FVC1 V2 STUDY GUIDE

Constitutional Monarchy

A King or Queen is the official head of state but power is limited by a constitution and controlled by Congress and the prime minister- UK

Country similarity theory

Firm based very that incorporates brand, customer loyalty, technology, and quality into the understanding of trade flows. Consumers in countries that are in the same or similar stage of development would have similar preferences. Companies first produce for domestic consumption. When they explore exporting, companies often find that markets that look similar to the domestic one, In terms of customer preferences offer the most potential for success

Common market (5 stages of regional economic integration)

Labor, tech, and capital can easily move throughout the member countries ex: COMESA

What are the benefits and costs of global expansion from MNCs' perspective?

Pros - organizations choose to operate internationally because they can achieve either higher levels of revenue or a lower cost structure within their operations. Cons - Ethical business practices Organizational structure Public relations: Leadership Legal and regulatory structure: Infrastructure Technology

How does tariff impact prices, quantity of imported product, consumers, domestic businesses, and the government?

Quotas and tariffs increase the price on the product negative impact on consumers due to higher prices The domestic business makes more money from increased price Government - tax revenue

How Government restrict FDI

Specify ownership restrictions. Home country governments Can increase tax rates And sanctions To keep companies from offshoring. Mandatory partnerships with host country businesses. Nationalization of critical industries such as petroleum.

How to promote trade

The GATT WTO Regional Economic Integrations

pluralism

both public and private groups are essential in a well-functioning political system

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

Democracy

government by the people. strives to provide all citizens an equal voice, or vote, in determining state policy, regardless of their socioeconomic status. Most encourage freedom of speech, the press, and assembly, and they prohibit unlawful imprisonment. The government pass laws & regulations to constrain total freedom

trade deficit

more imports than exports

NGO or non-governmental organization (form of international business)

nonprofit, voluntary citizens' groups that are organized on a local, national, or international level. international treaties and organizations were perceived by human rights activists as being too centered on the interests of business. In an attempt to counterbalance this trend, this was formed to emphasize humanitarian issues, developmental aid, and sustainable development.

Government Support (driver of globalization)

presence or absence of favorable policies, support for industry

CAGE Framework

shares the conventional notion of distance and how it affects business amongst different borders. The smaller the distance the greater opportunity for business and vice versa cultural- differences between two countries reduce their economic exchange administrative - the same governmental ties (laws, policies, regulations) the high likelihood of business geographic - as distance goes up, trade goes down, since distance usually increases the cost of transportation. Geographic differences also include time zones, access to ocean ports, shared borders, topography, and climate. economics - differences in demographic and socioeconomic conditions

the world is flat view

speaks about how the public familiarity of technology incorporated that knowledge into business and personal communication, along with the market influx of billions of people from Asia and the former Soviet Union who wanted to become more prosperous quickly. The benefits of 10 events became greater as it merged with another event and was able to Increase global collaboration by talented people without regard to geographic boundaries, language, or time zones which created opportunity for billions of people

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

Absolute advantage

the ability to produce a good using fewer inputs (more efficiently) than another producer

economies of scope

the ability to use one resource to provide many different products and services

Heckscher-Ohlin theory (Factor propositions)

the reason why countries could gain a comparative advantage by producing products that used factors that were in abundance in the country. factors of production needed: labor, land, natural resources, capital and technology Factors that were in abundant supply relative to demand would be cheaper; factors in high demand relative to supply would be more expensive

deregulation

the removal of some government controls over a market

privatization

the selling of government-owned business to private citizens

absolute quota

limits the amount of a good allowed into the country to some specific quantity for the year

Tariff Rate Quota

lower tariff rates applied to imports within the quota than those over the quota, Once the initial quota is surpassed, imports are not stopped; instead, more of the good may be imported, but at a higher tariff rate.

What business opportunities are presented by globalization?

Advances in transportation and telecommunication infrastructure have been major factors

North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico.abolition of tariffs and quotas among members Member pursue independent trade policies with non-members Went into effect on 1/1/1994 Canada is US second largest trade partner (Mexico is 3rd) Objectives: expand trade through elimination of trade barriers Protect IP rights Protect labor rights and environmental quality The US-Mexico-Canada Agreement may replace it in the future

NAFTA (North American Free Trade Agreement)

An agreement for free trade between the United States and Canada and Mexico

What are the arguments for and against globalization?

Benefits - larger markets, lower cost, Advanced technology Challenges (companies perspective) - Ethical business practice concerns, Organizational structure, public relations, leadership, legal and regulatory structure Pros (country's perspective) Economic growth, increased well being of hum society, Increased trade and investment Cons: Benefits the rich at the expense of the poor, job loss in developed countries, environmental damage and unethical practices of labor; loss of power of local government pros-international businesses have expanded markets in which they sell their goods. They also say that increased competition drives innovation in global markets. spreading English across the globe, enables speakers of various, less prominent languages to connect and build shared content a process of homogenization marked by the global domination of American culture at the expense and erasure of other cultures con-globalization has allowed outsourcing of jobs which pay workers lower salaries and offer no benefits. A disadvantage to impoverished countries.Increasing income disparities. a process of homogenization marked by the global domination of American culture at the expense and erasure of other cultures

international trade

Export (+) import (-)

Mercantilism

Gold and silver are important to country's wealth Trade Surplus, more export less import increase holding Modern thinking - Neo-Mercantilism: Countries promote a combination of protectionist policies and restriction and domestic industry subsidies to promote exports

Define greenfield and brownfield FDIs. Give an example for each.

Greenfields FDI: when multinational corporations enter into host countries to build new facilities where none previously existed Brownfield FDI: when MNC enter into host countries by purchasing or leasing existing facilities. less expensive

List and explain types of tariffs.

Import Export - limit quantity of product in order to increase price Protective Tariff - reduce imports of a product Revenue Tariff - increase revenue for the government Specific Tariff - flat rate tax imposed on imported product Ad-valorem tariff - percentage based tariff, based on value of the product Compound tariff - combination of specific and ad-valorem tariff

Foreign Direct Investment

Long term strategy, Investment made by a foreign company in the economy of another country. a company acquires a foreign firm or asset with the intent to control and manage it to strengthen its economic and financial market position.

What are the benefits of MNC

MNC can often overcome trade problems ability to sidestep regulatory problems shift production from one plant to another as market conditions change tap new technology from around the world save a lot in labor costs

competition (driver of globalization)

New markets(in order to keep competitiveness they may need to have the best technology and enter global), increased levels of trade

market opportunities (driver of globalization)

Opportunity for scale and scope. Convergence of needs. (same needs in different markets) No need for change and can sell to different market (export to different countries)

Module 3: International Agreements (Lesson 10-13)

Review page 25

What is managed trade?

Sanctions Dumping Infant Industry Argument Health and Safety Limiting outsourcing Global monopoly National Security Tariff, quota and subsidies

Islamic Law

Sharia, which refers to the "way" Muslims should live or the "path" they must follow. banks cannot charge or benefit from interest Some banks will charge a hefty up-front fee. Many engage in sale buyback or leaseback of an asset. Africa, the Middle East, Central Asia, and South Asia

common law

The judge interpret the law. US based on traditions and precedence and can be traced to the English monarchy. adversarial because the judge's role is to act as a moderator between two opposing parties. A jury may determine the facts, and a judge decides which law will be applied to the case. Both prosecutors and defense attorneys have an active role. Victims may serve as witnesses, but they are not a party in criminal cases. Australia, Canada, England, and Wales

civil law

The judge applies the law code. More strict A legal system based on a written code of laws. Roman legal tradition. system where the investigating judge investigates the facts of the case. Juries are rarely used. The victim may participate in the trial and have rights (Justice). It is the most widespread legal system in the world. found in most of continental Europe, Central America, and South America

Doha Rounds (2001)

To date, the round has shown little progress in advancing free trade. Developing nations are pushing for the reduction of farm subsidies in the United States, Europe, and Japan. Emerging countries say that subsidies stimulate overproduction, which drives down global agricultural prices, low prices mean that they cannot compete in the global marketplace.

portfolio investment

The purchase of stocks and bonds to obtain a return on the funds invested

dividend repatriation

The return of earnings from foreign subsidiaries to their parent companies back in their home country. Investors will be entitled to a five-year tax holiday, and a discount will be applied to reinvested profits.

per capita income

The total national income divided by the number of people in the nation

benefits of REI

Trade agreements create more opportunities for countries to trade with one another by removing the barriers to trade and investment A reduction or removal or tariffs and quotas results in lower prices for consumers in the bloc countries Production moves to the members of the trading bloc, which have a comparative advantage and therefore are more efficient in production May significantly contribute to the relatively high growth rates in less developed countries By removing restrictions on labor movement, economic integration can help expand job opportunities May also facilitate closer political cooperation and promote peace

Why does international trade occur?

Trade creates win-win situation for both exporting and importing countries Trade promotes economic development and increases living standard Specialization and economies of scale Government policy's impact (provide subsidies)

Impact of trade

With free trade: Possible job loss in certain industries Trade affects wages Labor standards and working conditions are concerned

What is free trade agreement? How is it approved?

agreements across national borders intended to reduce or eliminate trade barriers to promote economic exchange. Must be approved by the US Senate and House of Reps

Define regional economic integration

an agreement among nations to reduce or eliminate trade barriers among the nations at a minimum and to have a single political, economic, and trade policy identity at its max.

Totalitarian Dictatorship

an extremely oppressive form of dictatorship in which most aspects of citizens' lives are controlled by the leader. Citizens may be forced to publicly demonstrate their faith in the regime by participating in marches and demonstrations.

How does free international trade impact manufacturing jobs in developed nations? What are the concerns on the use of labor in developing nations caused by trade?

imports might injure workers in several different ways: fewer jobs, lower wages, or poor working conditions.

What is globalization?

interdependence and interconnectedness among companies and countries around the globe arising from world views, products, ideas and other aspects of culture.

Define multinational companies. Identify benefits of being a multinational company. Identify impacts of multinational companies.

A company that operates in two or more countries. Corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located

What are the economic, political, and cultural effects of globalization?

-economic trade, investment, information technology -political we instead of I (NAFTA) reduce importance of nation states, some countries don't like political integrations, NGO's --cultural effects transmission of ideas, meanings & values around the world

Define two forms of FDI. Give an example for each.

1. Horizontal FDI: When a company is trying to open a new market-a retailer, for ex, that builds a store in a new country to sell to the local market. 2. Vertical FDI: when a company invests internationally to provide input into its core operations-usually in its home country.-backward vertical FDI: when a firm brings the goods or components back to its home country (ex acting as a supplier) -forward vertical FDI: when a firm sells the goods or components in the local &/or regional market (ex acting as a distributor)

5 stages of entering a global market

1. Market entry - companies enter new countries using business models similar to the one used in the home country. They need to establish a product presence to gain local customers either due to the nature of the business such as in-service industries like food retail or banking, or because of local countries' regulatory restrictions, such as in the auto industry. 2. (product specialization), companies transfer the full production process of a particular product to a single, low-cost location and export the goods to various consumer markets. In this scenario, different locations begin to specialize in different products or components and trade in finished goods. 3. (value chain disaggregation), companies disaggregate the production process and focus on completing each activity in the most advantageous location. Individual components of a single product might be manufactured in several different places and assembled into final products elsewhere. Examples include the PC industry market and the decision by companies to offshore some of their business processes and information technology services. 4. (value chain reengineering), companies increase their cost savings by reengineering their processes to suit local market conditions by substituting lower cost labor for capital. General Electric's (GE) medical equipment division, for example, has tailored its manufacturing processes abroad to take advantage of low labor costs. Not only does it use more labor-intensive production processes, but it also designs and builds the capital equipment for its local plants 5. (creation of new markets), the focus is on market expansion. The McKinsey Global Institute estimates that the third and fourth stages together have the potential to reduce costs by more than 50 percent in many industries. This allows companies to substantially lower their sticker prices in both old and new markets and to expand demand. Significantly, the value of new revenues generated in this last stage is often greater than the value of cost savings in the other stages.

Internal Monetary Fund (european leader)

1944 Initial goal; restore the international payment system. STABILIZE EXCHANGE RATES, foster trade, and correct the balance of payment( BOP) issue (correct temporary trade imbalances with short term loans. Surveillance: oversee international monetary and financial system. Guide of member countries to develop economic policies, provide technical assistance and banking, oversee fiscal affairs and exchange rate stability. The Special Drawing Right-International monetary reserves asset , 2300 employees A member country's quota determines its maximum financial commitment to the IMF, its voting power, Small: 2,300 staff members Short term Loans to all member nations Conditionality pay heavy price in the short-run. collateral for loans not required, but rather a policy reform to correct its financial practices that led to debt. If the conditions are not met, the funds are withheld. Requiring borrowing countries to make structural adjustment such as privatization or deregulation can make conditions worse in a struggling country. IMF policies are significantly impacted by rich countries. Imbalance of voting power-poorer countries are underrepresented. IMF projects might hurt environmental quality. criticisms generally focused on the conditions of its loans, lack of accountability, and willingness to lend to countries with poor human rights records. the practice of overspending may continue.

World Trade Organization (WTO)

1995 trade Encourages international trade through the lowering of trade barriers. Expanded through successive negotiation called Rounds.A forum for negotiations to reduce tariff and nontariff barriers to trade. The Uruguay round-reduced tariff significantly. It also covers IP rights protection (TRIPS). moderator in the world enforces rules and reviews each government's trade policies to evaluate for fairness and transparency body of trade agreements consists of 16 different multilateral agreements and two separate plurilateral agreements GATT commitment to nondiscrimination, all nations must be treated equally Trade-Related Aspects of Intellectual Property Rights (TRIPS) (creative items such as inventions, music, art) the creator of the property has the right to financially benefit. Companies can also own the intellectual property that their employees generate. Oversee creation & administration of agreements between nations (goods, svcs, intellectual property). Monitor the transparency of individual government's trade policies. Build trade capacity by supporting developing nations maintaining a dialogue with nongovernmental agencies, the media, and the general public to increase awareness about WTO activities. Provide a forum for negotiations and settling disputes among nations. assist developing nations as they come under WTO regulation Most-favored-nation status requires that all countries and even nonmembers be treated equally transparency requirement members must publish their trade regulations, allow external review Criticism - Transparency requirement, review of nation's trade policies compromises national sovereignty (or authority). Rules and regulations to protect workers, industries, or environment must be reviewed by the WTO tariff protections used by countries in the developing phase is prohibited, showing that trade rules protect developed countries more than developing countries. multinational company with locations around the world can trade domestically in the countries in which it has subsidiaries and therefore avoid tariffs as a result of most favored nation principle giving them an unfair advantage. The US and the European Union high tariffs on agriculture hurt developing countries where agricultural exports are their primary goods to trade Refusal to address the impacts of free trade on labor rights which leads to a "barrier to free trade" for countries whose competitive advantage is cheap labor They don't restrict imports from countries that do not have high worker protection standards and high environmental protection laws encourages a downgrade of overall standards and does not force countries with lower standards to be motivated to improve.

dictatorship

A form of government held by a single person (or a very small group of people) in which the leader has absolute power and authority using fear as control. Like some absolute monarchies, it may be corrupt and may seek to limit or even eradicate the liberties of the general population. Many start as military leaders and are conditioned to use violence against the opposition. Some do not align themselves with a belief or specific ideology.

Monarchy

A government ruled by a king or queen

anarchism/anarchy

A political philosophy that opposes government in any form.

Totalitarianism

A political system in which the government has total control over the lives of individual citizens.

absolute monarchy

A system of government in which the head of state is a hereditary position and the king or queen has almost complete power

What is the Voluntary Export Restraint (VER)?

An exporting country voluntarily agrees to reduce the quantity that this country can export to a foreign country just to avoid further harsher punishment by the other country

What are the benefits of FDI?

An inflow of Capital can benefit both the global and host country economy. -Increased jobs and reduce poverty -improved human capital development -increased tax revenues. -Invested capital goes to businesses with the highest potential for growth companies -can maximize revenue by expanding their consumer base. -companies can minimize cost through cheaper resources and lower wages. -investors can decrease the risk by diversifying. -investing capital and firms can lead to growth and subsequently increase jobs

economic union (5 stages of regional economic integration)

Barriers to trade removed between countries and they agree to adopt a common economic policy EX: European Union

Free trade area (5 stages of regional economic integration)

Barriers to trade removed between member counties ex NAFTA

Customs union (5 stages of regional economic integration)

Barriers to trade removed between member countries ^ there is a common policy towards trade with non members ex MERCOSUR

Religious Law

Based on religious guidelines.

Traditional Economy

Centered around family Everyone consumes the same goods Relies on bartering No surplus Most sustainable the oldest and simplest passed through generations found in parts of South America, Africa, and Asia. live off the products of labor very little economic evolution or growth. Centered around a family, Found in hunt-gatherer and nomadic societies; everyone consumes and produces the same goods. Relies on bartering produce what they need with no surplus Eventually, the economy evolves to some form of currency. At the mercy of the climate, lower standard of living, vulnerable to a more sufficient market

Communism

Command Economy. Classless society. Goods are distributed equally among citizens. All factors of production are owned by the government a political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person works and is paid according to their abilities and needs. The idea that widespread universal social welfare will help raise labor productivity and advance a society in its development. Universal education with a focus on developing the proletariat with knowledge, class consciousness, and historical understanding. The emancipation of women and the ending of their exploitation. People are treated equally, The government dictates economic structure. There are specific laws and goals, which determine resource and responsibility allocation. If the citizens abide by these laws, there is a harmonious spirit of sharing one goal. Everyone can work harmoniously without interfering with each other. The sense of cooperation allows for efficiency. directly controls the means of production. It places strict rules as to how businesses operate so a classless society is born. It allocates the same amount of money to each worker no matter the field the worker specializes in.It discourages the entrepreneurial spirit, which is key to a country's economic growth and development. the government owns all businesses and properties (the means of production). there is no freedom of speech. large or geographically broad populations tend to be diverse, making it difficult to maintain a common goal or set of rules for shared effort and resources. central planning is challenging to achieve. consumers' needs are not considered. productivity and efficiency are difficult to achieve without a profit motive for the workers. it is challenging to achieve internal balances between supply and demand without a price mechanism

Command Economy

Controlled by the ruling class All resources are owned by the government (communism) An economic system in which the government controls a country's economy. Ancient Egypt economic life was dedicated to building pyramids. Communist societies currently, only North Korea and Cuba The state owns capital resources such as money, property, and other physical assets no (or very little) private ownership. The state determines inputs and outputs Local planning authorities are handed one-year, five-year, ten-year, or, in the case of China, up to twenty-five-year plans Labor is allocated according to state plans, no choice of profession Private ownership is not possible Prices are regulated entirely by the state with little regard for the actual costs of production. Often, a currency does not exist in a command planning economy. When it does, its primary purpose is for accounting. Rapid change can lead to the neglect of society's needs. The production of goods and services are not tied to demand, and, if too little is produced, rationing is necessary. Following the rules, not innovation, is rewarded. Black markets or shadow economies are common. The economy is less flexible and slower to react to change

Cost (Driver of globalization)

Economies of scale (lower production cost if made in bulk) and economies scope (several products being made at the same time using the same production line) and the exploiting cost of factors of production reflecting (possibly moving company to another market if the products are cheaper)

Forms of International Business

Exporting - sell products to foreign countries subject to tariffs & transportation cost Cooperative contracts / Licensing - a domestic company, the licensor, receives royalty payments for allowing another company, the licensee, to produce its product, sell its service, or use its brand name in a particular foreign market., Cooperative contracts / franchising - the franchisor, licenses the entire business to another person or organization, the franchisee. Franchisors provide franchisees with training assistance with marketing and advertising and an exclusive right to conduct business in a particular location Joint Venture - 2 companies combine to make 1 new company Alliance - companies combine resources Wholly-owned Affiliates - 1/3 companies use this to enter foreign markets Selling - companies going from small company in home country to large businesses in foreign markets

How do governments promote FDI

Financial incentives: Provide a combination Of insurance, Loans, and tax breaks. Improve or enhance Local infrastructure—energy, transportation, and communications—to encourage specific industries to invest.. By reducing bureaucracy And regulatory requirements (streamline process of obtaining offices or production). Human capital development: Improve their workforce Through education And job training. Export processing zones or special economic zones are usually a distinct geographic area near a port that is ready to promote export industries. Reduce uncertainty: reassure businesses that the local operating conditions Are stable, Transparent, And unlikely to change

Global strategic rivalry theory

Focuses on firm's competetive advantage Barriers to entry - R&D -IP rights (intellectual property) -Economies of scale -Control of resources

What are the costs of FDI?

Foreign ownership of strategically important industries Could lower the competitive advantage of the nation. Foreign investors could also take advantage Of the company they are investing in and remove valuable assets then leave the country. Job losses in developed economies to host countries that have cheaper labor cost.

The World Bank (U.S. leader)

Formally known as the International Bank for Reconstruction and Development (IBRD). 10K Employees 1944 Initial goal: Support reconstruction of Europe after WWII. 1950-1960 Focused on large infrastructure projects. 1970 assist poorer nations to improve quality of life for fight poverty. Provides low-interest long term loans, interest-free credits for developed countries to develop further and rebuild after a natural disaster and specific programs to aid developing nations. Aimed at restructuring economies, Promoting investment, And reducing poverty. Provides long term loans and used for development projects. Helps resolve disputes related to foreign direct investment. the highest AAA ratings. Critics site an imbalance of power/leadership. Voting shares determine by openness and size. The US, Japan and European states hold the power. In addition to greater representation for developing countries, civil society organizations (CSOs) would like a double-majority voting process that requires both voting and member state majorities to pass a resolution. The so-called "gentlemen's agreement" to have the leader of the World Bank always be a U.S. citizen and the leader of the IMF to be a European is a sensitive issue. Privatization of Healthcare conditionality most directly comes from its development policy operations where loans are issued after completion of prior actions. often accused of not considering how funding projects will adversely affect the environment

the kyoto protocol

controlling global warming by setting greenhouse gas emissions targets for developed countries

The Special drawing right***

IMF asset currency equivalency that nations use to pay bills and receive income whose value is based on a "weighted basket" of four currencies US dollar Euros Japanese Yen British pound Chinese Renminbi

Capitalism

Market economy Government minimizes the role in the economy. Private ownership of business is observed. An economic system based on private ownership of capital. synonym for competitive markets, wage labor, capital accumulation, voluntary exchange, and personal finance. laissez-faire, mixed economy, and state capitalism. best products available for the best prices. Prices are kept low, Consumers pay the most for what they want the most, innovation There are individual freedoms. There are a variety of goods and services to choose from. It is focused on customer satisfaction. Opportunities are not equal, limits diversity and innovation, ignores external costs such as pollution and climate change. Workers and businesses face uncertainty due to competition. There can be insufficient public goods such as education and healthcare for everyone. Unemployment occurs. There are class distinctions between the rich and the poor. Firms can create monopolies

List and explain each international trade theory. Focus on the features of each theory.

Mercantilism-Neo mercantilism Absolute advantage comparative advantage Heckscher-Ohlin theory (Factor proportions theory) Country similarity theory Global strategic rivalry theory

socialism

Mixed economy represented by some European countries. Government controls some industries but not all. Strong labor union usually is seen in socialism economic ideology A system in which society, usually in the form of the government, owns and controls the means of production. many industrialized countries of Western Europe, including Britain, France, Sweden, and Norway, Nationalization of key industries such as mining, oil, steel, energy, and transportation. Redistribution of wealth through tax and spending policies that aim to reduce economic inequalities. Social security plans in which workers contribute to a mandatory public insurance program. Minimum wages, employment protection, and trade union recognition rights for the benefit of workers. has the greatest goal of commonwealth.With government control it can make better use of resources, labors, and lands. reduces disparity in wealth, not only in different areas, but also in all societal ranks and classes. Excess production can be avoided. Prices can be controlled in a proper extent. unemployment is tackled to a great extent. Some of the primary criticisms of socialism are claims that it creates distorted or absent price signals, results in reduced incentives, causes reduced prosperity, has low feasibility, and has adverse social and political effects. The national economy develops relatively slowly. There is an inability to obtain the most profit from the use of resources, labors, and land. Places that have a geographical advantage lose their chances to develop better, and people who have intelligence and wealth lose chances to make their businesses bigger and more powerful. People lose the initiative to work and the enthusiasm to study because doing more is not rewarded.

Cost of REI

New trade barriers with countries outside of the trading bloc, which could mean weaker companies within the bloc can be protected inadvertently Countries may move production to cheaper labor markets in member countries Member nations may lose their political and economic independence An emphasis on internal trade and the exclusion of external decreases the possibility of global free trade Countries may see their national cultural identity reduced May encourage mergers & acquisitions within the block to create large rivals.

Market Economy

The market controls the distribution of resources. No government control. (socialism) Economic decisions are made by individuals or the open market. Goods and services are produced and distributed according to the rules of supply and demand. Consumers and business are self-interested, but they benefit from one another. The New York Stock Exchange is an example. It is standard for all goods and services to be privately owned. The owners have the right to buy, sell, or lease their property and make a profit off of their assets. People are free to choose to produce, sell, and purchase goods at the price set with the capital they possess. Every seller aims to make the most profit possible. Competition keeps prices low. Pricing follows the laws of supply and demand. Market economy relies on an efficient market in which all buyers and sellers have equal access to the same information. Government interference is at the minimum that is necessary to ensure the markets are functioning correctly. people with disabilities and their caretakers, may be at a competitive disadvantage. not all can reach their full potential due to their inability to access education and obtain means to improve skills. There is a significant divide between the privileged and the underprivileged. Society must choose how to balance self-interest and protect the vulnerable

Mixed Economies

The market is the major determining power. Partial government regulations as needed. (socialism) It protects private property, the laws of supply and demand determine prices in a free market, and it is driven by self-interest. uses the federal government to protect the people and the market as well as oversee the military and international trade and national transportation. goods and services are distributed where they are most needed. Prices are set by supply and demand, innovation is encouraged, and capital is allocated to the businesses that are the most innovative and efficient. The disadvantages of the may include too much government interference, too much or too little freedom of choice, the government restricting competition, and the country going into debt because of government intervention. demonstrated a variety of freedoms, It provides tax-funded, subsidized, or state-owned factors of production, infrastructure, and services, Such governments also provide some autonomy over personal finances but include involuntary spending and investments, such as transfer payments and other cash benefits, including the following: Welfare for the poor Social security for the aged and infirm Government subsidies to business Mandatory insurance (e.g., automobile). They also impose regulation laws and restrictions that help society as a whole

political union (5 stages of regional economic integration)

Unification of all policies by a common organization ex: US

Uruguay Round

a trade agreement to dramatically lower trade barriers worldwide; created the World Trade Organization in 1994

governmental organizations (form of international business)

maintain embassies and consulates in foreign countries. also participate in international treaties related to issues such as trade, the environment, or child labor.

What are the 4 drivers of globalization?

market opportunities, cost, competition, and government support.

Oligarchy

members do not achieve their statuses based on ties to noble ancestry. Rather, they may ascend to positions of power because of military might, economic power, or similar circumstances. Once a power structure has been established, it can be challenging for middle- and lower-class citizens to advance their socioeconomic status. - Russia South Korea

organization (form of international business)

organizations - Import and / or export May maintain offices in other countries which may be a carbon copy of the parent firm (same process etc) or focused on subset of activities tailored to the local market , governmental organizations, and NGOs.

What is the rationale for governments to utilize key instruments (tariffs, quotas, embargos,...) to manage trade?

restrict competition for domestic commodities, which raises prices and reduces the selection.

Identify the reason and strategies that governments restrict or promote FDI.

restrict:Protect local industries and critical resources(Petroleum, minerals, metals) Preserve national and local culture. Maintain political and economic independence. Control economic growth. Promote;Expand their domestic economy. Attract new technologies, business knowledge, and capital.

General Agreement on Trade in Services (GATS)

seeks to reduce the barriers to trade-in services. Following the GATT commitment to nondiscrimination, it requires member nations to treat foreign service companies as they would domestic ones