International Business Test #1

FDI can benefit the home country's ____ if the foreign subsidiary creates demands for home-country exports of capital equipment, intermediate goods, complementary products, and the like.

balance of payments

The Influential Peruvian development economist Hernando de Soto has argued that much of the developing world will fail to reap the benefits of capitalism until they

better define and secure property rights.

Removing price controls, abolishing laws regulating the establishment and operation of private enterprises, and relaxing or removing restrictions on direct foreign investment are methods aimed at

deregulation

According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to

develop cost-saving process innovations

A market economy encourages innovation because

economic freedom leads to greater incentives for innovation.

Walmart makes bulk purchases from its vendors and as a result it is able to get better deals than its competitors. This allows Walmart to offer greater discounts to its customers. In this case, Walmart benefits from

economies of scale

The ultimate purpose of GATT was to

eliminate barriers to free trade

Direct effects of FDI on employment in the host country arise when a foreign MNE

employs a number of host-country citizens

The Heckscher-Ohlin theory predicts that countries will

export those goods that make intensive use of factors that are locally abundant.

The infant industry argument is criticized because it relies on an assumption that

firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market.

The theory of comparative advantage provides strong rationale for supporting the idea of

free trade

Which theory would support the idea that by increasing the efficiency of resource utilization in the global economy, international trade results in greater economic growth and provides economic benefits to all countries that participate in a global trading system?

gains from trade

Which factor has contributed to the globalization of markets?

global convergence of consumer tastes and preferences

Which feature is characteristic of a representative democracy?

governance by people or elected representatives

A civil law system tends to be less adversarial than a common law system because the

judges decisions are based on detailed legal codes.

Globalization of markets results in markets becoming

less diverse.

As transportation costs or trade barriers increase, exporting becomes unprofitable, and the choice is between FDI and

licensing

The costs of doing business in a country tend to be greater if

local laws set strict standards with regard to environmental pollution.

New trade theory suggests that nations

may benefit from trade even when they do not differ in resource endowments or technology.

If China continues to move toward greater free market reforms it

may move from a third-world business giant to an industrial superpower.

Diminishing returns to specialization occur when

more units of resources are required to produce each additional unit

Tariff rates on agricultural products are generally

much higher than tariff rates on manufactured products or services

Which factor hinders globalization of consumer goods market?

national and cultural differences in tastes and preferences

Country A exports electronic goods to Country B although there are no underlying differences in factor endowments between the two countries. Which theory explains this anomaly?

new trade theory

Antitrust laws in the United States are designed to

outlaw monopolies

A U.S. investment firm set up a customer service call center in India to take advantage of lower labor costs. This is called

outsourcing.

The TRIPS agreement was designed to

oversee a much stricter enforcement of intellectual property regulations.

In a pure market economy

production is determined by the interaction of market forces of supple and demand.

Local content regulations

protect domestic producers by limiting foreign competition

Import tariffs

reduce the overall efficiency of the world economy

When a company brings capital and/or technology to a host country, the host country benefits from the

resource-transfer effect of FDI

Containerization has revolutionized the transportation business by

simplifying the transportation process and lowering the cost of shipping goods.

Which factor, according to Porter, is most likely to give a country competitive advantage over another country?

skilled labor and know-how

The rise in the number of mini-multinationals means that

small businesses are becoming increasingly involved in international trade and investment.

To help farmers who are struggling with their crops in harsh economic times, the U.S. government might provide cash grants, low-interest loans, or tax breaks. By lowering the farmer's production costs in a difficult economic environment, these ____ help the farmers compete against foreign imports and gain export markets.

subsidies

Globalization is criticized because it increases the power of

supranational organizations over nation-states.

Who benefits from an import tariff?

the government

The relative decline of the United States in the share of world output and world exports reflects

the growth in the economic development of emerging markets and other industrialized countries.

GNI per person figures can be misleading because

they don't consider differences in the cost of living.

Mergers and acquisitions are quicker to execute than greenfield investments

true

Country A can produce product X, but it can also buy it at a cheaper price from Country B. Which course of action is suitable in this situation according to Adam Smith's theory of absolute advantage?

Country A should import product X from Country B and it should not attempt to produce it at home.

_____ refers to the shift toward a more integrated and interdependent world economy.

Globalization

Which observation about subsidies is true?

Government subsidies must be paid for, typically by taxing individuals and corporations.

____ per person figures can be misleading because they don't consider differences in the cost of living.

Gross National Income (GNI)

In 2008 and 2009, the ____ became the forum through which major nations attempted to launch a coordinated policy response to the global financial crisis, which started in America.

Group of Twenty (G20)

Which statement represents a first-mover advantage?

International firms may gain experience in that country's business practices.

Which statement about the Trade-Related Aspects of Intellectual Property (or TRIPS) agreement is true?

It obliged WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years.

Licensing would be a good option for firms in which industry?

It would be a good option in fragmented, low-technology industries in which globally dispersed manufacturing is not an option.

Modern socialism has been popularized largely through the work of

Karl Marx

Which is a trade barrier that affects a firm's strategy?

To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise.

"Beggar they neighbor" retaliatory trade policies involved countries progressively increasing trade barriers against each other, which contributed to the Great Depression of the 1930's.

True

According to supporters of free trade, as countries become more integrated into global economy and trade, they are more likely to enforce stricter environmental and labor regulations.

True

In mixed economies, governments tend to take into state ownership troubled firms whose continued operations is thought to be vital to national interest.

True

The political systems of a country raise ethical issues that have implications for the practice of international business.

True

Which country is engaged in deregulation efforts?

a country that encourages competition and attracts foreign direct investment

A German car manufacturer purchases a U.S. producer of car tires. This is an example of

an acquisition

Globalization has resulted in

an increase in the use of outsourcing

Supporters of debt relief for HIPC's

are energized by high-profile endorsements from Bono, the Dalai Lama, and Jeffrey Sachs.

The Smoot-Hawley Act was aimed at

avoiding rising unemployment

A computer manufacturer locates a production facility in a developing country. Prior to this investment, the developing country lacked any research and development resources or skills but now there has been a significant transfer of technology which has spurred growth in the country. This is an indirect effect of FDI.

False

A market with a large number of consumers with low living standards will have a relatively large market when measured in economic terms.

False

GDP allows a more direct comparison of living standards in different countries than other measures.

False

Licensing is usually a good option for firms in high-tech industries were protecting firm-specific expertise is of paramount importance.

False

Managing an international business is quite similar to managing a domestic business.

False

Since Mercury Machine is a medium-sized business, it would not benefit from globalization.

False

The Trade-Related Aspects of Intellectual Property Rights agreement attempts to reduce intellectual property protections to enhance trade.

False

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.

False

____ gives a firm tight control over its technological know-how operations, and business strategy in a foreign country that may be required to maximize its profitability.

Foreign direct investment