GLOBAL ENVIRONMENT OF BUSINESS chapter 6,7
Which organization was created to implement the GATT agreement?
World Trade Organization
Arguments for international trade typically focus on political and __________ reasons.
economic
Some countries have a policy that restricts the export of honey. This is called a(n)
export ban.
Simone lives in a country in which the government does not impose quotas on what can be imported or on what businesses can produce and sell to another country. What type of situation does this describe?
free trade
Which theory asserts that countries should simultaneously encourage exports and discourage imports?
mercantilism
According to the product life-cycle theory, the locus of global production initially switches from the United States to other advanced nations and then from those nations to developing countries. As a result,
over time, the United States switches from being an exporter of a product to an importer of the product.
Dumping takes place when foreign producers
unload excess production of a good in foreign markets.
Jenson Electronics believes that a foreign producer of component parts is dumping production in the U.S. market and the company filed a complaint with the government. If the government determines that the complain has merit, which governmental agency may impose an antidumping duty on the foreign producer?
Commerce Department
A charge of 16 percent is levied by the government of a foreign nation on the value of refrigerator and freezer components imported from a neighboring country. This results in an increase in the price of those imported appliances for the consumer. This foreign nation is using a(n)
ad valorem tariff.
Which factor endowment would be classified as a basic factor by Michael Porter?
climate
Which term indicates that the units of resources required to produce a good are assumed to remain fixed no matter where one is on a country's production possibility frontier?
constant returns to specialization
Tavis lives in southern Florida where there is sufficient land and labor to successfully grow gourds and melons. Heckscher-Ohlin would consider the land and labor to be
factor endowments.
Factor endowments, demand conditions, related and supporting industries, and __________ are the four broad attributes that make up Porter's Diamond Model.
firm strategy, structure, and rivalry
One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that
firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets.
The economic and strategic advantages that accrue to early entrants into an industry are called
first-mover advantages.
A tariff rate quota provides a lower tariff rate to
imports within the quota.
The principal function of the trade sanctions the United States has in place against Cuba is to
impoverish Cuba to lead to the downfall of the communist government.
When the management team reviewed its government contract on office chairs, they noticed that in order to bid on the project, at least 37 percent of the value of the office chairs had to be produced in the United States. This stipulation is an example of a(n)
local content requirement.
Which theory stresses that in some cases, countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms?
new trade theory
Subsidies and quotas are examples of __________ barriers a county might impose.
nontariff
A tax of 14 cents is levied for each ceramic plate imported into a nation. This is an example of a(n)
specific tariff.
In some years, the U.S. government has paid soybean farmers an additional $1.65 on every bushel of soybeans they sell. This money is an example of a(n)
subsidy
The Heckscher-Ohlin theory is based on the idea that
the pattern of international trade is determined by differences in factor endowments.
A European nation has the world's most efficient computer monitor manufacturing industry, while a country in Central America has the world's most efficient agricultural machines industry. The European nation trades computer monitors with the Central American country in exchange for agricultural machinery. This form of trade between the two countries illustrates
the theory of absolute advantage.
The basic message of the __________ is that potential world production is greater with unrestricted free trade than it is with restricted trade.
theory of comparative advantage
A situation in which an economic gain by one country results in an economic loss by another is called a
zero-sum game.
__________ are put in place to make it difficult for imports to enter a country.
Administrative trade policies
The economic prosperity enjoyed by __________ during the 1980s and 1990s strained the world trading system and created the demand for increased protectionist measures.
Japan
Neo-mercantilists equate political power with economic power and economic power with
a balance-of-trade surplus.
One focus of strategic trade policy is to help domestic companies gain
a first-mover advantage.
If Switzerland decides it wants to make it difficult for other countries to export cheese to Swiss businesses and creates pasteurization standards that don't exist anywhere else in the world, it would be implementing __________ policies as a way to restrict these imports.
administrative trade
A zero-sum game occurs when
an economic gain by one country results in an economic loss by another.
Intel spreads the huge fixed costs of developing new generation chips over the nearly 2 billion chips it sells to computer makers. Intel benefits from
economies of scale.
The Smoot-Hawley Act tried to divert consumer demand away from foreign products by
establishing tariff barriers.
Vernon predicts that as the demand for a new product starts to grow in other advanced countries, in the long run
it begins to limit the potential for exports from the United States.
The U.S. agriculture industry has long-benefited from high tariff rates and _____ that protect domestic agriculture and traditional farming communities.
subsidies
What is one provision of the Uruguay Round Agreement?
Agricultural subsidies were to be substantially reduced.
Country J and Country S specialize in the production of dairy and textiles respectively. While Country J doesn't produce textiles, Country S is not as technologically advanced as Country J. In this situation, according to the Heckscher-Ohlin theory
Country J will import textiles from Country S and export dairy to it.
__________ was a multilateral agreement established in 1947 whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like.
General Agreement on Tariffs and Trade (GATT)
Why is retaliation by government intervention a risky strategy?
It could result in increased tariff barriers by the country that is being pressured.
How did the Smoot-Hawley Act divert consumer demand away from foreign products?
It implemented a wall of tariffs.
In the fictional nation of Simeon, it takes 10 units of resources to increase its output of flour from 12 tons to 13 tons, but 11 units of resources to increase output from 13 tons to 14 tons, and 12 units of resources to increase output from 14 tons and 15 tons, and so on. The need for increasing resources is an example of
diminishing returns to specialization.
Raymond Vernon noticed that in the 1960s, the wealth and size of the U.S. market was a natural incentive to develop new consumer products. What theory did he propose based on this fact?
product life-cycle
In his theory of absolute advantage, Adam Smith advocated that __________ should determine what a country imports and what it exports.
the market mechanism
According to the __________, 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.
Buy America Act
__________ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.
Dumping
According to new trade theory, what is most likely to be a result of market expansion due to trade?
Each nation may specialize in producing a narrower range of products, importing goods that it does not make.
Which multilateral trade agreement was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like?
General Agreement on Tariffs and Trade (GATT)
Solar Tech Corp., based in Phoenix, believes the ideal way for the United States to respond when foreign competitors are already being supported by government subsidies is not to retaliate but to establish rules that help minimize trade-distorting subsidies. Which theorist does Solar Tech's management agree with?
KrugmanCorrect
U.S. exports are less capital-intensive than U.S. imports, despite the relative abundance of capital in the country. This is in opposition to the Heckscher-Ohlin theory and is an example of
Leontief's paradox.
__________ justifies some limited government intervention to support the development of certain export-oriented industries.
New trade theory
Krugman advocated that government should help establish the rules of the game that minimize the use of trade-distorting subsidies. Which entity takes on that role?
World Trade Organization
Paul Krugman characterizes strategic trade policy as being
a boost to national income at the expense of other countries.
The mercantilist doctrine promoted government intervention in order to achieve
a surplus in the balance of trade.
The theory of __________ was the first to explain why unrestricted free trade benefits a country.
absolute advantage
If France is more efficient at producing fine wines than other nations, then France has a(n)
absolute advantage.
One difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory
argues that the pattern of international trade is determined by differences in national factor endowments.
According to Porter, which factor endowment would be classified as an advanced factor?
communication infrastructure
Aesha works for a moderately priced running shoe manufacturer and while their products are lower in cost, there is a high degree of consumer pressure to create the best quality running shoes possible and to constantly innovate with new designs. Which aspect of Porter's Diamond does this demonstrate?
demand conditions
According to the Heckscher-Ohlin theory, the pattern of international trade is affected by differences in
factor endowments.
The WTO rules say that a country can impose antidumping duties on
foreign goods being sold cheaper than at home.
Most economists would agree that the best interests of international business are found in a nation with a
free trade policy.
What was the principle currency of trade in the mid-sixteenth century when mercantilism came into favor in England?
gold and silver
A South American nation has a direct restriction on the amount of vegetables that may be imported into the country. Which instrument of trade policy does this reflect?
import quota
The __________ argument was proposed by Alexander Hamilton in 1792 and is by far the oldest economic argument for government intervention.
infant industry
An implication of trade barriers for business practice is that they
limit a firm's ability to serve a country from locations outside of that country.
New trade theorists would agree that a country might become dominant in the export of a good simply because it was
lucky to be the first to produce the good.
Brianna lives in a nation that encourages the production of goods for exporting and to satisfy the needs of the nation's citizens. This results in the nation relying less on importing goods. Which trade theory does this reflect?
mercantilism
Many years ago, a South African Republic believed that it was in its best interests to maintain a trade surplus, in other words, to export more than it imports. In so doing, the Republic hoped to accumulate gold and silver, and consequently, increase its national wealth, prestige, and power. In this scenario, what influenced the approach to international trade?
mercantilism
The government of a South American nation enforces tariffs and quotas to limit imported goods, while exports are subsidized. By using these instruments, the government seeks to achieve a surplus in the balance of trade. Based on this information, which approach is influencing the international trade efforts in this nation?
mercantilism
Which approach suggests that nations may benefit from trade even when they do not differ in resource endowments or technology?
new trade theory
Vernon argues that pioneering firms in the United States kept production facilities closer to the market and centers of decision making because
of the uncertainty and risks inherent in introducing new products.
One reason a government might intervene in foreign trade is to protect consumers from a potentially dangerous product that's being imported. This would be an example of a(n) _____ argument for government intervention.
political
Solar Auto Group, based in California, creates a new solar-powered car. The demand for the product in the United States is high but very low or nonexistent elsewhere. The company decides not to locate manufacturing facilities elsewhere and will simply meet the small foreign demand via exports. The theory that best explains the company's policy is
product life-cycle theory.
Paul Krugman believed that a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry, is most likely to
provoke retaliation.
A(n) __________ refers to the extra profit that producers make when supply is artificially limited by an import quota.
quota rent
Michael Porter would agree that __________ is an advanced factor of production.
skilled labor
In order to encourage the wine production industry, the Italian government provided low-interest loans for the purchase of equipment and plants. The government also gave cash grants and made tax reductions. Which instrument of trade policy is being used by the Italian government?
subsidies
A loophole in antidumping laws that is being exploited by many countries to pursue protectionism is the
vague definition of what constitutes "dumping."
Foreign producers agree to __________ imposed by an exporting country because they fear more damaging punitive tariffs or import quotas might follow if they do not.
voluntary export restraints