Econ 165 Midterm
The amount invested by U.S. firms in foreign markets between 1998 and 2014 was about
$4 trillion
Absolute Advantage Theory
Adam Smith states that countries should specialize in the production of goods for which they can produce most efficiently and then trade these for goods produced by other countries 1776
Using your knowledge of New Trade Theory, which statement best explains the advantage Airbus has in the production and export of super large capacity aircraft?
Airbus has been able to capture scale economies that make it difficult for later entrants to match
New Trade Theory would suggest that Boeing has stayed out of head-to-head competition with Airbus in the super large capacity aircraft sector because
Airbus was first to market with the Airbus 380 aircraft
UN
As much as 70 percent of its work is devoted to establishing higher standards of living, full employment, and conditions of economic and social progress and development.
The idea of comparative advantage was proposed by
David Ricardo
comparative advantage theory
David Ricardo states that it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to buy the goods that it produces less efficiently from other countries 1817
Firm strategy, structure, and rivalry
Different management ideologies can help or harm building national competitive advantage; strong association with persistence of competitive advantage.
Who typically wins and who loses from a government policy to protect infant industries?
Domestic consumers and foreign producers lose, while the home government and home producers gain
T or F: An import quota is a specific tax levied on imports.
False
T or F: Cultural differences have no effect on the way an international firm conducts its business around the globe.
False
T or F: Economic arguments for trade policy intervention are concerned with protecting the interests of certain groups within a nation, often at the expense of other groups, or with achieving some objective that lies outside the sphere protecting the environment or human rights.
False
T or F: Globalization resulted in a decrease in non-U.S. firms' investment across national borders.
False
G20
Finance ministers and central bank governors of major economies coordinate policy on global financial crises
Corn Laws
Free trade as a government policy was first officially embraced by Great Britain by the repeal of this particular tariff
greenfield investment
If a company decides to establish a new operation in a foreign country
Home Country Benefits of FDI
Inflows of foreign earnings, skills that can be leveraged internationally
The ________ is often seen as the lender of last resort.
International Monetary Fund
Exporting Benefits
Location economies
Host Country Costs of FDI
Loss of economic independence, outflow of earnings from a foreign subsidiary, loss of economic independence
Home Country Costs of FDI
Loss of jobs, host country limits profit expatriation
national competitive advantage theory
Michael Porter contends that the degree to which a nation is likely to achieve international success in a certain industry is a function of the combined impact of factor endowments 1990
WTO (World Trade Organization)
Primarily responsible for policing world trading system.
Smoot-Hawley Act
Put in place to avoid rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products.
_______ has been the world's foreign largest investor since World War II.
The United States
T or F: China produces more potatoes than any other country. This means it has an absolute advantage in potato production.
True
infrastructure is an example of an _____ factor of endowment
advanced
GATT (General Agreement on Tariffs and Trade)
A series of treaties that reduced barriers to trade.
Demand Conditions
These can help companies create a competitive advantage, when knowledgeable domestic buyers pressure firms to innovate and create more advanced products
T or F: The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade.
True
T or F: Theories of international trade claim that promoting free trade is generally in the best interests of a country, although it may not always be in the best interest of an individual firm.
True
T or F: Today, nearly every nation in the world belongs to the United Nations.
True
Based on the information provided in the video, which philosophy best describes Donald Trump's perspective on trade between nations?
Trump has a mercantilist philosophy toward trade
President Trump claims the 25 percent tariffs on imported steel are necessary to protect U.S. steel jobs. Which is a potential outcome of his policy?
U.S. consumers will pay higher prices for domestic steel than they would for imported steel
suppose Brazil levied a tariff based on a proportion of the value of the product. Brazil would be imposing a(n) _______ tariff.
ad valorem
U.S. imposes 2.5 percent tarff
ad valorem tariff
Tariffs
are taxes levied on imports or exports
The commercial jet aircraft market
can be best described as a global market
Boeing's 787 aircraft is produced by 50 suppliers spread around the world, a huge increase in global outsourcing as compared to the past. Boeing's strategy, like that of other multinational companies, suggests that
declining barriers to trade and investment are facilitating global production strategies.
Porter's Diamond
explains how countries gain competitive advantage in a particular good/industry: factor endowments, demand conditions, related and supporting industries, firm strategy/structure/rivalry
U.S. restricts the number of imported video games
import quotas
Economic arguments for intervention
infant industry argument, promote investment inflows, essential industry argument, import substitution
The United States benefits as a recipient of foreign investment in which of the following ways?
influx of capital and technology
________ theory is also known as the market imperfections theory.
internalization
According to Hecksher-Ohlin theory, which of the following gives Bangladesh a cost advantage?
labor-intensive production
Licensing Benefits
low development cost risks
Enhanced transportation technologies means
lowered distance between countries
The purpose of the U.N.'s Millennium Development Goals that were established in 2000 was to
reduce the number of people living in extreme poverty.
Dumping
refers to selling goods in a foreign market at below their cost of production or as selling goods in a foreign market at below their "fair" market value
The growth of trade as a percentage of global GDP
reflects the globalization of markets
Uruguay Round
Among other things, negotiations that took place here reduced tariffs on industrial goods, reduced agricultural subsidies, and offered more protection for intellectual property rights
Which of the following expresses one of the reasons why managing an international business is different from managing a purely domestic business?
An international business must find ways to work within the limits imposed by government intervention in the international trade and investment system
Which of the following is true with respect to multinational firms?
Because of their pivotal role in international trade, firms can and do exert a strong influence on government policy toward trade.
Tokyo Round
By the end of this in 1979, average tariff declined by nearly 92% in the United States.
All of the countries below are considered to be significant investors in foreign markets over the last 20 years except
Canada
the changing world order
China
T or F: Governments always act in the national interest of their countries when they intervene in the economy.
False
T or F: Since the 1960s, a notable trend in the demographics of the multinational enterprise has been the rise of U.S. multinationals.
False
Which argument best explains why the United States imposed tariffs on imports of Chinese steel?
Government intervention is necessary for protecting jobs and industries from unfair foreign competition
FDI Drawbacks
High set up costs
Exporting Drawbacks
High transportation costs
Main reasons why govt intervenes
Political and economic reasons
Which statement best describes the Trump administration's philosophy regarding the benefits of trade?
President Trump views trade as a zero-sum game
U.S. levies a $1 tariff on imported watches
Specific tariff
Bretton Woods institutions: IMF and the world bank
The IMF and World Bank were created in 1944 by 44 nations that met to maintain order in the international monetary system and promote economic growth.
For decades, there have been just two producers of large commercial aircraft, Boeing and Airbus. Which statement best explains how new trade theory views this situation from a manufacturing perspective?
The economies of scale required to be a profitable manufacturer effectively limit the size of the global market
subsidy example
The farm bill that passed the U.S. Congress in 2007 contained subsidies of $289 billion for the next 10 years
Using your knowledge of New Trade Theory, choose the reason why Boeing has not challenged Airbus for market share in the super large capacity aircraft sector
The global market is not big enough to support multiple producers of this type of aircraft.
Aircraft like the Airbus 380 and Boeing 747 are cost efficient only on long haul flights that are relatively heavily traveled. According to New Trade Theory, which statement is true?
The market for large jet aircraft is limited to those airlines providing long haul flights in highly traveled routes
In 2018, the Trump Administration imposed 25 percent tariffs on imports of foreign steel into the United States. Which statement is true?
The policy is attempting to influence what U.S. citizens and companies buy from foreign countries.
Related and supporting industries
The presence of these ancillary companies, often suppliers, can help achieve strong competitive positions through their strengths within the same industry
Which of the following statements pertaining to changes in the global economy of the 21st century is true?
The world is moving toward an economic system that is more favorable for international business.
Which is true of tariffs like those the United States assessed on steel imported from China?
They are pro-producer and anti-consumer
Which is not true of tariffs used to protect infant industries?
They promote more efficient use of resources
Tariff barriers raise the costs of exporting products to a country (or of exporting partly finished products between countries). Which of the following is a likely consequence of these barriers?
This may put a firm at a competitive disadvantage to indigenous competitors in that country.
Mercantilism
This theory had countries maximizing exports and minimizing imports 1550s
Heckscher-Ohlin Theory
This theory predicts that countries will export those goods that make intensive use of factors that are locally abundant and import goods that make intensive use of factors that are locally scarce 1919
Product Life Cycle theory
This theory, initially proposed by Raymond Vernon, points out that where a new product is introduced is important. Over time, cost considerations start playing a greater role in the competitive process
New Trade Theory
Through its impact on economies of scale, trade can increase the variety of goods available to consumers while decreasing the average cost of those goods 1970s
FDI Benefits
Tight control
Toyota produces 1.2 million vehicles per year in the United States. Which best explains why Toyota has chosen to produce its vehicles in the United States rather than exporting from Japan?
Toyota is concerned that its ability to export from Japan could be compromised by U.S. tariffs and quotas.
Host Country Benefits of FDI
Transfer of new technology, substitute for imports, increase in direct and employment
T or F: A Chinese petroleum company sets up a crude oil refining facility in Vietnam. This is an example of a greenfield investment.
True
T or F: A small country is short on cash for much needed infrastructure development projects. It could go to the World Bank for assistance.
True
T or F: According to the radical political ideology view, the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.
True
T or F: Direct effects of FDI on unemployment arise when a foreign MNE employs a number of host-country citizens.
True
T or F: GATT's objective was to liberalize trade.
True
T or F: In industries where economies of scale are important, both the variety of goods that a country can produce and the scale of production are limited by the size of the market.
True
In which of the following situations would FDI deteriorate the current account of the host country's balance of payments?
When a foreign subsidiary imports a substantial number of its inputs from abroad
Most economists would probably argue that the best interests of international business are served by
a free trade stance.
Free trade refers to a situation where
a government does not try to influence what its citizens can buy from global markets
ad valorem tariff
additional taxes on imports that are a proportion of the value
U.S. stops medicine imports unapproved by FDA
administrative policies
EU imposes a special tariff on the offending foreign imports
antidumping policies
An international business is defined as
any firm that engages in international trade
Paul Krugman
argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry boosts national income at the expense of other countries
Declining trade barriers means
better ability to export goods
Declining investment barriers means
better ability to optimize location economies
Foreign direct investment occurs when a firm invests resources in
business activities outside its home country
Advanced Factor Endowments
communication infrastructure, skilled labor force, and research facilities
Which of the following factors contributed to the Great Depression of the 1930s?
countries progressively raising trade barriers against each other
Globalization has enabled organizations to reduce their costs of production by
creating manufacturing units in developing countries.
In the balance of payments, how does a country record transactions involving the export and import of goods and services?
current account
The Changing world output and trade picture
developing countries
A factory in Mexico produces millions of widgets a year, and has been able to reduce its costs per unit as it increased its production. This demonstrates the concept of
economies of scale
If your household goods can be efficiently produced through economies of scale, it would be a good idea to use a(n) _______ strategy.
exporting
The effect of bulky or heavy products on transportation costs can make _______ an inappropriate strategy.
exporting
If your proprietary know-how of "green" processes is difficult to transfer to other firms, the most effective approach would be
exporting or foreign direct investment.
If consumers in different countries desire different product attributes, it would be best to engage in
foreign direct investment.
According to the ________ view, international production should be distributed among countries according to the theory of comparative advantage.
free market
The WTO argues that by removing all tariff barriers and subsidies to agriculture,
global economic growth would rise
Enhanced communication technologies means
growth in e-commerce
Toyota's $25 billion investment in the U.S. market indicates that the Japanese company believes that the United States is a strategically important market. When considering future international expansion, if Toyota has valuable know-how that cannot be protected with a licensing contract and also faces high transportation costs, Toyota should
invest directly in target markets
If a firm's know-how, skills, and capabilities can be protected by contract, and if tight control over foreign operations is not vital to remain competitive, and there are reasons to believe that additional costs through transportation or tariffs would be high, the most effective approach would be
licensing.
The threat of antidumping action affects a firm by
limiting its ability to use aggressive pricing to gain market share in a country.
Specific percentage of goods must be producted domestically
local content requirements
Licensing Drawbacks
lose control over manufacturing
Basic Factor Endowments
natural resources, climate, location, and demographics
Political Argument for intervention
protecting jobs, national security, protecting consumers, protecting the environment
Boeing produced just 5 percent of its original 737 and 747 outside the United States but produces 65 percent of its newer 787 in foreign locations. Boeing's production strategy
reflects the globalization of production
Bangladesh's textile industry relies on inputs from other industries within the country. This supports which one of Michael Porter's attributes when it comes to competitive advantage?
related and supporting industries
The total accumulated value of foreign-owned assets at a given time is called the ________ of FDI.
stock
Which trade policy argument suggests that a government should use subsidies to support promising firms that are active in newly emerging industries?
strategic trade policy
EU payments to European farmers
subsidies
Burberry originally entered Japan via a licensing contract with a Japanese retailer. A key advantage of this type of strategy is that
the licensee bears the cost and risk of developing the market.
The stock of foreign direct investment refers to
the total cumulative value of foreign investments as a percentage of the country's GDP
In the 1986 Uruguay Round, GATT negotiations extended global trading rules to cover
trade in services
Peru restricts sugar exports by U.S. request
voluntary export restraints (VERs)