DONE Chapters 2 and 3 multiple choice
What is a contract?
is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved
What is Political Risk?
likelihood that a society will undergo political change that negatively affects local business activity
What is common law?
(based on tradition, precedent, and custom) evolved in England over hundreds of years. It is now found in most of Great Britain's former colonies, including the United States.
The collapse of ________ in Eastern Europe was precipitated by the growing gulf between the vibrant and wealthy economies of the West and the stagnant economies of the East.
B) communism
What is the central message of individualism?
C) Individual economic and political freedoms are the rules on which a society should be based.
Individualism stresses
Individual freedom and self-expression Letting people pursue their own self-interests to achieve the best overall good for society Democratic systems and free markets
What are the risks involved in doing business in a country?
Political risk, Economic risk, Legal risk
What is CIGS?
The United Nations Convention in Contracts for the International Sales of Goods (CIGS) establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations. By adopting CIGS, a nation signals to other nations that it will treat the Convention's rules as part of its law.
How do common law and civil differ?
The two systems approach contract law (the body of law that governs contract enforcement) in different ways A contract - specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved In a common law state, contracts are very detailed with all contingencies spelled out In a civil law state, contracts are shorter and much less specific
What are late-mover disadvantages?
Two factors that are reasonably good predictors of a country's future economic prospects are its economic system and property rights regime.
What is the Human Development Index?
a United Nations developed index based on life expectancy, education attainment, and whether average incomes are sufficient to meet the basic needs of life in a country
What is purchasing power parity
adjustment allows for a more direct comparison of living standards in different countries
What are first mover advantages?
advantages that accrue to early entrants into a market
What are the three main types of legal systems?
common law, civil law, theocratic law
There are four major forms of totalitarianism
communist totalitarianism, theocratic totalitarianism,tribal totalitarianism, right wing totalitarianism
The shift toward a market-based economic system typically involves at least three distinct activities
deregulation, privatization, and legal enforcement of property rights
What are Entrepreneurs
first commercialize innovative new products and processes. There is broad agreement that innovation and entrepreneurship are the engines of long-run economic growth.
What is tribal totalitarianism
form of totalitarianism found mainly in Africa in which a political party that represents the interests of a particular tribe monopolizes power
right wing totalitarianism
form of totalitarianism in which individual economic freedom is allowed but individual political freedom is restricted in the belief that it could lead to communism)
What is Theocratic Totalitarianism
form of totalitarianism in which political power is monopolized by a party, group, or individual that governs according to religious principles
What is communist totalitarianism
form of totalitarianism that advocates achieving socialism through totalitarian dictatorship
What is product liability?
involves holding a firm and its officers responsible when a product causes injury, death, or damage
What is public action?
governmental bribery and corruption, nationalization
What is a mixed economy?
includes some elements of each. Until recently, Great Britain, France, and Sweden were all considered mixed economies. Today, however, as a result of extensive privatization, these countries function as market economies.
What is Deregulation
involves removing restrictions on the free operation of markets, the establishment of private enterprises, and the manner in which private enterprises operate.
What are Three broad types of economic systems
market economy, command economy, mixed economy
What is Intellectual property
refers to property, such as computer software, a screenplay, or the chemical formula for a new drug that is the product of intellectual activity
What is a legal system of a country?
refers to the rules, or laws, that regulate behavior, along with the processes by which the laws of a country are enforced and through which redress for grievances is obtained.
What is the Trade Related Aspects of Intellectual Property Rights (TRIPS)
requires WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years.
What are product safety laws?
set certain standards to which a product must adhere
What are property rights?
the bundle of legal rights over the use to which a resource is put and over the use made of any income that may be derived from that source
What is a Market economy?
the goods and services that a country produces, and the quantity in which they are produced, is not planned by anyone. Rather price and quantity are determined by supply and demand. For a market economy to function there must be no restrictions on either supply or demand - no monopolistic sellers or buyers.
What is a command economy?
the goods and services that a country produces, the quantity in which they are produced, and the price at which they are sold are all planned by the government. Resources are allocated "for the good of society". The government owns most, if not all, businesses.
What is Legal Risk?
the likelihood that a trading partner will opportunistically break a contract or expropriate property rights
What is Economic Risk?
the likelihood that economic mismanagement will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise
The long run monetary benefits of doing business in a country are a function of?
the size of the market, the present wealth (purchasing power) of consumers, and the likely future wealth of consumers
What is private action?
theft, piracy, blackmail, Mafia
Individualism
¦suggests individuals should have freedom over their economic and political pursuits
What are the implications of a country's political economy on its level of economic development and its environment for doing business?
•A country's political economy influences its level of economic development •Higher levels of economic development create a more favorable environment for international business
What are the implications of the political economy for international businesses?
•The political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business •The political, economic, and legal environment of a country clearly influences the attractiveness of that country as a market and/or investment site
political economy
•refers to its political, economic, and legal systems •These systems are interdependent, and interact and influence each other •A country's political system has major implications for the practice of international business
Theocratic law systems are based on
C) religious teachings.
A nation would ________ as part of deregulation efforts.
C) remove price controls
The shift toward a market-based economic system involves
1.Deregulation 2.Privatization 3.The creation of a legal system to safeguard property rights
Other factors influencing a country's rate of economic development include
1.Geography - influences economic policy, and thus economic development ØCountries with favorable geography are more likely to engage in trade which can promote economic growth 2.Education levels ØCountries that invest more in the education of their young people develop faster economically
Which term best represents the relationship between the level of corruption and economic growth rate in a country?
B) inversely proportional
Today, communism, which includes state control over all economic activity, is the political norm mainly found in
C) small fringe nations.
The belief that geography can influence economic policy, and hence economic growth rates, goes back to
A) Adam Smith.
The three measures of the ________ are life expectancy at birth, educational attainment, and average incomes based on PPP estimates.
A) Human Development Index
An unfavorable environment for innovations and entrepreneurship is the result of
C) state monopoly in production.
What is one implication of the global changes in political and economic systems for international business?
A) The ideological conflict between collectivism and individualism is less in evidence today.
Which of these companies is demonstrating a first-mover advantage?
A) Tide-All Inc. has more than 50 percent market share in the telecom industry, because no other company has invested in this industry before Tide-All Inc.
In the United States, the Foreign Corrupt Practices Act was passed during the 1970s following revelations that
A) U.S. companies had bribed government officials in foreign countries in an attempt to win lucrative contracts.
Gross national income figures should be carefully evaluated because they don't take into account differences in
C) the cost of living.
Complexion Care Inc., a U.S.-based skin care firm, was the first in the industry to identify the growth potential of Thailand and made huge investments in its economy. As a result, the firm was able to build brand loyalty and gain experience in that country's business practices. In this situation, Complexion Care Inc. has benefited from
A) a first-mover advantage.
The country of Jinret is classified as having low human development (the quality of life is poor). This means its HDI is
A) a score of less than 0.5 on the HDI scale.
Samuel Huntington held the opposite view from Fukuyama and believed that the modernization of non-Western societies caused those societies to retreat toward the traditional.
A) become more Western.
Democracy, in its purest form, is based on the belief that
A) citizens should be directly involved in decision making.
A ________ law system is based on a detailed set of laws organized into codes.
A) civil
In Samuel Huntington's thesis, global terrorism is a product of the
A) clash of value systems and ideology between civilizations.
In the early twentieth century, the socialist ideology split into two broad camps and the people who believed that socialism could be achieved only through violent revolution and totalitarian dictatorship were referred to as
A) communists.
The United Nations created CISG in response to ________ that occur in international trade.
A) contract disputes
All of the books in a library have a ________, which shows the exclusive legal rights of the author of the book.
A) copyright
Purchasing power parity is used to adjust gross national income in order to make a more direct comparison of ________ in various countries.
A) living standards
A boom in product liability suits and awards in the United States resulted in a dramatic increase in the cost of liability insurance. Many business executives argue that this
A) makes American businesses less competitive in the global marketplace.
The government of Junta took Fuel Safe Corp., a domestic energy firm, into state ownership to save the company from bankruptcy. However, the other private competitors in the energy industry were enraged by this decision. As a result, the government had to reduce the tax burden on all private energy firms so that both the state-owned enterprise and private firms could coexist. What type of economy does this portray?
A) mixed
BrandLine Corp. has decided not to do business in a country after learning that many citizens are violently protesting recent government embargoes on food resources. BrandLine is concerned with the ________ risk associated with the country.
A) political
When social unrest and disorder in a country cause drastic changes in its business environment that adversely affect the profit of a business, the business is facing a ________ risk.
A) political
The sale of state-owned enterprises to independent, nonpublic investors is referred to as
A) privatization.
According to the Human Development Index, average income adjusted for PPP should be sufficient to
A) provide basic needs such as food and shelter.
The strong enforcement of intellectual property laws helps to
A) reduce the piracy (theft) of intellectual property.
The fascist regimes that ruled Germany and Italy in the 1930s and 1940s had adopted
A) right-wing totalitarianism.
Karl Marx promoted the idea of a(n) ________ society in which the state owned the means of production, distribution, and exchange.
A) socialist
The nation of Gren recently began privatization efforts; however, as a way to protect newly privatized firms, the government imposed strong tariffs on imports from foreign competitors. This has resulted in little competition for these newly privatized firms and essentially created
A) state monopolies.
When considering the economic prospects of a country, it can be said that
A) the economic system and property rights regime are reasonably good predictors of economic prospects of a country.
Intellectual property laws protect
A) the originator of a new invention.
Nations that limit the freedom of religious expression with laws based on religious principles follow the political system of
A) theocratic totalitarianism.
The Wilson logo can only be used on sports equipment produced by the Wilson Sporting Goods company. What protects the Wilson logo from being used by another manufacturer?
A) trademark
The country of Marita ensures strong legal protection of property rights. It is likely that the businesses and individuals in Marita will
A) want to invest more in innovations.
Jason loves to invent new products but knows that in his country it is difficult for him to reap the rewards of innovations because they are quickly and legally copied by others after he releases them into the marketplace. As a result, Jason has decided to stop inventing. What is preventing Jason from doing what he loves?
A) weak property rights protection
The country of Watoo would be using deregulation efforts if
C) the retail sector in Watoo is opened for foreign direct investment.
To calculate purchasing power parity, the figure is adjusted based on
C) the status of the cost of living in the United States
Based on calculations for 2018, which country is ranked by the Heritage Foundation as having the world's freest economy?
B) Hong Kong
What is the Paris Convention for the Protection of Industrial Property?
An international agreement signed about 170 nations to protect intellectual property rights is known as the Paris Convention for the Protection of Industrial Property
Discuss the significance of legal systems in the context of shifting toward a market-based economic system.
Answer: A well-functioning market economy requires laws protecting private property rights and providing mechanisms for contract enforcement. Without a legal system that protects property rights, and without the machinery to enforce that system, the incentive to engage in economic activity can be reduced substantially by private and public entities, including organized crime, that expropriate the profits generated by the efforts of private-sector entrepreneurs. When communism collapsed, many of these countries lacked the legal structure required to protect property rights, all property having been held by the state. Although many nations have made big strides toward instituting the required system, it will be many more years before the legal system is functioning as smoothly as it does in the West.
What are the basic differences between a democratic and a totalitarian government? Explain how the dimensions of individualism and collectivism play a role in these types of government.
Answer: Democracy and totalitarianism are at different ends of a political dimension. Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives. Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties. The democratic-totalitarian dimension is not independent of the individualism-collectivism dimension. Democracy and individualism go hand in hand, as do the communist version of collectivism and totalitarianism. However, gray areas exist; it is possible to have a democratic state in which collective values predominate, and it is possible to have a totalitarian state that is hostile to collectivism and in which some degree of individualism—particularly in the economic sphere—is encouraged.
Discuss the concept of deregulation and its role in a market-based economic system.
Answer: Deregulation involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. Before the collapse of communism, the governments in most command economies exercised tight control over prices and output, setting both through detailed state planning. They also prohibited private enterprises from operating in most sectors of the economy, severely restricted direct investment by foreign enterprises, and limited international trade. Deregulation in these cases involved removing price controls, thereby allowing prices to be set by the interplay between demand and supply; abolishing laws regulating the establishment and operation of private enterprises; and relaxing or removing restrictions on direct investment by foreign enterprises and international trade.
Discuss Samuel Huntington's idea of the new world order. What are its implications for international business?
Answer: The late influential political scientist Samuel Huntington envisioned a world split into different civilizations, each of which has its own value systems and ideology. If Huntington's views are even partly correct, they have important implications for international business. They suggest many countries may be increasingly difficult places in which to do business, either because they are shot through with violent conflicts or because they are part of a civilization that is in conflict with an enterprise's home country. In Huntington's thesis, global terrorism is a product of the tension between civilizations and the clash of value systems and ideology.
Jeremy reminded the board members that it is important to understand the inflation rate of a country before entering into business. Jeremy is concerned with the ________ risks of doing business.
B) economic
Describe in brief the different forms of totalitarianism.
Answer: Four major forms of totalitarianism exist in the world today. Until recently, the most widespread was communist totalitarianism—a version of collectivism advocating that socialism can be achieved only through a totalitarian dictatorship. A second form of totalitarianism might be labeled theocratic totalitarianism, which is found in states where political power is monopolized by a party, group, or individual that governs according to religious principles. Iran and Saudi Arabia are examples of theocratic totalitarianism. A third form of totalitarianism might be referred to as tribal totalitarianism, a political system in which a party, group, or individual that represents the interests of a particular tribe (ethnic group) monopolizes political power. It has arisen from time to time in some African countries. A fourth major form of totalitarianism might be described as right-wing totalitarianism, a political system in which political power is monopolized by a party, group, or individual that generally permits individual economic freedom but restricts individual political freedom, including free speech, frequently on the grounds that it would lead to the rise of communism.
Describe how author Francis Fukuyama's vision of the new world differs from that of the late influential political scientist Samuel Huntington.
Answer: Fukuyama's envisioned a harmonious world dominated by a universal civilization characterized by democratic regimes and free market capitalism. In contrast to Fukuyama, Huntington envisioned a world split into different civilizations, each of which has its own value systems and ideology. He argued there is no "universal" civilization based on widespread acceptance of Western liberal democratic ideals. Huntington maintained that while many societies may be modernizing—they are adopting the material paraphernalia of the modern world, from automobiles to Coca-Cola and Facebook—they are not becoming more Western. On the contrary, Huntington theorized that modernization in non-Western societies can result in a retreat toward the traditional, such as the resurgence of Islam in many traditionally Muslim societies.
Explain the role of grease payments and how they are viewed by the U.S. government.
Answer: Grease payments are facilitating or expediting payments, the purpose of which is to expedite or to secure the performance of a routine governmental action. For example, they allow for small payments made to speed up the issuance of permits or licenses, process paperwork, or just get vegetables off the dock and on their way to market. Both the U.S. law and OECD convention consider them acceptable. The explanation for this exception to general antibribery provisions is that while grease payments are, technically, bribes, they are distinguishable from (and, apparently, less offensive than) bribes used to obtain or maintain business because they merely facilitate performance of duties that the recipients are already obligated to perform.
Describe the Foreign Corrupt Practices Act.
Answer: In the 1970s, the United States passed the Foreign Corrupt Practices Act following revelations that U.S. companies had bribed government officials in foreign countries in an attempt to win lucrative contracts. This law makes it illegal to bribe a foreign government official to obtain or maintain business over which that foreign official has authority, and it requires all publicly traded companies (whether or not they are involved in international trade) to keep detailed records that would reveal whether a violation of the act has occurred.
Discuss a market economy and describe the role of a consumer in this type.
Answer: In the archetypal pure market economy, all productive activities are privately owned, as opposed to being owned by the state. The goods and services that a country produces are not planned by anyone. Production is determined by the interaction of supply and demand and signaled to producers through the price system. If demand for a product exceeds supply, prices will rise, signaling producers to produce more. If supply exceeds demand, prices will fall, signaling producers to produce less. In this system, consumers are sovereign. The purchasing patterns of consumers, as signaled to producers through the mechanism of the price system, determine what is produced and in what quantity.
Discuss Jeffrey Sachs's conception of geography, education, and economic development.
Answer: Jeffrey Sachs's point is that by virtue of favorable geography, certain societies are more likely to engage in trade than others and are thus more likely to be open to and develop market based economic systems, which in turn promotes faster economic growth. He also argues that, irrespective of the economic and political institutions a country adopts, adverse geographical conditions—such as the high rate of disease, poor soils, and hostile climate that afflict many tropical countries—can have a negative impact on development. He found that landlocked countries grew more slowly than coastal economies and that being entirely landlocked reduced a country's growth rate by roughly 0.7 percent per year. He also found that tropical countries grew 1.3 percent more slowly each year than countries in the temperate zone. Education emerges as another important determinant of economic development. The work by Sachs suggests that investments in education help explain why some countries in Southeast Asia, such as Indonesia, Malaysia, and Singapore, have been able to overcome the disadvantages associated with their tropical geography and grow far more rapidly than tropical nations in Africa and Latin America.
Describe some of the risks associated with the changing political economy.
Answer: Just as the potential gains are large, so are the risks. There is no guarantee that democracy will thrive in many of the world's newer democratic states, particularly if these states have to grapple with severe economic setbacks. Totalitarian dictatorships could return, although they are unlikely to be of the communist variety. Although the bipolar world of the Cold War era has vanished, it may be replaced by a multipolar world dominated by a number of civilizations. In such a world, much of the economic promise inherent in the global shift toward market-based economic systems may stall in the face of conflicts between civilizations. While the long-term potential for economic gain from investment in the world's new market economies is large, the risks associated with any such investment are also substantial. It would be foolish to ignore these. The financial system in China, for example, is not transparent, and many suspects that Chinese banks hold a high proportion of nonperforming loans on their books. If true, these bad debts could trigger a significant financial crisis during the next decade in China, which would dramatically lower growth rates.
Generally, the costs and risks associated with doing business in a foreign country are typically lower in
B) economically advanced countries.
According to economist Hernando de Soto, the key issue in the relationship between capitalism and property rights is the inability of owners to
B) establish legal title to the property they own.
Explain the broad categories of political freedom established by Freedom House and discuss how these categories are represented in the world today.
Answer: One notable development of the last 30 years has been the spread of democracy (and, by extension, the decline of totalitarianism). Map 3.5 reports on the extent of totalitarianism in the world as determined by Freedom House. This map charts political freedom in 2018, grouping countries into three broad groupings: free, partly free, and not free. In "free" countries, citizens enjoy a high degree of political and civil freedoms. "Partly free" countries are characterized by some restrictions on political rights and civil liberties, often in the context of corruption, weak rule of law, ethnic strife, or civil war. In "not free" countries, the political process is tightly controlled, and basic freedoms are denied. Freedom House classified some 88 countries as free in 2018, accounting for about 45 percent of the world's nations. These countries respect a broad range of political rights. Another 58 countries accounting for 30 percent of the world's nations were classified as partly free, while 49 countries representing approximately 25 percent of the world's nations were classified as not free. The number of democracies in the world has increased from 69 nations in 1987 to 125 in 2018. But not all democracies are free, according to Freedom House, because some democracies still restrict certain political and civil liberties. For example, although Russia is nominally a democracy, it has consistently been rated "not free" since the early 2000s.
How do patents, copyrights, and trademarks differ from each other?
Answer: Patents, copyrights, and trademarks establish ownership rights over intellectual property. A patent grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention. Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit. Trademarks are designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products.
Discuss the difference between civil and criminal liability laws and explain how these laws differ in developed and less-developed nations.
Answer: Product safety laws set certain safety standards to which a product must adhere. Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage. Product liability can be much greater if a product does not conform to required safety standards. Both civil and criminal product liability laws exist. Civil laws call for payment and monetary damages. Criminal liability laws result in fines or imprisonment. Both civil and criminal liability laws are probably more extensive in the United States than in any other country, although many other Western nations also have comprehensive liability laws. Liability laws are typically the least extensive in less developed nations.
Compare how property rights can be subject to private action and public action.
Answer: Property rights can be violated in two ways—through private action and through public action. Private action refers to theft, piracy, blackmail, and the like by private individuals or groups. Although theft occurs in all countries, a weak legal system allows for a much higher level of criminal action in some than in others. Public action to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from property holders.
Describe Amartya Sen's conceptions of development.
Answer: The Nobel Prize-winning economist Amartya Sen has argued that development should be assessed less by material output measures such as GNI per capita and more by the capabilities and opportunities that people enjoy. According to Sen, development should be seen as a process of expanding the real freedoms that people experience. Hence, development requires the removal of major impediments to freedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, neglect of public facilities as well as the intolerance of repressive states. In Sen's view, development is not just an economic process, but it is a political one too, and to succeed requires the "democratization" of political communities to give citizens a voice in the important decisions made for the community. This perspective leads Sen to emphasize basic health care, especially for children, and basic education, especially for women. Not only are these factors desirable for their instrumental value in helping to achieve higher income levels, but they are also beneficial in their own right. People cannot develop their capabilities if they are chronically ill or woefully ignorant.
Discuss the origins of a common law system and explain the role judges in this system.
Answer: The common law system evolved in England over hundreds of years. It is now found in most of Great Britain's former colonies, including the United States. Common law is based on tradition, precedent, and custom. Tradition refers to a country's legal history, precedent to cases that have come before the courts in the past, and custom to the ways in which laws are applied in specific situations. When law courts interpret common law, they do so with regard to these characteristics. This gives a common law system a degree of flexibility that other systems lack. Judges in a common law system have the power to interpret the law so that it applies to the unique circumstances of an individual case. In turn, each new interpretation sets a precedent that may be followed in future cases. As new precedents arise, laws may be altered, clarified, or amended to deal with new situations.
Discuss how the computer software industry has been affected by the poor enforcement of intellectual property rights.
Answer: The computer software industry is an example of an industry that suffers from lax enforcement of intellectual property rights. A study published in 2012 suggested that violations of intellectual property rights cost personal computer software firms revenues equal to $63 billion a year. According to the study's sponsor, the Business Software Alliance, a software industry association, some 42 percent of all software applications used in the world were pirated. One of the worst large countries was China, where the piracy rate ran at 77 percent and cost the industry more than $9.8 billion in lost sales, up from $444 million in 1995. The piracy rate in the United States was much lower at 19 percent; however, the value of sales lost was significant because of the size of the U.S. market.
Discuss why command economies tend to stagnate.
Answer: While the objective of a command economy is to mobilize economic resources for the public good, the opposite seems to have occurred. In a command economy, state-owned enterprises have little incentive to control costs and be efficient, because they cannot go out of business. Also, the abolition of private ownership means there is no incentive for individuals to look for better ways to serve consumer needs; hence, dynamism and innovation are absent from command economies. Instead of growing and becoming more prosperous, such economies tend to stagnate.
Land and Sea Incorporated would like your opinion about various countries as potential markets and investment sites. What general information can you share with them about assessing the overall attractiveness of a potential country as a market?
Answer: The overall attractiveness of a country as a potential market or investment site for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. Generally, the costs and risks associated with doing business in a foreign country are typically lower in economically advanced and politically stable democratic nations and greater in less developed and politically unstable nations. The calculus is complicated, however, because the potential long-run benefits are dependent not only upon a nation's current stage of economic development or political stability but also on likely future economic growth rates. Economic growth appears to be a function of a free market system and a country's capacity for growth (which may be greater in less developed nations). This leads one to conclude that, other things being equal, the benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems and no dramatic upsurge in either inflation rates or private-sector debt. It is likely to be least favorable in politically unstable developing nations that operate with a mixed or command economy or in developing nations where speculative financial bubbles have led to excess borrowing.
Briefly describe the three significant changes that have occurred in the political economy of some of the world's nation-states since the late 1980s.
Answer: The political economy of many of the world's nation-states has changed radically since the late 1980s. Three trends have been evident. First, during the late 1980s and early 1990s, a wave of democratic revolutions swept the world. Totalitarian governments fell and were replaced by democratically elected governments that were typically more committed to free market capitalism than their predecessors had been. Second, over the same period, there has been a move away from centrally planned and mixed economies and toward a more free market economic model. Third, and somewhat counter to the two prior trends, since 2012 there has been a shift back toward greater authoritarianism in some nations, and there are some signs that certain nations may be retreating from the free market model, particularly in the area of international trade where protectionism is on the rise again.
How do the political, economic, and legal environments of a country affect international trade? And what factors make a country favorable for doing business?
Answer: The political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market or investment site. The benefits, costs, and risks associated with doing business in a country are a function of that country's political, economic, and legal systems. The overall attractiveness of a country as a market or investment site depends on balancing the likely long-term benefits of doing business in that country against the likely costs and risks. Other things being equal, a nation with democratic political institutions, a market-based economic system, and strong legal system that protects property rights and limits corruption is clearly more attractive as a place in which to do business than a nation that lacks democratic institutions, where economic activity is heavily regulated by the state, and where corruption is rampant and the rule of law is not respected.
Describe how the privatization movement began and discuss some of the most dramatic privatization programs that have taken place.
Answer: The privatization movement started in Great Britain in the early 1980s when then-Prime Minister Margaret Thatcher started to sell state-owned assets such as the British telephone company, British Telecom (BT). In a pattern that has been repeated around the world, this sale was linked with the deregulation of the British telecommunications industry. By allowing other firms to compete head to head with BT, deregulation ensured that privatization did not simply replace a state-owned monopoly with a private monopoly. Since the 1980s, privatization has become a worldwide phenomenon. More than 8,000 acts of privatization were completed around the world between 1995 and 1999. Some of the most dramatic privatization programs occurred in the economies of the former Soviet Union and its eastern European satellite states. In the Czech Republic, for example, three-quarters of all state-owned enterprises were privatized between 1989 and 1996, helping push the share of gross domestic product accounted for by the private sector up from 11 percent in 1989 to 60 percent in 1995.
Validate the argument made by economists that innovation and entrepreneurial activity are the basis for long-term economic growth.
Answer: There is substantial agreement among economists that innovation and entrepreneurial activity are the engines of long-run economic growth. Those who make this argument define innovation broadly to include not just new products, but also new processes, new organizations, new management practices, and new strategies. Innovation and entrepreneurial activity help increase economic activity by creating new products and markets that did not previously exist. Moreover, innovations in production and business processes lead to an increase in the productivity of labor and capital, which further boosts economic growth rates. Innovation is also seen as the product of entrepreneurial activity. Often, entrepreneurs first commercialize innovative new products and processes, and entrepreneurial activity provides much of the dynamism in an economy.
Describe the significance of Contracts for the International Sale of Goods (CISG).
Answer: When contract disputes arise in international trade, there is always the question of which country's laws to apply. To resolve this issue, a number of countries, including the United States, have ratified the United Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations. By adopting the CISG, a nation signals to other adopters that it will treat the convention's rules as part of its law. The CISG applies automatically to all contracts for the sale of goods between different firms based in countries that have ratified the convention, unless the parties to the contract explicitly opt out. One problem with the CISG, however, is that as of late 2013, only 80 nations have ratified the convention (the CISG went into effect in 1988). Some of the world's important trading nations, including the United Kingdom, have not ratified the CISG.
In which of these situations is Copper Coil Inc. using a grease payment?
B) Copper Coil Inc. made a small payment of $20 to speed up some paperwork related to tax returns in a less developed country.
One common measure of economic development is a country's
B) gross national income.
What is the most widely practiced theocratic legal system in the modern world?
B) Islamic law
How does privatization help stimulate gains in economic efficiency?
B) It provides incentives to new private owners to search for increases in productivity and to enter new markets.
Which of these countries demonstrates Jeffrey Sachs's argument about trade?
B) The soil conditions in Sarut are so poor that no crops can be grown and the country must import all food sources.
How have new information and communication technologies, including the Internet, affected the political economy in general?
B) They have reduced a state's ability to control access to uncensored information.
When considering the cost of doing business in another country, what would be considered the most attractive market or investment site?
B) a country that has a well-developed body of business contract law
A country with ________ is more likely to attain high and sustained economic growth rates and is a more attractive location for international business.
B) a democratic regime
Some believe that the global financial crisis of 2008-2009 was the result of
B) a lack of regulation.
Under a civil law system, it is the responsibility of a judge only to ________ the law.
B) apply
When firms do not wish to accept the rules of the CISG, what do they often opt for to settle contract disputes?
B) arbitration
A black economy occurs when
B) citizens engage in barter agreements to avoid paying taxes.
The country of Maracon downplays individual goals and emphasizes the collective goals of the country. Maracon's political system stresses
B) collectivism.
The needs of society as a whole are generally viewed as being more important than individual freedoms when the emphasis is on
B) collectivism.
Right-wing totalitarianism restricts political freedom so as to inhibit the rise of
B) communism.
Wood Source Corp. is considering doing business in Central America but is concerned that some governments have been accused of corrupt practices. What aspect of the overall attractiveness of doing business in Central America does this represent?
B) costs
The country of Garuf has recently removed all legal restrictions on the establishment of private enterprises. This action represents the process of
B) deregulation.
In comparison to market economies, command economies lack
B) dynamism and innovation.
When comparing the three broad types of economic systems, it can be said that
B) in a command economy, state-owned enterprises have little incentive to control costs and be efficient.
When Galaxy Ventures, a real estate company, entered the low-cost housing business, the market was already saturated with other players. Thus, the company was forced to exit the market due to lack of customer loyalty and substantial dividends. Galaxy Ventures was facing
B) late-mover disadvantages.
A(n) ________ risk occurs when a trading partner opportunistically breaks a contract or expropriates property rights.
B) legal
Diabetic Daily Inc., based in the United States, hesitates to enter into a joint venture with Azpak Limited, a Sri Lankan company, due to inadequate protection of intellectual property rights. Diabetic Daily Inc. is trying to avoid what type of risk?
B) legal
What are the three broad forms of economic systems?
B) market, command, and mixed
Cord Paper Corporation has developed a new type of decorative paper. Which type of legal protections can grant the company exclusive rights for a defined period to the manufacture, use, or sale of the new paper?
B) patent
Amartya Sen believed that ________ should also be a factor in the human development index.
B) political freedom
Jonah is a lawyer representing a company in a lawsuit. During the trial, Jonah referred to a court case from ten years ago and asked the witness if she felt her company had acted in a similar manner as the company in the previous case. When Jonah referred to the previous court case, he was relying on ________ to make his case.
B) precedent
What started in Great Britain in the early 1980s when Prime Minister Margaret Thatcher started to sell state-owned assets such as the British telephone company?
B) privatization
The deregulation of an economy involves
B) privatizing state-owned enterprises.
Kendra has red patches on her face after using a protein-based lotion manufactured by Today's Skin Research Lab. She learned that the lotion's steroid levels were beyond the standard levels permitted by the government and the damage caused by the lotion was irreversible. Which standards will address Kendra's grievances?
B) product liability laws
People in the West tend to associate a(n) ________with a free market system, strong property rights protection, and economic progress.
B) representative democracy
Those who attempt to achieve the same ideologies as that of the communists without violent revolution and totalitarian dictatorship are called
B) social democrats.
Which form of government involves one person or political party that exercises absolute control over all spheres of human life and prohibits opposing political parties?
B) totalitarianism
China, South Korea, Taiwan, Singapore, and Hong Kong have had the fastest-growing economies in the past 40 years. What did these five countries have in common at the start of their economic spur?
B) undemocratic governments
As a result of ________, large amounts of economic activity in India are not made official and the GDP figures of the country fail to tell the entire story of the economy.
B) unrecorded cash transactions
The nation of Talden sold Talden Communications, a state-owned monopoly, to private investors. This is an example of
C) privatization.
Which situation exemplifies public action?
C) Government bureaucrats demand bribes from international businesses in return for the rights to operate in Cedia Republic.
Modern socialism traces its intellectual roots to
C) Karl Marx.
Which of these individuals can claim product liability from the offender?
C) The back tire on Brian's motorcycle shredded when still under warranty and caused him to crash.
In what type of economy are all businesses state-owned, the rationale being that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals?
C) pure command
Energy for Everyone wanted to establish operations in the country of Imol but decided against it when officials from Imol demanded a bribe in order for the company to open the office. This bribe is an example of
C) a public action.
On the Belif peninsula, citizens are restricted in how much land they can own if it creates opposition to the rule of the "common good." What is the political system of the Belif peninsula based on?
C) collectivism
What is a form of totalitarianism that advocates that socialism can be achieved only through a totalitarian dictatorship?
C) communist totalitarianism
In order to purchase the parts from the supplier, Torc Tools Corp. had to agree with all of the terms set forth in the document the supplier provided which detailed the rights and obligations of the supplier and Torc Tools Corp. This document is a type of
C) contract.
A common feature of many right-wing dictatorships is
C) governments that are made up of military officers.
The government of Alfon believes that its citizens should have complete freedom in their economic and political pursuits, and the Alfon ideology is "private profit over public good." In this context, it can be said that Alfon follows the philosophy of
C) individualism.
The common law system enjoys a degree of flexibility not found in other systems because
C) it is interpreted by the law courts with regard to tradition, precedent, and custom.
The ________ system of a country encompasses the rules that regulate behavior.
C) legal
Product ________ law holds a firm and its officers responsible when a product causes injury, death, or damage.
C) liability
An economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced is called a ________ system.
C) market
In a ________ economy, certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning.
C) mixed
In the country of Bolar, the state owns key industries such as energy and transportation. The rest of the industries are privately owned. Bolar is a ________ economy.
C) mixed
In order for a market economy to work, it is important that supply of a product must not be restricted by a producer. In other words, ________ must be banned.
C) monopolies
At one time, economic stagnation resulted in Great Britain because the coal mining and telecommunications industries were
C) monopolies owned by the state.
If a country wants to improve its attractiveness as a place for doing business and as an investment site, it should
C) move toward a market-based system.
The cost of doing business is most likely to be the lowest in
C) open democratic societies.
Karli invented a fitness board and has some interest from major athletic equipment retailers. Before she agrees to work with the retailers, she wants to protect her invention so it is her sole property to manufacture and sell. What does Karli need to help her do this?
C) patent
Grease payments or speed money are allowable under U.S. law as a way to expedite the
C) performance of a routine government action.
Lindsey lives in a country where the state owns all the means of production and there is little incentive for entrepreneurial activity. Lindsey lives in a
C) planned economy.
After the collapse of communism in Russia, successful business owners often had to pay "protection money" to the mafia or face violent retribution. In the context of property rights, the behavior of the mafia is an example of
C) private action.
Which activity engaged in by DenimExpress best exemplifies innovation?
D) DenimExpress developed a new business model by selling directly to customers.
________ is broadly defined as the development of new products, processes, organizations, management practices, and strategies.
D) Innovation
"Not all democracies are free, as some still restrict certain political and civil liberties." Which country best fits this argument?
D) Russia
Which of these individuals can be considered an entrepreneur?
D) Shondra started a company that processes plastic bags into fabric used in automobiles.
Only a totalitarian regime that is committed to ________ is capable of promoting economic growth.
D) a strong protection of property rights
The government of Cafor wants to create a market-based economic system. To do so, the government should
D) adopt privatization.
Varsa Incorporated, a multinational giant, runs a number of diversified businesses. The intellectual property of the firm would include
D) all computer software for budgeting designed by employees.
A political system that promotes activity "for the good of society" is based on
D) collectivism.
Which type of economy was found in communist countries where the government determined what would be produced and the price it would be sold for?
D) command
Product safety and product liability laws are enforced to protect
D) consumers.
A composer can protect an original musical score from being copied and sold by someone else by acquiring a(n)
D) copyright
Francis Fukuyama saw a world in which ________ was the final form of human government.
D) democracy
In the context of political economy, one notable development of the past 30 years has been the spread of
D) democracy.
In the context of global economy, what has been widely accepted since the late 1980s?
D) deregulation of economies
In economic terms, the long-run monetary benefits of doing business in a country are based on the size of the market, the present purchasing power of consumers and the ________ of the country.
D) future consumer wealth
A country's ________ measures the total annual income received by residents of a country and is regarded as a yardstick for the economic activity of a country.
D) gross national income
Karl Marx believed that the way to correct the economic inequalities in a capitalist society was to
D) have state ownership as the basic means of production.
Traditional grocery stores now have to compete with Amazon's front-door delivery services. As a result, many grocery stores now offer online ordering and home delivery. This new strategy is an example of
D) innovation
When considering innovations and entrepreneurship, it can be said that
D) innovations in production and business processes lead to an increase in the productivity of labor and capital.
Products of the mind, such as computer software, a screenplay, a music score, or the chemical formula for a new drug, constitute
D) intellectual property.
A country's ________ system is a part of the political economy.
D) legal
There are currently over 1.3 billion people living in India, which makes it a large market when measuring the number of potential consumers. However, India is still considered a smaller market in economic terms because
D) limited purchasing power.
In 2008, the U.S. government stepped in to help some failing financial institutions as a way to prevent further collapse of the economy. Typically, the U.S. government does not interfere in these situations. What type of economy does this exemplify?
D) mixed
Which of these items can be protected by a copyright?
D) movies produced and directed by a person
Theft, piracy, and blackmail by private individuals or groups are examples of
D) private action.
Nathan works for a major automobile manufacturing company. His company is being sued by hundreds of customers who have been injured when the steering wheel airbags exploded upon a low-impact collision. The customers are demanding monetary damages. This lawsuit is based on
D) product liability.
When considering the legal use of the word, ________ is the term given to a resource over which an individual or business holds a legal title.
D) property
For centuries, Somariya was a capitalist country where the rich became richer and the poor became poorer. A group calling itself the "Change Brotherhood" sought to convert Somariya into a socialist country by democratic means. The "Change Brotherhood" is an example of
D) social democrats.
The country of Morson has decided to privatize the state-owned cable television company. How can the country help this newly privatized industry succeed?
D) split the company into independent units to compete with each other
In 2017, if the GNI per capita of India was $1,820 and its PPP per capita was $7,060, this means that the cost of living in India was lower than the cost of living in
D) the United States.
Jewish law is an example of what type of law system?
D) theocratic
A totalitarian political system in which a party, group, or individual that represents the interests of a particular tribe monopolizes political power is referred to as
D) tribal totalitarianism.
An accurate description of privatization is that
D) when newly privatized firms are protected from foreign competition, they have little incentive to restructure their operations to become more efficient.
AllSteel Inc. is planning an international expansion. In terms of the costs involved in conducting business in a country, it will be most economical for the company if it chooses a country
D) where politicians are held accountable by the electorate.
What are trademarks?
Designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products
According to Freedom House, just under ________ of the world's nations are considered "free."
E) 50 percent
Which scenario is an example of private action?
E) Business owners in the cell phone industry stealing their competitors' trade secrets and intellectual properties.
Cheryl Peterson, a U.S.-based business executive, paid the equivalent of $20 to an official of the country of Murundi to expedite the overnight delivery of critical documents. When questioned, Cheryl Peterson claimed this was a way to facilitate the performance of an obligation that was already agreed upon. The $20 is an example of
E) a grease payment.
A nation that has ________ would be unappealing as a place for doing business.
E) a totalitarian political system
What is one characteristic of a representative democracy?
E) citizens periodically elect individuals to act on their behalf
The influential economist Jeffrey Sachs argues that which of the following, with their long engagements in international trade, have been the most supportive of market institutions throughout history?
E) coastal states
Brett Robertson is a playwright and in order to protect his intellectual property should secure a ________ on all of his plays.
E) copyright
Lamboria Republic is facing a high rate of inflation, and the government debt in the country is also high. As a result, the country's business environment is beginning to deteriorate, and the profits of the business enterprises are hurt. According to this information, Lamboria Republic is facing what type of risk?
E) economic
Economic advances in many countries have led to the
E) emergence of increasingly prosperous middle and working classes.
The risks of doing business are most likely to be the highest in a country that
E) faces frequent changes in government and government policy.
A nation based on individualism would agree that
E) free market ideologies should be followed for achieving better standards of living.
According to the author Francis Fukuyama, the world is most likely witnessing the end of
E) humanity's ideological evolution.
Recent global changes in political and economic systems show that
E) many undeveloped and impoverished national markets of eastern Europe, Latin America, Africa, and Asia are potentially enormous for international business.
As democracy has spread since the 1980s, so has the development of more ________ economies.
E) market-based
Totalitarian states usually have
E) media that are heavily censored.
Karl Marx would disagree with which of these ideas?
E) selling state-owned enterprises to private investors
The absence of a legal system that protects property rights and the lack of machinery to enforce that system in a market economy usually results in
E) the lack of incentive to engage in economic activity.
Collectivist-inclined totalitarian states tend to enact laws that severely restrict private enterprises, while laws enacted by governments in democratic states, where individualism is the dominant political philosophy, tend to be pro-private enterprise and pro-consumer. This indicates that
E) the legal framework of a country reflects the rulers' dominant political ideology.
Both China and India have achieved high growth rates despite relatively weak property rights regimes and high levels of corruption because
E) the shift toward a market-based economic system.
During the late 1980s and early 1990s, many of the world's nation-states moved away from
E) totalitarian governments.
While he was shopping for new clothes, Manuel noticed there was a sale on shirts by Ralph Lauren. The Ralph Lauren name is an officially registered ________ in menswear clothing.
E) trademark
What is the relationship between political economy and economic progress?
Economic freedom in a market economy creates greater incentives for innovation and entrepreneurship than in either a planned or mixed economy
What is theocratic law?
Islamic law is the most widely practiced theocratic law system (based on religious teachings) in the modern world.
What are copyrights?
Exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and dispose of their work as they see fit.
Since the late 1980s there have been two major changes in the political economy of many of the world's nations.
First, a wave of democratic revolutions swept the world, and many of the previous totalitarian regimes collapsed. Second, there has been a more away from centrally planned and mixed economies towards free markets.
Three main reasons account for the spread of democracy
First, many totalitarian regimes failed to deliver economic progress to the vast bulk of their population. Second, new information and communication technologies have broken down the ability of the state to control access to uncensored information. Third, in many countries the economic advances of the last quarter century have led to the emergence of increasingly prosperous middle and working classes who have pushed for democratic reforms.
What is Gross National Income (GNI)
The value of the output of goods and services produced in a country in a year, including money that leaves and enters the country
The overall attractiveness of a country as a potential market and/or investment site for an international business depends on?
balancing the benefits, costs, and risks associated with doing business in that country.
What are patents?
documents giving the inventor of a new product or process exclusive rights to the manufacture, use, or sale of that invention
What is civil law?
is based on a very detailed set of laws organized into codes. Over 80 countries, including Germany, France, Japan, and Russia, operate with a civil law system.
What is contract law?
is the body of law that governs contract enforcement
What is Innovation
is the process through which people create new products, new processes, new organizations, new management practices, and new strategies. Innovation is often seen as the product of entrepreneurial activity.
What is the Foreign Corrupt Practices Act
makes it a violation of the United States law to bribe a foreign government official in order to obtain or maintain business over which the foreign official has authority, and requires all publicly traded countries to keep detailed records so that it is clear whether a violation of the act has occurred or not.
What is Privatization
transfers the ownership of state property into the hands of private investors. In order to attract investment and protect the interests of the private enterprise encouraged by the first two activities, changes typically need to be made to legal systems to protect the property rights of investors and entrepreneurs.
Deregulation
¦involves removing legal restrictions on the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate ØRemoving price controls ØAbolishing laws limiting private enterprise ØRemoving restrictions on foreign investment and trade
What are results from a country has a high level of corruption?
ØForeign direct investment falls ØInternational trade falls ØEconomic growth falls
¦The Foreign Corrupt Practices Act limits corruption in the U.S by
ØIt is illegal to bribe a foreign government official in order to obtain or maintain business over which the foreign official has authority ØAll publicly traded companies must keep detailed records so that it is clear whether a violation of the act has occurred ØFacilitating or expediting payments to secure the performance of routine government actions are permitted
What is the difference between a democracy and totalitarianism
¦Democracy - political system in which government is by the people, exercised either directly or through elected representatives ØMost common form today is representative democracy- elected representatives vote on behalf of constituents ¦Totalitarianism - form of government in which one person or political party exercises absolute control over all spheres of human life, and opposing political parties are prohibited
In a contract dispute, which country's laws should apply?
¦The United Nations Convention in Contracts for the International Sales of Goods (CIGS) establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations ØCountries that adopt CIGS signal to other nations that they will treat the Convention's rules as part of their law
How does The protection of intellectual property rights differs greatly from country to country?
ØParis Convention for the Protection of Industrial Property - agreement signed by 170 countries to protect intellectual property rights ØTrade Related Aspects of Intellectual Property Rights (TRIPS) - requires WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years
Intellectual property rights include
ØPatents - give the inventor exclusive rights to the manufacture, use, or sale of that invention ØCopyrights - exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and dispose of their work as they see fit ØTrademarks - designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products
In most totalitarian regimes
ØThere is widespread political repression ØThere are no free and fair elections ØMedia is censored ØBasic civil liberties are denied Challenges to the regime are prohibited
