SOM 354- Exam 2
Many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries, according to: A) economic development argument. B) infant industry argument. C) mixed economy theory. D) national security argument. E) comparative advantage theory.
B.
Many host countries are concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's: A) free trade agreements. B) balance-of-payments position. C) gold reserves. D) inward FDI. E) sovereignty.
B.
The United States has been an attractive target for FDI partly because of its: A) low corporate tax rates. B) stable and dynamic economy. C) commitment to environmental issues. D) abundance of cheap and skilled labor. E) high trade barriers.
B.
Host governments use a range of controls to restrict inward FDI. The two most common are: A) employment restraints and tax deductions. B) tax concessions and government-backed insurance. C) ownership restraints and performance requirements. D) monetary restraints and prohibition on investing in certain countries. E) voluntary export restrictions and employment restraints.
C.
A charge of 15-20% was levied by the government of Cadmia on the value of automobile accessories imported from a neighboring country. This increased the price of those imported car accessories for the consumers in Cadmia. Which of the following instruments of trade policy is being used by the government of Cadmia? A) Import quotas B) Ad valorem tariff C) Subsidies D) Antidumping duties E) Local content tariff
B.
A government should use subsidies to support promising firms that are active in newly emerging industries, according to: A) absolute advantage. B) strategic trade policy. C) industrialization. D) public policy. E) product life-cycle.
B.
According to Vernon, which of the following influences the movement of the locus of global production from advanced countries to developing countries? A) Domestic competition B) Cost considerations C) Factor endowments D) Firm structure E) Supporting industries
B.
Countries such as the United States, the United Kingdom, France, Germany, the Netherlands, and Japan dominate in the share of total global stock of FDI and FDI outflows and in rankings of the world's largest multinationals because they: A) were the governing body of the International Monetary Fund. B) were the most developed countries postwar and home to the largest and best capitalized enterprises. C) pursued a policy of blocking or restricting FDI inflow into their own economies. D) control much of the operating structure of the WTO which governs international trade. E) provided subsidies for their domestic firms to protect them from foreign competition.
B.
Indirect effects of FDI on employment in a host country arise when: A) an MNE recruits people from the host country for research and development. B) jobs are created because of increased local spending by employees of an MNE. C) an MNE sends home country employees to host countries for training. D) an MNE brings in managers from the home country for its operations in the host country. E) a foreign MNE employs a number of host-country citizens.
B.
3M, an American firm, manufactures adhesive tapes in St. Paul, Minnesota, and ships the tapes to South Korea for sale. According to this information, which of the following is being done by 3M? A) Exporting B) Licensing C) Insourcing D) Outsourcing E) Franchising
A.
A firm is most likely to favor foreign direct investment over exporting when: A) the firm wishes to maintain control over its operations and business strategy. B) the firm wants its technological know-how to be widely disseminated. C) the firm wants to customize its products as per the tastes and preferences of foreign consumers. D) the transportation costs are low. E) there are no trade barriers.
A.
According to Krugman, which of the following best indicates the dangers of a strategic trade policy? A) Occurrence of a trade war B) Decrease in subsidies C) Huge financial debts for the countries involved D) Occurrence of a global recession E) Decrease in protectionism
A.
According to the new trade theory: A) a country may predominate in the export of a good because it has firms that were among the first to produce that good. B) to ensure economic progress, countries should implement several trade barriers. C) different goods use resources in different proportions and this leads to constant returns to specialization. D) the ability to capture first-mover advantages is restricted in a world that disallows trade. E) differences in labor productivity between nations underlie the notion of comparative advantage.
A.
According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to: A) develop cost-saving process innovations. B) invite foreign direct investment in domestic industries. C) embrace and promote open market capitalism. D) lower costs of services to offset a fall in demand. E) import new consumer products and export agricultural products.
A.
According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a country should be: A) immediately nationalized. B) banned from obtaining finance from the financial institutions in the host country. C) made to pay higher taxes. D) immediately privatized. E) converted into publicly traded companies
A.
Bilateral voluntary export restraints, or VERs, circumvented GATT agreements, because: A) neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action. B) these nations withdrew their membership to the GATT. C) VERs were not a recognized trade barrier under the GATT constitution. D) member nations erected a wall of tariff barriers. E) the member nations had ceased to recognize GATT as a regulatory body for international trade.
A.
Considered to be the first theory of international trade, the principal assertion of mercantilism is that: A) gold and silver are the mainstays of a country's wealth and essential to vigorous commerce. B) resources can move freely from the production of one good to another within a nation. C) countries differ in their ability to produce goods efficiently. D) countries should specialize in the production of goods for which they have an absolute advantage. E) differences in labor productivity between nations underlie the notion of comparative advantage.
A.
Dunning's theory helps explain: A) how location factors affect the direction of FDI. B) how firms try to match each other's moves in different markets to try to hold each other in check. C) the problems associated with doing business in a different culture where the rules of the game may be very different. D) the interdependence between firms in an oligopoly that leads to imitative behavior among the rivals. E) why a greenfield investment in a new facility is better than an acquisition of or a merger with an existing local firm.
A.
If Argonia exports vast quantities of cheap toys to Cadmia, selling them at below their costs of production, it would constitute: A) dumping. B) subsidizing. C) nearshoring. D) monopolism. E) offshoring.
A.
The idea behind multipoint competition is to ensure that: A) a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere. B) the competitors cooperate with each other to establish a cartel. C) growing technologies or business methods in new markets are transferred to established markets. D) no other competitors can enter the market unless they resort to licensing or franchising with the initial pioneers. E) the firms in an industry prefer FDI over licensing or exporting.
A.
Which of the following advantages is most likely to be enjoyed by a company as a part of the first-mover advantages? A) The ability to capture scale economies ahead of later entrants B) A positive-sum game due to lack of competition C) Absolute advantage and higher efficiency D) Increasing returns to specialization E) The ability to specialize in the production of a particular product
A.
Which of the following best indicates the motive for foreign firms to engage in dumping? A) Unloading excess production in foreign markets B) Obtaining subsidies from the importing country C) Cutting labor costs to reduce the costs of production D) Meeting the voluntary export requirements imposed on it E) Providing a wider range of products for consumers in foreign markets
A.
Which of the following components of Porter's diamond is particularly important in shaping the attributes of domestically made products and in creating pressures for innovation and quality? A) Demand conditions B) Supporting industries C) Advanced factor endowments D) Basic factor endowments E) Firm strategy
A.
Which of the following factor endowments would be classified as a basic factor by Michael Porter? A) Natural resources B) Skilled labor C) Communication infrastructure D) Technological know-how E) Research facilities
A.
Which of the following is true about Dunning's arguments? A) Dunning argues that it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes, since labor is not internationally mobile. B) Dunning argues that combining location-specific assets or resource endowments with the firm's own unique capabilities always requires licensing. C) Dunning rejects the argument of internalization theory that it is difficult for a firm to license its own unique capabilities and know-how. D) Dunning suggests that to exploit foreign resources, such as oil and other minerals, a firm must undertake licensing rather than FDI. E) Dunning's theory and its extensions help explain the imitative FDI behavior by firms in oligopolistic industries.
A.
Which of the following is true regarding the difference between GATT and WTO? A) The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment unlike GATT. B) WTO allows member-countries to block adoption of arbitration reports unlike GATT. C) GATT's verdict is binding unlike that of WTO's. D) GATT gives trading partners the right to compensation or, in the last resort, to impose (commensurate) trade sanctions unlike WTO. E) WTO operates on the basis of consensus unlike GATT.
A.
Which view argues that international production should be distributed among countries according to the theory of comparative advantage? A) Free market B) Pragmatic nationalism C) Radical D) Conservative E) Keynesian economic
A.
Cadmia and Rhodia specialize in the production of textiles and agricultural products respectively. They are the best at their respective specializations. Cadmia trades textiles with Rhodia in exchange for agricultural products. Which of the following is illustrated by this form of trade between Cadmia and Rhodia? A) Mercantilism B) The concept of absolute advantage C) Theory of national competitive advantage D) Heckscher-Ohlin theory E) Product life-cycle theory
B
Consider two countries Daria and Atlantis. Daria is a major producer of wheat and rice while Atlantis specializes in the production of fertilizers and manufacturing equipment. Engaging in free trade benefits both countries since Daria is an agrarian nation and Atlantis lacks arable land. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it. Which of the following is an inaccurate assumption on which this conclusion is based? A) We have assumed the prices of resources and exchange rates in the two countries are dynamic. B) We have assumed a simple world in which there are only two countries. C) We have assumed that agrarian nations do not specialize in producing fertilizers. D) We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. E) We have assumed diminishing returns to specialization.
B
Sentoria is an island nation in the Pacific Ocean. Its geographical location is advantageous since it has access to a variety of aquatic life forms and also a number of freshwater sources that provide for fisheries. The lack of arable land drives local demand for seafood. The competition in the domestic fishing industry is fierce and enables Sentoria to be one of the major exporters of seafood. Which of the following theories of international trade best explains Sentoria's dominance as an exporter of seafood? A) Product life-cycle theory B) Theory of national competitive advantage C) Heckscher-Ohlin theory D) New trade theory E) Mercantilism
B
The argument for unrestricted free trade is that both import controls and export incentives: A) imply that a laissez-faire stance toward trade is in the best interests of a country. B) are self-defeating and result in wasted resources. C) help firms build a competitive advantage that is subsequently difficult to challenge. D) are not in line with principles of mercantilism. E) help firms to capture first-mover advantages.
B
The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something the GATT had never done. Two of the first industries targeted for this reform were: A) scientific research and defense sector. B) global telecommunication and financial services industries. C) pharmaceuticals and biotechnology. D) scientific research and global telecommunication. E) pharmaceuticals and heavy metal industry.
B.
U.S. exports are less capital-intensive than U.S. imports, despite the relative abundance of capital in the country. What is this phenomenon that runs contrary to the prediction of the Heckscher-Ohlin theory called? A) A zero-sum game B) The Leontief paradox C) A first-mover advantage D) A positive-sum game E) Samuelson's critique
B.
Which of the following creates a barrier to subsequent entries in an industry dominated by first movers? A) Specializing in the production of goods for which firms have an comparative advantage B) The ability of first movers to benefit from increasing returns C) Decrease in the variety of goods available to consumers and increase in the cost of existing goods D) Implementation of policies to maximize imports and minimize exports E) The laissez-faire stance toward trade adopted by first movers
B.
Which of the following indicates the difference between GATT and WTO? A) WTO operates on the basis of consensus unlike GATT. B) WTO has strict time limits unlike GATT. C) WTO allows member-countries to block adoption of arbitration reports unlike GATT. D) GATT's verdict is binding unlike that of WTO's. E) GATT gives trading partners the right to compensation or, in the last resort, to impose (commensurate) trade sanctions unlike WTO.
B.
Which of the following is a major reason why many economists remain critical of the infant industry argument? A) It does not provide guaranteed employment for the citizens. B) It makes the domestic industry inefficient. C) It promotes foreign direct investment. D) It leads to reduced prices in domestic markets. E) It affects the standards of living and per capita income of the people.
B.
Which of the following is a trade policy instrument that the GATT and WTO have been most successful in limiting? A) Subsidies B) Tariffs C) Import quotas D) Voluntary export restraints E) Local content requirements
B.
Which of the following is most likely to be an objective of export tariffs? A) Maintaining a positive trade deficit B) Reducing exports from a sector, often for political reasons C) Increasing the flow of capital in the international market D) Abiding by the rules enforced by the WTO E) Curbing the competition offered by foreign firms to domestic firms
B.
Which of the following is most likely to involve establishment of a new operation in a foreign country? A) Acquisition B) Greenfield investment C) Mass customization D) Consolidation E) Licensing agreement
B.
Which of the following is true of the four attributes that make Porter's diamond? A) The diamond is not a mutually reinforcing system. B) The effect of one attribute is contingent on the state of others. C) Chance events, such as major innovations, do not affect Porter's diamond. D) Absence of any single attribute does not impact effectiveness of the diamond. E) Only in the absence of one of the four attributes can government policies influence Porter's diamond.
B.
Which of the following products has a low value-to-weight ratio? A) Computer software B) Cement C) Personal computers D) Medical equipment E) Electronic components
B.
Which of the following specifies that U.S. government agencies must give preference to U.S. products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage? A) Export Administration Act B) Buy America Act C) Helms-Burton Act D) Volcker Rule E) Hawley-Burton Act
B.
Which of the following statements best indicates Samuelson's criticism of free trade? A) Offshoring service jobs that were traditionally mobile will increase the market clearing wage rate. B) By importing cheap goods from a poor country a rich country may not be able to produce a net gain if the dynamic effect of free trade is to lower real wage rates in the rich country. C) Dynamic gains lead to a universally beneficial outcome for all countries. D) Free trade has historically been beneficial only to developing countries. E) Trade changes a country's stock of resources and the efficiency with which it utilizes those resources.
B.
Which of the following statements is most likely to be true regarding the effects of FDI on employment? A) The indirect employment effects of FDI are always smaller than the direct effects. B) A beneficial employment effect claimed for FDI is that it brings jobs to a host country that would otherwise not be created there. C) FDI has only indirect effects on employment in the host country. D) FDI does not result in job creation. E) When FDI takes the form of an acquisition of an established enterprise in the host economy as opposed to a greenfield investment, the immediate effect is always an increase in the employment.
B.
Which of the following theories began to emerge when economists pointed out that the ability of firms to attain economies of scale might have important implications for international trade? A) Absolute advantage B) New trade C) Product life-cycle D) Comparative advantage E) Heckscher-Ohlin
B.
Argonia and Selenia have specialized in the production of industrial equipment and pharmaceuticals respectively. Argonia exports industrial equipment to Selenia, which in turn exports chemicals and medicines to Argonia. According to the theory of comparative advantage, this mutually beneficial trade relationship best illustrates: A) the significance of trade barriers. B) a zero-sum game. C) a positive-sum game. D) the advantages of mercantilism. E) a first-mover advantage.
C
According to Krugman, the ideal way for a country to respond, when the foreign competitors of its companies are already being supported by government subsidies, is probably not to engage in retaliatory action, but to: A) adopt the strategic trade policy as a way to establish domestic firms in a dominant position in the global industry. B) provide high levels of subsidies to the oldest industry in the country. C) help establish rules that minimize the use of trade-distorting subsidies. D) use a combination of home-market protection and export-promoting subsidies. E) provide a subsidy to a new industry where the foreign competitors have not had the benefit of such strategic trade policies.
C.
According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in: A) management practices. B) trade barriers. C) factor endowments. D) diminishing returns. E) labor productivity
C.
The Palladian government required that all imported products that came from Lovaskiya be checked by Palladian customs inspectors. The inspection was done at a container freight station that was both remote and poorly staffed. This delayed the Lovaskiyan consignment from reaching the consumers in Palladia. The inspection strategy adopted by the customs officers in Palladia is an example of a(n): A) monopolistic competition policy. B) voluntary export restraint policy. C) administrative trade policy. D) antidumping policy. E) tariff rent policy.
C.
The United States accused Libya and Iran of supporting terrorist action and building weapons of mass destruction. The U.S. government, therefore, imposed trade sanctions against the two countries. Which of the following political arguments does this exemplify? A) Corporate security B) Protecting infant industries C) Furthering foreign policy objectives D) Retaliation and trade war E) Strategic trade policy
C.
The new trade theory diverts from its advocacy of free trade by suggesting that: A) the role of luck, entrepreneurship, and innovation is important in giving a firm first-mover advantages. B) the price of a new product increases along with the increase in the popularity of the product. C) there is an economic rationale for a proactive trade policy. D) nations benefit from trade even in the absence of resource endowments and technology. E) market expansion leads to better realization of economies of scale.
C.
The strategic behavior theory: A) seeks to explain the challenges faced by a firm during the establishment of a new operation in a foreign country. B) explains the constraints of exporting and licensing. C) seeks to explain the patterns of FDI flows based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace. D) reviews the theories that have been used to explain foreign direct investment. E) explains how greenfield investments are better than FDI.
C.
Which of the following concepts helps explain how location factors affect the direction of FDI? A) The protectionism argument B) The infant industry argument C) The eclectic paradigm D) The product life-cycle theory E) The new trade theory
C.
Which of the following groups would benefit the most from receiving subsidies? A) Foreign competitors B) International organizations such as the WTO C) Domestic producers D) Governments E) Importers
C.
Which of the following involves producing goods at home and then shipping them to the receiving country for sale? A) Franchising B) Outsourcing C) Exporting D) Diversifying E) Licensing
C.
Which of the following is a drawback of the product life-cycle theory? A) It fails to explain the pattern of international trade during the period of American global dominance. B) It fails to account for diminishing returns. C) Its relevance in the modern world seems limited. D) It fails to explain what happens when a product's market in the United States and other advanced nations matures. E) It makes many simplifying assumptions.
C.
Which of the following is a home-country policy for limiting outward FDI? A) Reducing interest rates earned on domestic investments B) Withdrawing government-backed insurance programs provided to local investors C) Manipulating tax rules to encourage the firms to invest at home D) Eliminating double taxation of foreign income E) Prohibiting organizations from entering into a cartel
C.
Which of the following is a result of certain products having small national markets, in the absence of trade? A) The first movers in an industry may get a lock on the world market that discourages subsequent entry. B) Each nation will specialize in producing a narrower range of products than it would in the presence of trade. C) Limited demand for such products leads to non-realization of economies of scale. D) At low volumes of production, unit costs and prices would be lowered. E) The variety of products available to consumers increases.
C.
Which of the following is an empirically supported prediction of the new trade theory? A) Comparative advantage arises from differences in productivity and factor endowments. B) Government intervention and strategic trade policies are more likely to harm international trade than is free trade. C) Trade increases the specialization of production within an industry. D) Nations benefit from trade only when they differ in factor endowments. E) The locus of global production initially switches from the United States to other advanced nations.
C.
Which of the following multilateral agreements was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like? A) Central American Free Trade Agreement (CAFTA) B) North Atlantic Treaty Organization (NATO) C) General Agreement of Tariffs and Trade (GATT) D) Free Trade Areas of the Americas (FTAA) E) North American Free Trade Agreement (NAFTA)
C.
Which of the following refers to the amount of FDI undertaken over a given period (normally a year)? A) Status B) Fragment C) Flow D) Portfolio E) Stock
C.
Which of the following statements is true regarding foreign direct investment? A) The globalization of the world economy is having a negative effect on the volume of FDI. B) The flow of FDI refers to the total accumulated value of foreign-owned assets at a given time. C) FDI has grown more rapidly than world trade and world output. D) The general shift toward democratic political institutions has discouraged FDI. E) Generally, free market economies oppose FDI.
C.
Salcia is a country that depends heavily on domestic products. The Salcian government decides on the products that can be imported and ensures that any product that can be produced at home is not imported. A major part of Salcia's trade is concentrated on exporting agricultural produce and textiles. Which of the following influences Salcia's approach to international trade? A) Leontief's paradox B) Product life-cycle theory C) Neo-Ricardian trade theory D) Mercantilism E) New trade theory
D
Which of the following suggests that consumers in all nations can consume more if there are no restrictions on trade? A) Leontief's paradox B) The Heckscher-Ohlin theory C) The Samuelson critique D) Ricardo's theory of comparative advantage E) Mercantilism
D
A computer manufacturing firm from the United States invests in a microprocessor manufacturing plant in Taiwan. This is an example of: A) stock consolidation. B) product differentiation. C) insourcing. D) foreign direct investment. E) market segmentation.
D.
A current account deficit is also known as a(n): A) tariff deficit. B) external deficit. C) stock deficit. D) trade deficit. E) inventory deficit.
D.
According to Vernon, which of the following factors obviates the need for pioneering U.S. firms to look for low-cost production sites in other countries? A) The uncertainties and risks inherent in introducing new products are very low. B) The production of innovative products in other advanced countries limits the potential for exports from the United States. C) U.S. labor costs are relatively low compared to global standards. D) Firms can charge relatively high prices for new products. E) The demand for most new products tends to be based mainly on price.
D.
According to the free market view, how does FDI increase the efficiency of the world economy through MNEs? A) MNEs increase the efficiency of the world economy by increasing the flow of capital in the world market. B) When an MNE produces products, profits from the investment go abroad, and hence the MNE helps foreign exchange to rotate. C) A foreign-owned manufacturing plant may import many components from its home country, thus improving the balance of payments of the host country. D) The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe. E) MNEs extract profits from the host country and take them to their home country and help all countries realize economies of scale.
D.
If one firm in an oligopoly cuts prices, then most likely, its competitors will: A) make profits. B) capture additional market share. C) correspondingly raise prices. D) also respond with similar price cuts. E) not be impacted by the price cuts.
D.
New trade theory argues that, through its impact on economies of scale, trade can: A) increase the average costs of goods. B) prevent diminishing of returns and promote constant returns to specialization. C) negatively affect the first-mover advantage for all products. D) increase the variety of goods available to consumers. E) enable the global market to support a wide range of enterprises.
D.
Porter, in his diamond model, suggested that there is a strong association between which of the following and the creation and persistence of competitive advantage in an industry? A) The availability of a captive market B) Purchasing power parity C) Trade barriers D) Vigorous domestic rivalry E) First-mover advantages
D.
QFresh, a brand for energy drinks, launched a healthy lime-based drink without preservatives. Immediately after this another brand, Fast Fizz, which manufactures energy drinks, also announced the launch of a new refreshing drink without preservatives. Then Ignite, a third brand of energy drinks, reduced the price of its apple-based drink. Which of the following is most likely to happen in this oligopolistic market setup? A) Fast Fizz and Ignite will collaborate against QFresh. B) Fast Fizz will launch another new drink. C) QFresh will link up with Ignite to launch a completely new product. D) QFresh and Fast Fizz will reduce the prices of their respective drinks. E) QFresh will have an increased domestic consumption.
D.
The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the: A) licensing theory. B) new trade theory. C) comparative advantage theory. D) internalization theory. E) distribution theory.
D.
The most important concerns regarding the costs of FDI for the home country center on the: A) technology capture effect and the perceived loss of national sovereignty. B) import of substantial input from abroad and being held to "economic ransom." C) exposure to foreign markets and the decreased costs of production. D) balance-of-payments and employment effects of outward FDI. E) reverse-resource transfer effect and the exposure to foreign markets caused by FDI.
D.
The new trade theory states that: A) the locus of global production initially switches from the United States to other advanced nations. B) a rich country might actually be worse off by switching to a free trade regime with a poor nation. C) differences in labor productivity between nations underlie the notion of comparative advantage. D) world trade in certain products may be dominated by countries whose firms were first movers in their production. E) differences in technology may lead to differences in productivity, which in turn drives international trade patterns.
D.
Which of the following best explains the reason for the rise in protectionist pressures around the world during the 1980s? A) The strict GATT bureaucracy in Geneva controlling trade regulations B) The opening up of international markets to cheap products from China C) The economic failure of Japan which hampered the global economy D) The persistent trade deficit in the world's largest economy, the United States E) The fall of the Soviet Union
D.
Which of the following is most likely to be the effect of FDI in the form of a greenfield investment on the host country? A) It causes firms to fight for scarce capital investments. B) It raises unemployment levels. C) It leads to decreased productivity, product and process innovations, and lesser economic growth. D) It drives down prices and increases the economic welfare of consumers. E) It leads to an oligopolistic market and unfair pricing.
D.
Which of the following is the most common political argument for government intervention in international trade? A) Improving efficiency of domestic labor B) Protecting human rights C) Decreasing the prices of products in the domestic market D) Protecting jobs and industries from unfair foreign competition E) Promoting strategic trade policy
D.
Why is retaliation by government intervention a risky strategy? A) It allows firms to sell goods in the foreign market at below their fair market value. B) It makes it difficult for domestic firms to make any investments by borrowing money from the domestic capital market. C) It encourages dumping by foreign companies. D) It could result in increased tariff barriers by the country that is being pressured. E) It may expose certain industries that are important for national security to foreign competition.
D.
Australia is a major producer of agricultural and dairy products and exports coffee, tea, spices, and milk products to the United States. United States is the world's third largest supplier of machinery and exports heavy machinery to Australia. What explains the trade equation between Australia and the United States? A) First entrants to the industry ensure their nations have the first-mover advantages. B) Tariff barriers determine the flow of goods and services between nations. C) Gold and silver are the mainstays of national wealth and essential to vigorous commerce. D) Countries are simultaneously encouraging exports and discouraging imports. E) Nations with an absolute advantage in producing certain goods trade them for goods produced by other countries.
E
According to internalization theory: A) licensing is more profitable than FDI. B) licensing has no major drawbacks as a strategy for exploiting foreign market opportunities. C) a problem with licensing arises when the firm's competitive advantage is based much on its products rather than on the management, marketing, and manufacturing capabilities that produce those products. D) licensing gives a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. E) licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor.
E.
According to the U.S. Department of Commerce, which of the following, occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity? A) International divestment B) Reciprocal foreign investment C) Asset divestment D) Multilateral investment E) Foreign direct investment
E.
According to the new trade theory, which of the following is most likely to be a result of market expansion due to trade? A) The ability to capture first-mover advantages is restricted in a world that allows trade. B) A wide variety of products is produced at greater unit costs than in the absence of trade. C) As the variety of products increases, demand for individual products decreases, leading to non-realization of economies of scale. D) When countries do not differ in their resource endowments or technology, trade does not offer mutual benefits. E) Each nation may specialize in producing a narrower range of products, importing goods that it does not make.
E.
FDI is risky because of the problems associated with: A) sharing a valuable technological know-how with a potential competitor. B) an increase in transportation costs, especially for those products that have a low value-to-weight ratio. C) the possibility of an increase in trade barriers such as import tariffs or quotas. D) increased production costs. E) doing business in a different culture where the rules of the game may be very different.
E.
If a company were to draw from the ideas proposed in the various theories of international trade, from a profit perspective, how would it go about selecting locations for its businesses? A) It would disperse its productive activities across all countries that serve as its market. B) It would concentrate its productive activities mostly in developing countries. C) It would concentrate its productive activities in its home country. D) It would concentrate its productive activities mostly in developed countries. E) It would disperse its productive activities to those countries where they can be performed most efficiently.
E.
Myra is a firm producing premium handbags for women. These bags are manufactured and patented in the country of Ceria. Manufacturers in the country of Argonia create counterfeit Myra bags and sell them in the local markets of Argonia. These bags are sold at almost similar prices to the original in other countries. Which of the following is likely to happen? A) Reduction in opportunities of export from Argonia to other countries B) Expansion of world market for Cerian products C) Increase in the prices of handbags produced by Myra in Argonia D) Reduction in import of all Argonian goods E) Reduction in the export opportunities for Myra's hand bags in Argonia
E.
On which of the following observations was Raymond Vernon's product life-cycle theory based? A) The high cost of U.S. labor gave U.S. firms an incentive to develop cost-saving process innovations. B) The United States has long been a substantial exporter of agricultural goods, reflecting in part its unusual abundance of arable land. C) The wealth and size of the U.S. market gave U.S. firms a strong incentive to develop new consumer products. D) The United States exports goods that heavily use skilled labor and imports heavy manufacturing products that use large amounts of capital. E) The United States developed a very large proportion of the world's new products for most of the twentieth century and sold them first in the U.S. market.
E.
The country of Argonia imposes an ad valorem tariff of 10 percent on 1 million tons of rice imports, after which an out-of-quota tariff of 80 percent is applied. Which of the following trade policy instruments is Argonia using? A) Subsidy B) Local content requirement C) Voluntary export restraint D) Tariff ceiling E) Tariff rate quota
E.
The economically damaging effects of the Great Depression were worsened in 1929 by the: A) spread of communism through Europe. B) Cold War between the world's superpowers. C) harvest failure in Great Britain and famine in Ireland. D) First World War. E) U.S. stock market collapse.
E.
The threat of antidumping action: A) helps the firm raise capital in the primary market. B) limits the ability of a firm to raise prices in response to high demand. C) enhances a firm's competitive advantage to indigenous competitors in that country. D) enhances the firm's ability to disperse its productive activities in an efficient manner. E) limits the ability of a firm to use aggressive pricing to gain market share in a country.
E.
Vernon predicts that as the demand for a new product starts to grow in other advanced countries, in the long run: A) it becomes profitable for foreign firms to invest in production facilities in the United States. B) the cost of labor in these advanced countries begins to increase. C) the firms in the United States begin to gain an absolute advantage. D) the same product will begin to command a higher price. E) it begins to limit the potential for exports from the United States.
E.
Which of the following asserts that countries should simultaneously encourage exports and discourage imports? A) Collectivism B) Capitalism C) Socialism D) Ethnocentrism E) Mercantilism
E.
Which of the following factors is taken into consideration by David Ricardo's theory of comparative advantage in order to explain the pattern of international trade? A) Absolute advantage of a country with reference to natural resources B) The ability of firms to cope with late-mover disadvantages C) The ability of firms to capture first-mover advantages D) The proportions in which the factors of production are available E) International differences in labor productivity
E.
Which of the following helps a firm to preempt available demand, gain cost advantages related to volume, and build an enduring brand ahead of later competitors? A) Absolute advantages B) Comparative advantages C) Mercantilism D) Monopolistic practices E) First-mover advantages
E.
Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting? A) The costs of establishing production facilities in a foreign country B) The possibility of diminishing returns C) The costs of acquiring a foreign enterprise D) The risk of giving away valuable technological know-how to a potential foreign competitor E) The presence or threat of trade barriers
E.
Which of the following requires that some specific fraction of a good must be produced domestically? A) Domestic sales requirement B) Specific quota requirement C) Ad valorem portion requirement D) International allocation requirement E) Local content requirement
E.
Which of the following statements is true about voluntary export restraints (VERs)? A) VERs reduce the domestic price of an imported good. B) VERs negatively affect domestic producers by increasing import competition. C) VERs benefit consumers by limiting import competition. D) Foreign producers agree to VERs because they fear economic instability in the world economy. E) When imports are limited to a low percentage of the market by a VER, the price is bid up for that limited foreign supply.
E.
Which of the following statements is true regarding GATT? A) In its early years, GATT was unsuccessful and hence was superseded by the World Bank. B) Tariff reductions through negotiations were completed in three rounds. C) GATT attempted to liberalize trade restrictions in one go. D) GATT regulations were mostly enforced by the EU nations rather than by a mutual monitoring mechanism. E) The last round for tariff reduction, the Uruguay Round, was launched in 1986 and completed in December 1993.
E.
Which view of FDI traces its roots to Marxist political and economic theory? A) Free market B) Comparative advantage C) Pluralist D) Pragmatic nationalism E) Radical
E.
Why has FDI grown more rapidly than world trade? A) Privatization has made developing nations less attractive for multinational enterprises. B) There has been a general shift toward centrally planned command economies. C) The decline in trade barriers has erased the fear of protectionist pressures. D) There has been a general shift toward radical and totalitarian political institutions. E) Executives of business firms see FDI as a way of circumventing future trade barriers.
E.