WGU_FVC1_Ch2_The Evolution of International Business
The _____ theory attributes the comparative advantage of a nation to its factor endowments.
Heckscher-Ohlin
Historically, the main instrument of trade policy has been _____.
IMPORT TARIFF
An agreement in which an exporter of goods or services to another country commits to importing goods or services of corresponding value from that country is referred to as ________.
COUNTERTRADE
Analysts believe that by 2020 _____will become the world's largest economy, followed by _____ and _____.
China; the United States and India
Import quotas are also known as ________.
QUANTITATIVE RESTRICTIONS
The infant industry argument provides temporary protection to a particular industry that got a "late start," but has the potential to become a world class competitor. What are some ways a country could provide this temporary protection?
RAISE IMPORT TARIFFS OR IMPOSE IMPORT RESTRICTIONS TO RAISE LOCAL DEMAND FOR THE PRODUCT
Until January 1, 2012, the price for ethanol consumers in the United States was higher than world free-market price by $0.54 per gallon because of the $0.54 per gallon tariff imposed by the U.S. government on ethanol imports. This is an example of a(n) _____ tariff.
SPECIFIC
Taxes on imports are known as ________.
TARIFFS
The earliest and simplest form of international business is ________.
TRADE
Among middle-income countries, China, has been consistently attracting the largest amount of FDI because of its well-developed infrastructure and its emerging position as the low-cost manufacturing center of the world.
TRUE
Developed countries often resort to managed trade for reasons of unethical labor practices and violation of basic human rights.
TRUE
Foreign direct investment (FDI) in a country brings funds and business culture from abroad, creates new well-paying jobs, introduces innovative technologies, and enhances the skills of domestic workers.
TRUE
Import tariffs are important to many developing countries because they are a major source of government revenue.
TRUE
In countertrade, an exporter of goods or services to another country commits to import goods or services of corresponding value from that country.
TRUE
Managed trade aims to replace global market or economic forces with government actions to determine trade outcomes.
TRUE
Mercantilists believed that for a nation to become wealthy, that nation must export as much as possible and, in turn, import as little as possible.
TRUE
Nontariff barriers are one way that countries can engage in free trade, but still be able to protect their own industries.
TRUE
Porter stresses the importance of domestic demand for goods and services when determining a nation's competitive advantage. When domestic demand remains high, the number of suppliers will also be high.
TRUE
The growth trends in China and India today illustrate the impact that international business has on blue-collar and white-collar workers in wealthy countries as relatively low-skill factory jobs as well as high-skill service profession jobs migrate overseas.
TRUE
Trade policy refers to all government actions that seek to alter the free flow of merchandise or services from or to a country.
TRUE
managed trade
agreements, sometimes temporary, between countries (or a group of countries) that aim at achieving certain trade outcomes
most favored nation (MFN)
an agreement among WTO countries in which any tariff concession granted by one member to any other country will automatically be extended to all other countries of WTO
domestic content provisions
regulations requiring that a certain percentage of the value of import be sourced domestically
factor price equalization theory
states that when factors (labor, for example) are allowed to move freely among trading nations, efficiency increases, which leads to superior allocation of production of goods and services among countries.
export taxes
taxes meant to raise export cost and divert production for home consumption
infant industry argument
temporary provision of protection to nascent industries that have good prospects of becoming globally competitive in the medium term
comparative advantage
the ability of one country that has an absolute advantage in the production of two or more goods (or services) to produce one of them relatively more efficiently than the other
trade
the two-way flow of exports and imports and goods (merchandise trade) and services (service trade)
Adam Smith
British economist who came to be known as the father of free market and open trade systems.
The world's two largest economies in terms of national income in the early-19th century were ____
CHINA AND INDIA
The ability of one country that has an absolute advantage in the production of two or more goods (or services) to produce one of them relatively more efficiently than the other is called a(n) _____.
COMPARATIVE ADVANTAGE
The agreement between Power Trip Unlimited, China, and India to engage in foreign trade will ultimately provide greater opportunities for consumers of Power Trip's products. Which one of the following is least likely to be considered a benefit of this trade agreement?
Consumer choices may be limited by government restrictions on the operational capacity of the various products
Which of the following would be a reason a country might participate in countertrade?
DO NOT HAVE ADEQUATE AMOUNT OF FOREIGN CURRENCIES TO PAY FOR THEIR IMPORTS
As one of the Audrey Firm's more prestigious clients, OPEC, which exemplifies an export cartel, requires constant overseeing to ensure it complies with the agreement arranged for export cartels. Which one of the following items is least likely to appear on this type of agreement?
Demand for the product in question must be elastic
Of the following statements about mercantilism, which is NOT true? .
During the time it was practiced, wealth was largely determined by the amount of land one had access to
________ refers to trade sanctions which are imposed upon a nation to restrict trade with that country.
EMBARGO
Which one of the following would be the least restrictive way in which India and China could impede sales of Power Trip's products within their borders despite the agreement to allow free operations of the company within their nations' boundaries?
Establish a generalized system of preferences (GSP)
The _____ states that when factors are allowed to move freely among trading nations, efficiency increases, which leads to price of factors becoming equal among countries.
FACTOR PRICE EQUALIZATION THEORY
Endowments used to produce goods and services are called _____.
FACTORS OF PRODUCTIONS
An export taxes refers to a negative tariff or tax aimed at boosting exports by lowering export prices. On the other hand, export subsidy is meant to discourage exports and to keep production at home.
FALSE
Competitive industrial structures are unlikely to create innovative or dynamic firms willing to compete abroad. However, a monopolistic industry will foster innovative, cost efficient, aggressive firms that can adjust to changing economic conditions at home and will be well prepared to compete abroad.
FALSE
Emerging countries like Brazil, Russia, India, and China (BRIC) that have large populations, an expanding middle class, and a combination of relatively low wage-rates and rapidly growing economies tend to attract sizable less amounts of foreign investment.
FALSE
Factor price equalization is a theory of international trade that supports the premise that a nation could only gain from trade if it had a trade surplus.
FALSE
It is estimated that for every billion dollars worth of exports from the United States, 100,000 domestic jobs are created.
FALSE
Porter exemplifies China as a powerhouse for consumer electronics because of the quality and quantity of its engineers, and the ability and willingness of Chinese consumers to try out new electronic products that are perfected and later exported.
FALSE
The Generalized System of Preferences allows free trade of all products between specific countries.
FALSE
Unfortunately, research finds that the losses from open trade and investment are always greater than the gains.
False
foreign direct investment (FDI)
Foreign inflow of capital, technology, and skills to enhance domestic investment and economic growth.
Of the following statements about foreign direct investment, which is NOT true?
Foreign investors have little faith in high-income economies such as Canada.
At the end of WWII, three major international organizations were established to accelerate trade and economic growth among countries of the world. They are: the IMF, the World Bank, and ________.
GATT
Porter identified two crucial variables outside the diamond that play an important role in the competitiveness of nations: chance and ________.
GOVERNMENT
Which of the following was NOT one of the top ten exporting nations in 2010?
INDIA
All commercial transactions, both private and public between nations of the world, are referred to as ________.
INTERNATIONAL BUSINESS
In the 3,000 B.C., Sumerian farmers realized that the grain surplus they produced could be used as barter for things they did not have. Therefore, the Sumerians obtained copper from Sinai Desert traders who were located several hundred miles to the west in order to make weapons and repel nomadic raiders. The Sumerians engaged in _____
INTERNATIONAL BUSINESS
How does Porter's model of national competitive advantage differ from the Heckscher-Ohlin theory?
It looks more closely at the quality of factor endowments.
The oldest form of trade theory is called _____.
MERCANTILISM
________ is a theory of international trade that supports the premise that a nation could only gain from trade if it had a trade surplus.
MERCANTILISM
Who authored The Competitive Advantage of Nations?
MICHAEL PORTER
The clients of the Audrey Firm use various techniques to restrict imports to their countries other than tariffs. Which one of the following would not be considered a nontariff barrier used by the clients of the Audrey Firm?
PREFERENTIAL DUTIES
What is the difference between a specific tariff and an ad valorem tariff?
SPECIFIC TARIFF IS A FIXED AMOUNT AND AN AD VALOREM IS BASED ON A PERCENTAGE.
Many of the clients engaging the services of the Audrey Firm practice managed trade. All of the following would most likely be a practice these nations engage in when conducting trade with other nations except which one?
Strategic industries are given free rein in their trade practices
Import quotas limit the amount or number of units or products that can be imported into a country. Which of the following would be a reason for a country to set an import quota?
TO ALLOW LOCAL PRODUCERS TO COMPETE WITH FOREIGN PRODCUERS
Which of the following is a reason a country might impose an export tax?
TO DISCOURAGE EXPORTS AND KEEP LOCAL PRICES UNDER CONTROL
Why do developed countries often resort to managed trade for reasons of unethical labor practices and violation of human rights?
TO FORCE COUNTRIES TO CHANGE THEIR ENVIRONMENTAL AND LABOR PRACTICES.
As stated in the textbook, the Japanese and U.S. governments negotiated a voluntary export restraint in the early 1980s, which gave U.S. automakers a chance to retool and become competitive in the small car market. Although economically detrimental to Japan, why would Japan enter into such an agreement?
TO MAINTAIN A GOOD RELATIONSHIP WITH THE US AND ITS CONSUMERS IN ANTICIPATION OF FUTURE SALES
Dubai, a regional center for global companies, continues to attract sizable amounts of foreign investment given its strategic location, world-class infrastructure, and productive workforce.
TRUE
Factor price equalization theory, states that when factors are allowed to move freely among trading nations, efficiency increases, which leads to equality of factor prices among these countries.
TRUE
Of the following statements about trade, which is NOT true?
Trade does not influence culture.
export cartel
a group of countries that could effectively control export volume to keep their export prices, revenues, and economic growth stable or high
export subsidies
a negative tariff or tax aimed at boosting exports
export subsidy
a negative tariff or tax aimed at boosting exports
voluntary export restraint (VER)
a non-tariff barrier in which an efficient exporting nation agrees to limit exports of a product to another country for a temporary period
ad valorem tariff
a tax on imports levied as a constant percentage of the monetary value of one unit of the imported good
mercantilism
a theory of international trade that supports the premise that a nation could only gain from trade if it had a trade surplus ie more exporting than importing. (1500-1750)
countertrade
agreement in which an exporter of goods or services to another country commits to import goods or services of corresponding value from that country
international business
all commercial transactions, both private and public, between nations of the world
trade policy
all government actions that seek to alter the size of merchandize and/or service flows from and to a country
import quotas
also known as Quantitative Restrictions (QRs are regulations that limit the amount or number of units of products that can be important to a country)
generalized system of preferences (GSP)
an agreement where a large number of developed countries permit duty-free imports of a selected list of products that originate from specific countries
preferential duties
an especially advantageous or low import tariff established by a nation for all or some goods of certain countries and not applied to the same goods of other countries
specific tariff
an import tax that assigns a fixed dollar amount per physical unit
factors of production
endowments used to produce goods and services: land (quantity, quality, and mineral resources beneath it), labor (quantity and skills), capital (cost), and technology (quality)
Porter's diamond model of national competitive advantage.
factor conditions demand conditons related and supporting industries firm strategy, structure and rivalry chance and government policy (other variables)
The right to export and import
freely enhances the quality of life and living standards of people in the countries involved in trade. In addition, trade brings with it cultural and technological riches; it can also make the world a more peaceful place because of national interdependence.
The key assumptions for the H-O theory to work are: 1) perfect competition in the marketplace; and (2) _____.
perfect immobility of factors of production among countries
custom duties
taxes on imports that are collected by a designated government agency responsible for regulating imports
tariffs
taxes on imports; also known as custom duties in some countries
absolute advantage
the ability of one country to produce a good or service more efficiently than another
The Heckscher-Ohlin (H-O) Theory attributes
the comparative advantage of a nation to its factor endowments: land (quantity, quality, and mineral resources beneath it), labor (quantity and skills), capital (cost), and technology (quality).
outsourced
the corporate practice of acquiring or producing quality goods or services abroad at a lower cost thereby eliminating domestic production
outsourcing
the corporate practice of acquiring or producing quality goods or services abroad at a lower cost thereby eliminating domestic production
embargoes
trade sanctions which are imposed upon a nation to restrict trade with that country
trade surplus
when the value of exports exceeds the value of imports; the opposite of a trade deficit
When was mercantilism practiced?
1500-1750
It is estimated that for every billion dollars worth of exports from the United States _____ domestic jobs are created.
20,000
Export cartels are composed of sovereign states, not private companies, and control export volume and prices. OPEC is an example of an export cartel. What is a possible negative effect of an export cartel?
ABILITY FOR THE ORGANIZATION TO DIRECT OR STOP THE MARKET FLOW OF THE PRODUCT
Assume that because of soil and climatic conditions, Columbia is more efficient in the production of coffee than India. At the same time India is more efficient in the production of wheat than Columbia. Each of these countries can be said to have a(n) _____.
ABSOLUTE ADVANTAG
During the mid-18th century, British economist ________, who came to be known as the father of free market and open trade systems, recognized the absurdity of Mercantilism.
ADAM SMITH
The agreement reached between Power Trip and the two foreign nations where they would sell components to Power Trip in exchange for allowing sales of its products within their borders most closely resembles which one of the following?
AN ENGAGMENT IN COUNTERTRADE
Which of the following was NOT one of the top exporting nations in 2010?
AUSTRAILIA
