. To protect this "separateness," countries limit foreign products and services in certain sectors, particularly the media.

Describe the three ways economies can be categorized. Which one do you believe is best? Why?

a. Market economy: A market economy is one in which resources are primarily owned and controlled by the private sector, not the public sector. The key factors that make the market economy work are consumer sovereignty and freedom of companies to operate in the market. Prices are determined by supply and demand. b. Command economy: In a command economy, also known as a centrally planned economy, all dimensions of economic activity, including pricing and production decisions, are determined by a central government plan. The government owns and controls all resources. The government sets goals for every business enterprise in the country by how much they produce and for whom. In this type of economy, the government considers itself a better judge of resource allocation than its businesses or citizens. c. Mixed economy: In actuality, no economy is purely market or completely command oriented. Most economies are mixed economies, falling in the middle and combining elements of both. In a mixed economy, economic decisions are principally market driven and ownership is principally private, but the government intervenes, from slightly to extensively, in resource allocations and economic decisions

List and define the types of nontariff barriers that limit the quantity of goods traded: quotas, embargoes, buy local legislation, standards and labels, specific permission requirements, administrative delays, and reciprocal requirements.

a. Quotas: The most common type of import or export restriction based on quantity is the quota. From the standpoint of imports, a quota most frequently limits the quantity of a product allowed to be imported in a given year. The amount frequently reflects a guarantee that domestic producers will have access to a certain percentage of the domestic market in that year. b. Embargoes: An embargo is a specific type of quota that prohibits all trade on a whole category of products or on all products from a given country. Governments use embargoes in an attempt to use economic means to achieve political goals. c. "Buy Local" legislation: Another form of quantitative trade control is "buy local" legislation. If government purchases are a large part of total expenditures within a country, they comprise an important part of the market. Most governments favor domestic producers in their purchases of goods. Sometimes they specify a content restriction—in which a certain percentage of the product is of local origin. d. Standards and labels: Countries commonly have set classification, labeling, and testing standards in a manner that allows the sales of domestic products but inhibits that of foreign-made ones. The purpose of testing standards is to protect the safety or health of the domestic population. However, there have been situations where exporters have argued that such restrictions protect domestic producers instead. e. Specific permission requirements: Some countries require that potential importers or exporters secure permission from governmental authorities before conducting trade transactions, a requirement known as an import license. f. Administrative delays: Closely related to specific permission requirements are intentional administrative delays, which create uncertainty and raise the cost of carrying inventory. g. Reciprocal requirements: Governments sometimes require that exporters take merchandise in lieu of money or that they promise to buy merchandise or services in the country to which they export. This requirement is common in the aerospace and defense industries—sometimes because the importer is short of foreign currency to purchase what it wants, and sometimes because the sales are so large the buyer has strong negotiating power.

In a short essay, list and discuss the nontariff barriers that relate to direct price influences: subsidies, aid and loans, customs valuations, and other direct price influences.

a. Subsidies: Countries sometimes make direct payments (called subsidies) to domestic companies to reduce their costs or compensate them for losses incurred from selling abroad. b. Aid and loans: Governments also give aid and loans to other countries. If the recipient is required to spend the funds in the donor country, some products can compete abroad that might otherwise be noncompetitive. c. Customs valuation: Most countries have agreed on a procedure for assessing values when their customs agents levy tariffs, but customs must ascertain whether the invoice correctly identifies the product, its price, and its origin. d. Other direct price influences: Countries frequently use other means to affect prices, including special fees, requirements that customs deposits be placed in advance of shipment, and minimum price levels at which goods can be sold after they have customs clearance.

Neomercantilism describes the approach of countries that try to run a favorable balance of trade to ________.

achieve a social or political objective

Some countries opt for a mixed economic system in the belief that although an economic system should aspire to achieve the efficiencies created by free markets, it must also support policies to ________.

achieve low unemployment

Which term refers to a tariff or duty assessed as a percentage of an item's value?

ad valorem duty

Most world trade takes place ________.

among developed countries

Advocates of the comparable access argument for trade protection primarily assert that domestic industries ________.

are entitled to the same access to foreign markets as foreign industries have to their markets

Which of the following is a statement that summarizes all economic transactions between a country and the rest of the world during a given period of time?

balance of payments

In computing GNI, the value of a Ford car that is manufactured in Mexico using capital from the United States would ________.

be added to the GNI of the United States but not the GNI of Mexico

According to the product life cycle theory, production and sales are primarily domestic in the introductory stage because ________.

businesses need quick market feedback

Successful trade retaliation is most likely achieved ________.

by a large trading country

In Country X, all dimensions of economic activity, including pricing and production decisions, are determined by the central government. Which term best describes Country X?

command economy

All of the following are types of products that are usually exceptions to what is predicted by the product life cycle theory EXCEPT ________.

consumer durables

In a market economy, the patterns of resource allocation are most directly influenced by ________.

consumers who "vote" by their personal decision to buy or not buy products

In a country's balance of payments, the ________ tracks all trade activity in merchandise.

current account

The two main categories in the balance of payments are the ________.

current account and the capital account

The government of Country X imposes import restrictions on steel to help the domestic steel industry in depressed areas. What is the most likely result of such restrictions?

damaging other industries in Country X

According to the PLC theory, developing countries have their best production advantage in which stage of the product life cycle?

decline

All of the following factors most likely led to Costa Rica's attraction of high-tech FDI EXCEPT the country's ________.

demand for high-tech products

Developing countries have sometimes adopted policies to shift people out of agriculture and into industry by protecting manufactured production. One of the problems they have encountered is that ________.

demand for social and political services has increased excessively in the cities

Countries with varied climates and varied natural resources generally ________ than countries with less varied climates and natural resources.

depend less heavily on trade

What is the most likely reason that a universal scheme for assessing the performance and potential of a country's economic environment does NOT exist?

difficulties of identifying a definitive set of predictive economic indicators

The Economic Freedom Index indicates that economic freedom is positively correlated with all of the following EXCEPT ________.

diversity

Exporting below cost or below the home country price is called ________.

dumping

The U.S. catfish industry petitioned the U.S. government for increased taxes on imported Vietnamese fish, claiming that the fish were being sold below the cost of production. The U.S. catfish industry was accusing the Vietnamese fish industry of ________.

dumping

According to the concept of green economics, measuring a country's economic performance should also take into account ________.

ecological costs

Since the late 1980s, the growing emergence of freer markets has been powered by the realization that ________.

economic growth is directly related to economic freedom

Country X wants to eliminate its balance of trade deficit while simultaneously keeping prices low for imported essentials. Which of the following methods would most likely achieve these dual objectives?

enacting selective import restrictions

There are several reasons for a company to sell products abroad at either below cost or below the price in the home country. Which of the following is one of these reasons?

encouraging foreign consumers to try new products

Tatum Manufacturing recently opened a new facility in Hong Kong. The firm can most likely expect the Hong Kong government to ________.

ensure fair competition

A worrisome outcome of chronic inflation is that it tends to ________.

erode confidence in a country's currency

The comparative advantage theory holds that a country will gain from trade ________.

even though it can produce all goods more efficiently than other countries

An import tariff may be protective ________.

even though the importing country does not produce the product

Uneven income distribution ________.

exists in almost every country

The Human Development Index measures the average achievements in a country on three basic dimensions of human development, including ________.

extent of knowledge

The trade theory that says countries should concentrate production on those products using their most abundant production factors is the ________.

factor proportions theory

Export restrictions have a tendency to ________.

favor domestic consumers

Defense arguments are sometimes used to prevent exports to unfriendly countries. This runs the risk of the targeted country ________.

finding alternative sources of supply

Countries sometimes fear that foreign producers are pricing their exports artificially low. This fear is most likely based on the assumption that ________.

foreign producers will charge exorbitant prices after putting competitors out of business

It is sometimes contended that by imposing import controls a country might be able to increase its exports. This contention is premised on ________.

getting other countries to maintain or relax their current import restrictions instead of escalating restrictions in a trade war

In a command economy, the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold are planned by ________.

government officials

The term protectionism when applied to international trade refers to ________.

governmental restrictions and competitive support actions to affect trade flows

The recent global economic crisis has led to which of the following?

governments seeking to impose more constraints on capitalism

Which of the following undesirable results will most likely occur for a country running a favorable balance of trade?

granting credit that may be risky

The measure of the value of production that occurs within a country's borders without regard to whether the production is done by domestic or foreign factors of production is its________.

gross domestic product (GDP

Which of the following is NOT causing greater complexity in the regulation of trade?

growth in export tariffs

An economic system is the set of structures and processes that ________ in a country

guides the allocation of resources and shapes the conduct of business activities

Which of the following ideas calls for assessing a country's performance based on factors such as life expectancy, leisure time, and income equality?

happynomics

El Salvador has a population density of about 620 people per square mile and neighboring Honduras a population density of about 115 people per square mile. According to the factor proportions theory of trade, one would expect El Salvador's exports to Honduras to ________.

have a higher labor-to-land ratio than its imports from Honduras

A physician, who is a citizen of and licensed in Country A, meets the professional licensing requirements of Country B. The physician will most likely ________.

have to get a work permit from Country B's immigration authorities to work in Country B

Countries with large land areas are generally less dependent on trade than countries with small land areas because of ________.

higher transportation costs related to foreign trade

Country X is withholding goods from international markets in an attempt to raise prices abroad. Such actions will be most effective for Country X if the nation ________.

holds a monopoly on the product or resource

Between now and 2050, countries undergoing a simultaneous population reduction and an increased percentage of retirees in the population most likely will need more ________.

immigrants

Labor and capital mobility are intertwined because ________.

immigrants bring an investment in human capital with them

Unemployed workers are most apt to form a pressure group to support ________.

import restrictions

Which term refers to restricting imports in order to boost domestic production and consumption of goods that would otherwise be imported?

import substitution

A possible drawback to the essential industry argument for import protectionism is ________.

in times of military emergency, almost any product could be considered essential

Gross national income (GNI), the broadest measure of economic activity for a country, is defined as the ________.

income generated by both total domestic production and the international production activities of national companies

The so-called "misery index" is the sum of a country's ________.

inflation and unemployment rates

Companies with ________ would most likely oppose global protectionist measures

internationally integrated supply chains

Contrary to the product life cycle theory, there has been an increased tendency for companies to ________.

introduce new products simultaneously in domestic and foreign markets

A problem that can arise in using trade protectionism to develop international competitiveness for a domestic industry is that ________.

it is difficult to identify industries that have a high probability of reaching competitiveness

The rationale for the infant-industry argument for trade protection is that ________.

it takes time for an industry to become competitive in world markets, so protection is needed to help this industry pass through the critical period

Tests to substantiate the factor proportions theory have had mixed results most likely because

labor skills and education are not homogeneous

History suggests that if the economic crisis worsens, we are likely to see more people question the ________.

legitimacy of capitalism

Under mercantilism, governments sought to influence trade by ________.

limiting imports and subsidizing exports

The U.S. automobile industry has attempted to counter import competition in all the following ways EXCEPT ________.

lobbying for customs deposits so that importers' costs would be raised

Costa Rica applied the concepts of the diamond of national advantage theory to help transform its economy by ________.

looking globally to develop favorable conditions

According to the optimum tariff theory, a foreign producer will most likely ______

lower its export prices if the importing country imposes an import tax on its products

) In the Economic Freedom Index, ________ exhibit high economic freedom whereas ________ exhibit little to no economic freedom.

market economies; command economies

A system in which individuals, rather than the government, make the majority of economic decisions is commonly referred to as a ________.

market economy

The trade theory that says a country should export more than it imports is known as ________.

mercantilism

A firm with operations in Denmark can most likely expect all of the following EXCEPT ________.

minimal monetary policies

In the U.S., the unemployment rate indicates the ________.

percentage of unemployed workers seeking paid work relative to the total labor force

During a time of reflation, the government is most likely to ________.

print money

Country X is in the process of transforming from a command economy to a market economy. This process most likely involves ________.

privatization of many factors of production

Nontradable goods are best defined as ________.

products and services for which exporting costs are excessive

) Eileen, a manager at an international restaurant chain, wants to know if it will be most cost effective to buy 1,000 pounds of sugar in Country X or in Country Y using U.S. dollars. Which of the following is Eileen most likely trying to determine?

purchasing power parity

In most cases, governments ________ in order to regulate inflation

raise interest rates

Countries most likely establish export restrictions to ________.

raise prices in foreign markets

The free trade theories of specialization primarily assume that ________.

resources are immobile internationally

The free trade theories of specialization primarily assume that ________.

resources can move domestically from the production of one good to another

Analysts conclude that the finite supply of natural resources will most likely ________.

serve as an advantage for developing countries in their sales to developed countries

The most internationally mobile factor of production is ________.

short-term capital

Tied aid requires a recipient to ________.

spend the funds in the donor country

Which of the following is NOT a characteristic of capitalism?

state control of factors of production

Comparative advantage differs from absolute advantage in that the former ________, whereas the latter ________.

states that there is a basis of trade even if one country can produce everything more efficiently than another country; does not deal with this issue

The recent global credit crisis has interrupted the trend of national economies ________.

steadily adopting the free market model

The inability of a company to gain foreign production factors to use in its domestic operations most likely ________.

stimulates the company to adopt efficient substitute methods of production

All of the following are features of the diamond of national advantage theory EXCEPT ________.

strategic trade policy regulations

Assume a government is considering import restrictions on sugar because sugar imports are hurting the domestic industry. Which of the following groups is LEAST likely to speak out on the subject?

sugar consumers

In a country that practices state capitalism, all of the following are most likely to be handled by the state EXCEPT ________.

supporting the local activities of foreign competitors

Which of the following calls for economic activity that meets present needs without hindering the future needs of society?

sustainable development

The premise that there will be more finely tuned specialization of production among countries is most likely based on the idea that companies will ________.

take advantage of wage and skill differences among countries

A governmental strategic trade (industrial) policy is one that ________.

targets the resources needed to support industries that seem to fit best with the country's advantages

In most cases, which type of government protection assistance is most controversial?

tariffs

Assume the following conditions: In the United States it takes 5 units of resources to produce a ton of potatoes and 10 to produce a ton of coal. In Canada it takes 6 units of resources to produce a ton of potatoes and 9 to produce a ton of coal. According to the theory of absolute advantage, ________.

the United States should export potatoes to Canada and import coal from Canada

Assume the following conditions: In the United States it takes 4 units of resources to produce a ton of potatoes and 5 to produce a ton of coal. In Canada it takes 6 units of resources to produce a ton of potatoes and 10 to produce a ton of coal. According to the theory of comparative advantage, ________.

the United States should import potatoes from Canada and export coal to Canada

An argument against limiting exports to unfriendly countries is that ________.

the costs of the sanctions are borne by innocent people rather than by leaders

According to the theory of comparative advantage, a country gains from foreign trade even though it may have an absolute advantage in the production of all products because ________.

the country will forego producing its less efficient output in order to produce its more efficient output

Assume a government places restrictions on a specific product from a specific foreign country. What would be the government's most likely concern about the foreign country's response?

the foreign country restricting its own imports

In a command economy, ________.

the government sets goals and determines the price and quantity of what is produced

Terms of trade refers to ________.

the quantity of imports that a given quantity of a country's exports can buy

Which of the following best explains why the experience of countries such as Taiwan and South Korea are used to support export-led development policies?

their rapid economic growth

The fact that there are few reciprocal agreements among countries on the licensing of professionals most likely means that ________.

there is an effective limitation on trade in services

In this example, assume that both trade and production factors are internationally mobile. Using domestic labor, the labor cost per silicon chip is $.10 in Japan and $.20 in the United States. Using domestic capital, the capital cost per chip is $.10 in Japan and $.05 in the United States. Chip transportation in either direction is $.10. Japanese labor is willing to work in the United States for $.15 per chip including the workers' transport cost. U.S. capital will go to Japan at a cost of $.08 per chip including transaction costs. Which silicon chips will the United States buy?

those made in the United States with Japanese labor and U.S. capital

What is the main motive for countries' protection of their film/cinema industries

to maintain their cultural sovereignty

Managers should understand the effect of trade protectionism because ________.

trade protectionism may make it difficult for a company to buy what it needs from foreign suppliers

According to Adam Smith's theory of absolute advantage, specialization allows countries to increase their efficiency for each of the following reasons EXCEPT ________.

transportation costs could be lowered by producing closer to markets

Because all countries face the questions of what, how much, and with whom they should import and export, international business managers should most likely ________.

understand the theories used to answer these questions because policies affect business operations

The industrialization argument for trade protection in developing countries is based on the assumption that ________.

unemployment and underemployment exists in rural areas, so little agricultural output is lost as people move into industrial jobs

According to the diamond of national advantage theory, the domestic existence of all four conditions best explains ________.

where globally competitive firms develop and sustain themselves

An effective tariff is the sum of the ad valorem tariff plus the specific duty

FALSE

________ is a general, sustained rise in prices measured against a standard level of purchasing power.

Inflation