C211 Attempt #2 Study Set

Which of the following is true of a pure market economy?

All factors of production are privately owned.

Which of the following statement is NOT true about market economy?

All factors of production should be government owned and controlled.

The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways?

A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost.

Which of the following is true of a command economy?

It does not allow private entrepreneurship.

Which of the following is true of the common law system?

It has spread to all English-speaking countries and their (former) colonies.

Which of the following is true of the civil law system?

It is the most widely distributed legal system around the world.

Which of the following is a benefit of FDI to home countries?

Learning from operations

Which of the following is a disadvantage of licensing and franchising?

Little control over marketing

Which of the following statements is correct?

Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves facing each firm.

According to the theory of absolute advantage, under free trade,

Each nation gains by specializing in economic activities in which a nation has absolute advantage.

Free trade is defined as:

The idea that market forces should determine how much to trade with little or no government intervention.

_____ refers to a legal system based on religious teachings.

Theocratic law

Assume that a firm is looking to expand into a foreign market, but it needs an opportunity that has low development costs and little risk. Its best choice would be:

a contractual agreement.

A tax on an imported good is called a

a tariff.

Equilibrium quantity must decrease when demand

decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise . As a result, the consumer surplus in the market for red grapes

decreases, and the consumer surplus in the market for red wine decreases.

A fundamental aspect of _____ is that it effectively conducts global business by providing an individual the right to freedom of expression and organization.

democracy

With regard to foreign market entry, the resource-based view argues that foreign firms need to

deploy overwhelming resources and capabilities to offset their liability of foreignness.

In a simple circular-flow diagram, total income and total expenditure are

always equal because every transaction has a buyer and a seller.

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

does not change.

If the demand for a product increases, then we would expect equilibrium price

and equilibrium quantity both to increase.

When marginal cost is less than average total cost,

average total cost is falling.

Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound,

both Janine and Henry experience an increase in consumer surplus.

When firms are said to be price takers, it implies that if a firm raises its price,

buyers will go elsewhere.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

In the prisoners' dilemma game, self-interest leads

each prisoner to confess.

A monopoly can earn positive profits because it

can maintain a price such that total revenues will exceed total costs.

The price leader's _____ is defined as sufficient resources possessed to deter and combat defection.

capacity to punish

For the purpose of calculating GDP, investment is spending on

capital equipment, inventories, and structures, including household purchases of new housing.

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good.

Risk analysis of any country must include an analysis of the country's:

currency risks.

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

exactly triple.

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

The resource-based view of global business differs from the institution-based view of global business in that the resource-based view _____.

focuses on the internal strengths on the firm

The TRIPS system was designed to _____.

force firms to innovate while strictly adhering to IPR guidelines

If an IMF member country were to find itself in a severe balance of payments crisis that threatened its financial stability, the IMF would most likely:

give the country a loan but require the country to make long-term policy reforms.

Protectionism is similar to mercantilism as they both advocated _____.

government involvement in international trade

If the Fed raised the reserve requirement, the demand for reserves would

increase, so the federal funds rate would rise.

Which of the following policies can the Fed follow to increase the money supply?

Reduce the interest rate on reserves

The consumer's optimal purchase of any two goods is the point where

the consumer reaches the highest indifference curve subject to remaining on the budget constraint.

The slope at any point on an indifference curve is known as

the marginal rate of substitution.

If a firm uses labor to produce output, the firm's production function depicts the relationship between

the number of workers and the quantity of output.

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

the quantity at which market price is equal to Mr. McDonald's marginal cost of production.

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good.

A natural monopoly occurs when

there are economies of scale over the relevant range of output.

Price discrimination is a rational strategy for a profit-maximizing monopolist when

there is no opportunity for arbitrage across market segments.

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.

If the United States threatens to impose a tariff on Colombian coffee if Colombia does not remove agricultural subsidies, the United States will be

worse off if Colombia doesn't remove the subsidies in response to the threat.

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

If there is an increase in market demand in a perfectly competitive market, then in the short run

profits will rise.

The _____ principle advocated that governments should actively protect domestic industries from imports and vigorously promote exports.

protectionism

Firms prefer FDI to licensing because FDI_____.

provides the firm with direct ownership to its foreign assets

The _____ refers to the coercive power of governments.

regulatory pillar

Other things the same, if reserve requirements are increased, the reserve ratio

increases, the money multiplier decreases, and the money supply decreases.

The federal funds rate is the

interest rate at which banks lend reserves to each other overnight.

A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called

intermediate goods.

The value of goods added to a firm's inventory in a certain year is treated as

investment, since GDP aims to measure the value of the economy's production that year.

If marginal cost is rising,

marginal product must be falling.

The two types of imperfectly competitive markets are

monopolistic competition and oligopoly.

A home appliance manufacturer located in The Netherlands decides to open two new manufacturing plants, one in Poland and the other in Thailand. Its purpose is to offset currency losses through:

strategic hedging.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

the availability of close substitutes in determining the price elasticity of demand.

The limit on the consumption bundles that a consumer can afford is known as

the budget constraint.

The main supportive pillars of the informal institutions are _____.

normative and cognitive

A market structure with only a few sellers, each offering similar or identical products, is known as

oligopoly.

OLI advantages refer to a firm's quest for _____via FDI.

ownership advantages, location advantages, and internalization advantages

The _____ of globalization suggests that globalization is neither recent nor one-directional.

pendulum view

The most likely explanation for economies of scale is

specialization of labor.

Which of the following is NOT a nontariff trade barrier (NTB)?

Cultural distance

Which of the following increase when the Fed makes open market purchases?

Currency and reserves

For which of the following types of economies would the factors of production depend on the relative distribution of market forces versus command forces?

Mixed economy

The following are examples of location-specific advantages:

All OF THESE - industry demand that creates a skilled labor force; industry demand that facilitates a pool of specialized suppliers and buyers; knowledge spillovers among closely located firms.

Which of the following is not a determinant of the price elasticity of demand for a good?

The steepness or flatness of the supply curve for the good

Which of the following is an equity mode of entry?

Wholly owned subsidiaries

When the Fed decreases the discount rate, banks will

borrow more from the Fed and lend more to the public. The money supply increases.

The _____ theory is based on the assumption that the wealth of the world is fixed.

mercantilism

In which of the following examples can the role of the cognitive pillar be identified?

A firm being exposed after one of its employees turned whistleblower

Which economic system is the most common?

A mixed economy

Democracy is:

A political system in which citizens elect representatives to govern the country.

Foreign exchange rates are influenced by:

ALL OF THESE - interest rates and money supply; relative price differences and purchasing power parity; supply and demand of the currencies.

Globalization can be viewed as:

ALL OF THESE ANSWERS - a new force sweeping through the world in recent times; a long-run historical evolution since the dawn of human history; a pendulum that swings from one extreme to another from time to time.

Which of the following sets of words describes the initial set of actions a firm uses to gain competitive advantage and the other firm's response to it?

Attack, counterattack

Which of the following is included in GDP?

Both the market value of rental housing services and the market value of owner-occupied housing services

What is the fundamental basis for trade among nations?

Comparative advantage

Two suspected drug dealers are stopped by the highway patrol for speeding. The officer searches the car and finds a small bag of marijuana and arrests the two. During the interrogation, each is separately offered the following: "If you confess to dealing drugs and testify against your partner, you will be given immunity and released while your partner will get 10 years in prison. If you both confess, you will each get 5 years." If neither confesses, there is no evidence of drug dealing, and the most they could get is one year each for possession of marijuana. If each suspected drug dealer follows a dominant strategy, what should he/she do?

Confess regardless of the partner's decision

Which of the following is NOT a method used by competitors to signal their intention to reduce competitive intensity to other competitors?

Developing new markets where there is less competition

Import quotas and tariffs produce some common results. Which of the following is not one of those common results?

Equal revenue is always raised for the domestic government.

Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?

Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

Which of the following conditions is characteristic of a monopolistically competitive firm in both the short run and the long run?

P > MC

_____ is a long-standing legal doctrine that excuses firms from living up to the terms of a deal in the event of natural disasters or other calamities.

Force majeure

Which of the following foreign exchange transactions provide protection to traders and investors from being exposed to fluctuations of the spot rate?

Forward transactions

Chile requires 50 units of resource to produce one ton of wine and 20 units of resource to produce one ton of blueberries. France requires 30 units of resource to produce one ton of wine and 40 units of resource to produce one ton of blueberries. Which of the following is true?

France has a comparative advantage in wine.

Which of the following statements is correct?

If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly.

Which of the following would be an example of a force majeure defense for a seller?

If the goods to be delivered are destroyed in an earthquake

Which of the following statements is not true with regard to the standard properties of indifference curves?

Indifference curves are bowed outward.

Which of the following is NOT a proposition of the institution-based view of global business?

Informal institutions do not govern firm behavior.

Which of the following is true of private ownership?

It tends to force firms into liquidation due to high competition.

What are the two core propositions behind the institution-based view of global business?

Managers and firms pursue their interests and make choices rationally in situations; and where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy to managers and firms.

Which of the following represents the firm's short-run condition for shutting down?

Shut down if P<AVC

Which of the following is NOT an example of monetary policy?

The Federal Reserve facilitates bank transactions by clearing checks.

International Monetary Fund

The IMF's mission is to promote global economic growth and financial stability, encourage international trade, and reduce poverty around the world. The IMF was originally created in 1945 as part of the Bretton Woods agreement, which attempted to encourage international financial cooperation by introducing a system of convertible currencies at fixed exchange rates. The International Monetary Fund (IMF) is based in Washington, D.C. The organization is currently composed of 189 member countries, each of which has representation on the IMF's executive board in proportion to its financial importance.

Which of the following statements is true?

When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.

On a graph, consumer surplus is represented by the area

below the demand curve and above price.

The Federal Reserve

is the central bank of the United States.

A similarity between monopoly and monopolistic competition is that in both market structures

sellers are price makers rather than price takers.

Price discrimination is the business practice of

selling the same good at different prices to different customers.

When conducting an open-market sale, the Fed

sells government bonds, and in so doing decreases the money supply.