International Business Chapter 1.

. What is the main reason that managing an international business differs from managing a domestic business? A. International managers are more experienced. B. Countries differ in their cultures and systems. C. Countries want to do business with their neighbors. D. Countries want to keep their transactions simple.

B. Countries differ in their cultures and systems. As their organizations increasingly engage in cross-border trade and investment, managers need to recognize that the task of managing an international business differs from that of managing a purely domestic business in many ways. At the most fundamental level, the differences arise from the simple fact that countries are different.

_____ are unit cost reductions associated with a large scale of output. A. Current account deficits B. Economies of scale C. Current account surpluses D. Factor endowments

B. Economies of scale Economies of scale are unit cost reductions associated with a large scale of output.

Which of the following has enabled globalization of markets? A. Marginal differentiation among national markets B. Falling barriers to cross border trade C. Reduced homogeneity of material culture across the world D. Increased government ownership of factors of production

B. Falling barriers to cross border trade The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-border trade have made it easier to sell internationally.

Which of the following is a consequence of globalization? A. Decreasing interdependence between national economies B. Increasing outsourcing of services C. Differentiation of material culture D. Increase in barriers to cross-border trade

B. Increasing outsourcing of services The process of outsourcing legal services from developed nations to lower-cost locations is indicative of what is occurring in today's global economy. Because of rapid advances in telecommunications and the removal of barriers to cross-border trade and investment, such outsourcing is becoming increasingly common.

The downside of increased globalization is: A. global financial contagions are less likely. B. a severe crisis in one region can affect the entire globe. C. one nation may become too powerful. D. the potential for increased exploitation of undeveloped nations by developed nations.

B. a severe crisis in one region can affect the entire globe. Greater globalization brings with it risks of its own. This was starkly demonstrated in 1997 and 1998 when a financial crisis in Thailand spread first to other East Asian nations and then to Russia and Brazil. Ultimately, the crisis threatened to plunge the economies of the developed world, including the United States, into a recession.

The Heckscher-Ohlin theory predicts that countries will: A. export those goods that make intensive use of factors that are locally scarce. B. export those goods that make intensive use of factors that are locally abundant. C. import those goods that make intensive use of factors that are locally abundant. D. import those goods that make intensive use of factors that are available world-wide.

B. export those goods that make intensive use of factors that are locally abundant. The Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce.

The theory of comparative advantage provides strong rationale for supporting the idea of _____. A. business nationalism B. free trade C. protectionism D. governmental intervention in trade

B. free trade The theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains. As such, this theory provides a strong rationale for encouraging free trade.

A country's balance-of-payments accounts keep track of the: A. basic factor endowments and advanced factor endowments that the nation possesses. B. payments to and receipts from other countries for a particular time period. C. income taxes paid by domestic firms and the spending on the firms. D. total value of taxes paid by domestic firms and the spending on the firms.

B. payments to and receipts from other countries for a particular time period. A country's balance-of-payments accounts keep track of the payments to and receipts from other countries for a particular time period.

mercantilism

Belief that power can be gained through accumulation of wealth through trade surpluses

_____ refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country. A. Fair trade B. Trade theory C. Free trade D. Mercantilism

C. Free trade Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country.

In 2008 and 2009, the _____ became the forum though which major nations attempted to launch a coordinated policy response to the global financial crisis, which started in America. A. GATT B. Group of Ten (G20) C. Group of Twenty (G20) D. World Trade Organization

C. Group of Twenty (G20) Originally, the G20 was established to formulate a coordinated policy response to financial crises in developing nations. In 2008 and 2009 it became the forum though which major nations attempted to launch a coordinated policy response to the global financial crisis that started in America and then rapidly spread around the world.

_____ predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months. A. Keynes's Law B. Say's Law C. Moore's Law D. Sullivan Principles

C. Moore's Law Moore's Law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months.

A U.S. investment firm, Fin-Smart, set up a customer service call center in India to take advantage of the lower labor costs. This is called ____. A. homogenizing markets B. vertical integration C. international outsourcing D. horizontal integration

C. international outsourcing Early outsourcing efforts were primarily confined to manufacturing activities; increasingly, however, companies are taking advantage of modern communications technology, particularly the Internet, to outsource service activities to low-cost producers in other nations.

Globalization is criticized because it increases the power of: A. governments to own enterprises. B. unskilled labor to form labor unions. C. supranational organizations over nation-states. D. nation-states to regulate markets and reduce competition.

C. supranational organizations over nation-states. A concern voiced by critics of globalization is that today's increasingly interdependent global economy shifts economic power away from national governments and toward supranational organizations such as the World Trade Organization, the European Union, and the United Nations.

16. One of the advantages of being the first mover in a market is: A. there is little risk involved. B. to benefit from a higher cost structure. C. the ability to capture scale economies ahead of later entrants. D. local governments are more favorable to the first movers.

C. the ability to capture scale economies ahead of later entrants First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. The ability to capture scale economies ahead of later entrants, and thus benefit from a lower cost structure, is an important first-mover advantage.

The principle of mercantilism views trade as a(n) _____ game. A. advantage B. positive-sum C. zero-sum D. negative-sum

C. zero-sum The flaw with mercantilism was that it viewed trade as a zero-sum game.

Which of the following theories emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods? A. Porter's theory B. Smith's theory C. Ricardo's theory D. Heckscher-Ohlin theory

D. Heckscher-Ohlin theory The Heckscher-Ohlin theory emphasizes the interplay between the proportions in which the factors of production (such as land, labor, and capital) are available in different countries and the proportions in which they are needed for producing particular goods.

Which of the following is the main principle of mercantilism? A. Protection of domestic industries is not essential for a nation's welfare. B. Government intervention is not required in global trade. C. Countries should encourage absolute free trade. D. It is in a country's best interests to maintain a trade surplus.

D. It is in a country's best interests to maintain a trade surplus. The main tenet of mercantilism was that it was in a country's best interests to maintain a trade surplus, to export more than it imported. By doing so, a country would accumulate gold and silver and, consequently, increase its national wealth, prestige, and power.

14. Which of the following statements is true of the Leontief Paradox? A. It shows an anomaly that occurs when a nation has high domestic demand for a product. B. It explains the relationship between domestic demand and comparative advantage. C. It disproved Ricardo's theory of comparative advantage. D. It raised questions about the validity of the Heckscher-Ohlin theory

D. It raised questions about the validity of the Heckscher-Ohlin theory. Leontief Paradox raised questions about the validity of the Heckscher-Ohlin theory

The ______ is primarily responsible for policing the world trading system and making sure nationstates adhere to the rules laid down in trade treaties signed by member states. A. International Development Association B. World Bank C. International Court of justice D. World Trade Organization

D. World Trade Organization The World Trade Organization is primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states. As of 2011, 154 nations that collectively accounted for 97 percent of world trade were WTO members, thereby giving the organization enormous scope and influence.

The shift toward a more integrated and interdependent world economy is referred to as _____. A. outsourcing B. international marketing C. privatization D. globalization

D. globalization Globalization refers to the shift toward a more integrated and interdependent world economy.

first mover advantage

Exists when making the initial move into a market allows a firm to establish a dominant position that other firms may struggle to overcome.

Companies that trade small volumes of product can benefit from economies of scale. TRUE FALSE

FALSE Economies of scale are unit cost reductions associated with a large scale of output. This means that companies that trade in large volumes benefit from the economies of scale.

Mercantilist doctrine advocates unrestricted free trade between countries. TRUE FALSE

FALSE Mercantilist doctrine advocated government intervention to achieve a surplus in the balance of trade.

The World Bank is known as the lender of the last resort? T or F

FALSE The IMF was established to maintain order in the international monetary system. It is often seen as the lender of last resort to nation-states whose economies are in turmoil and whose currencies are losing value against those of other nations.

The World Bank has focused on policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties? T or F

FALSE The World Trade Organization is primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states. The World Bank was set up to promote economic development.

The most global markets currently are markets for consumer products? T or F

FALSE The most global markets currently are not markets for consumer products—where national differences in tastes and preferences are still often important enough to act as a brake on globalization—but markets for industrial goods and materials that serve a universal need the world over.

division of labor

Organising employees so that individuals specialise in one part of the production process. As they become quicker at their specific task, output increases.

autarky

Price ration when country has no international trade or self dependence.

According to critics of globalization, today's interdependent global economy limits a nation's national sovereignty. T or F

TRUE A concern voiced by critics of globalization is that today's increasingly interdependent global economy shifts economic power away from national governments and toward supranational organizations such as the World Trade Organization, the European Union, and the United Nations

A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. TRUE FALSE

TRUE A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

Factor endowments refer to the extent to which a country is gifted with such resources as land, labor, and capital. TRUE FALSE

TRUE Factor endowments refer to the extent to which a country is endowed with such resources as land, labor, and capital.

First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry. TRUE FALSE

TRUE First mover advantages are the economic and strategic advantages that accrue to early entrants into an industry

Heckscher-Ohlin theory supports the case for unrestricted free trade between nations T or F?

TRUE The theories of Smith, Ricardo, and Heckscher-Ohlin support the case for unrestricted free trade.

The cost of microprocessors continues to fall, while their power increases. This statement supports the predictions made by Moore's Law. T or F

The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moore's Law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months).

Rivers Inc., a U.S. based sports apparel manufacturer, sets up a production unit in China to take advantage of the lower labor costs there. This is an example of foreign direct investment? T or F

True Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country.

zero-sum vs. positive sum game

Two players, one loser, sum is equal to zero (zero sum game), Positive sum game both players win

economies of scale

a proportionate saving in costs gained by an increased level of production

balance of trade (deficit; surplus)

deficit more is being imported than exported; more is being exported then imported

free trade

trade is completely free and no governmental interference