question

Which of the following factors hinders globalization of consumer goods market? A. National differences in tastes and preferences B. Higher production costs in developed nations C. Homogenization of the material culture D. Increased outsourcing of goods and services

answer

A. National differences in tastes and preferences

question

The most global markets currently are markets for consumer products. T/F

answer

False

question

The lowering of barriers to international trade enables firms to view the world, rather than a single country, as their market. T/F

answer

True

question

A current trend in international business is the decline of medium-sized and small multinationals, known as mini-multinationals. T/F

answer

False

question

Supporters of globalization maintain that the apparent decline in real wage rates of unskilled workers: A. Is due to technological changes that create greater demand for skilled workers B. Is due to the migration of low-wage manufacturing jobs off shore C. Can be checked by increasing government ownership of enterprises. D. Can be checked by limiting free trade and foreign investment.

answer

A. Is due to technological changes that create greater demand for skilled workers

question

The value of international trade in services now accounts for about _______ of the value of all international trade. A. 15% B. 20% C. 30% D. 40%

answer

B. 20%

question

The shift toward a more integrated and interdependent world economy is referred to as _________. A. outsourcing B. international marketing C. privatization D. globalization

answer

D. globalization

question

Early outsourcing efforts were primarily confined to ___________. A. health care B. service activities C. technological research D. manufacturing activities

answer

D. manufacturing activities

question

The objective of the government in a command economy is to encourage free and fair competition between private producers. T/F

answer

False

question

Which of the following philosophies can be traced back to the ancient Greek philosopher Aristotle? A. Socialism B. Individualism C. Collectivism D. Anarchism

answer

B. Individualism

question

The Trade-Related Aspects of Intellectual Property Rights, attempts to reduce intellectual property protections to enhance trade. T/F

answer

False

question

A nation's legal system is usually of very little interest to international business managers, because international businesses are headquartered in difference countries. T/F

answer

False

question

The communists believe that socialism could be achieved by democratic means, and turned their backs on revolution and dictatorship. T/F

answer

False

question

_________ occurs when a political party that represents the interest of a particular tribe (and not always the majority tribe) monopolizes power. A. Tribal dictatorship B. Communist totalitarianism C. Tribal totalitarianism D. Privatization

answer

C. Tribal totalitarianism

question

The term ______ stresses that the political, economic, and legal systems of a country are interdependent. A. political economy B. common law C. socialism D. collectivism

answer

A. political economy

question

Which of the following statements is true about a class system? A. A class system is a more rigid form of social stratification, compared to a caste system. B. A class system is a closed form of stratification. C. Social mobility within a class system varies from society to society. D. In a class system, social position is determined at birth and cannot be changed during an individual lifetime.

answer

C. Social mobility within a class system varies from society to society.

question

A caste system is a closed system of stratification in which social position is determined by the family into which the person is born. T/F

answer

True

question

Individualism has led to a high degree of managerial mobility between companies resulting in managers who have good general skills but lack company-specific experience T/F

answer

True

question

In countries where the value of _________ identification is considered to be primary, managers and workers are discouraged from moving from company to company. A. individual B. group C. cultural D. primary

answer

B. group

question

The mudarabah contract is the most widely used Islamic banking method, because it is the easiest to implement. T/F

answer

False

question

Folkways include rituals and symbolic behavior. T/F

answer

True

question

The Foreign Corrupt Practices Act originally allowed "facilitating payments" to secure contracts that would not otherwise be secured. T/F

answer

False

question

Corporations can contribute to the global tragedy of the commons by not pumping pollutants into the atmosphere or dumping them in the oceans or rivers. T/F

answer

False

question

The ______ obliges member states to make the bribery of foreign public officials a criminal offense and excludes facilitating payments made to expedite routine government action from the convention. A. Convention on Combating Bribery of Foreign Public Officials B. Foreign Corrupt Practices Act C. Convention on International Business Transactions D. Universal Declaration of Human Rights

answer

A. Convention on Combating Bribery of Foreign Public Officials

question

The Friedman doctrine is the belief that ethics are nothing more than a reflection of culture and therefore, a firm should adopt the ethics of the culture in which it is operating. T/F

answer

False

question

Facilitating payments are also known as ___________. A. grease monkeying B. pocket lining C. speed money D. sliding

answer

C. speed money

question

Which of the following persons believed that people should be treated as ends and never purely as means to the ends of others? A. John Stuart Mill B. Immanuel Kant C. Milton Friedman D. David Hume

answer

B. Immanuel Kant

question

Which of the following, in a business setting, is taken to mean benevolent behavior that is the responsibility of successful enterprises? A. Sullivan's principles B. Ethical dilemma C. Tragedy of the commons D. Noblesse Oblige

answer

D. Noblesse Oblige

question

Diminishing returns show that it is feasible for a country to specialize to the degree suggested by the simple Ricardian model. T/F

answer

False

question

According to Ricardo's theory of comparative advantage, countries shall not produce a good, even if they have an absolute advantage in its production, if they do not produce it efficiently. T/F

answer

True

question

Factor endowments refer to the extent to which a country is gifted with such resources as land, labor, and capital. T/F

answer

True

question

_________ refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country. A. Fair trade B Trade theory C. Free trade D. Mercantilism

answer

C. Free trade

question

Which of the following refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country? A. Economic patriotism B. Protectionism C. Free trade D. Offshoring

answer

C. Free trade

question

David Ricardo's theory of comparative advantage explains global trade in terms of the: A. first mover advantage that certain countries and firms enjoy. B. geographical differences between various countries. C. international differences in labor productivity. D. late mover advantage that certain countries and firms possess.

answer

C. international differences in labor productivity.

question

Globalization

answer

increased connected-ness of every aspect of life and economy shift toward more integrated and interdependent world economy MADE OF 2 PARTS: Globalization of Markets and Globalization of Production

question

Globalization of Markets

answer

merging of historically distinct/separate national markets into 1 huge global market place --easier to sell internationally --tastes and preferences of consumers converging on some global norms (i.e. coca cola, McDonald's, Starbucks, etc.)--->to some extent still a myth because have to change in some way to fit each country/market

question

Globalization of Production

answer

sourcing of goods and services from locations around globe to take advantage of national differences in cost/quality of FACTORS OF PRODUCTION.

question

Factors of Production

answer

Labor, energy, land, capital, etc.

question

General Agreement on Tariffs and Trade (GATT)

answer

precursor to WTO

question

World Trade Organization (WTO)

answer

Added "teeth" (punishment system) to GATT Primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states

question

World Bank

answer

Set up to promote economic development

question

International Monetary Fund (IMF)

answer

Established to maintain order in international monetary system

question

United Nations (UN)

answer

51 countries established in 1945, committed to preserve peace through international cooperation and collective security Today nearly 193 members

question

Group of 20 (G20)

answer

Comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the EU and European Central Bank

question

Moore's Law

answer

Predicts the power of microprocessor technology doubles and its cost of production falls in half every 18 months

question

Drivers of Globalization

answer

1) Decreased trade and investment barriers -decrease barriers (tariffs, etc.) = increased free flow of goods and services -increased ease of Foreign Direct Investment (FDI) -some still push for increased barriers to decrease foreign competition 2) Role of technological changes -microprocessors/telecommunications (makes communication possible which makes globalization possible) -internet (the "equalizer") -transportation technology (i.e commercial jets, etc.) + containerization

question

Containerization

answer

simplifying transshipment from 1 mode to another (increased efficiency and decreased time)

question

Multinational Enterprise (MNE)

answer

Any business that has production activities in 2 or more countries Link the world through investments Vehicle/driver of globalization (making global products) Notable trends since the 60s: -increase non-US MNEs -increased mini-MNEs

question

Pros/Cons of Globalization

answer

Pros: -falling barriers to international trade and investments are twin engines driving global economy toward great prosperity -increased international trade and cross-border investment will result in lower prices for goods and services -stimulates economic growth -raises incomes of consumers -creates jobs in all countries that participate in teh global trading system Cons: -increase job loss to foreign companies (esp. low skill jobs, now more qualification jobs and services are going too!) -increased environmental harm -decreased national sovereignty/increased power of UN, WTO, etc. (lose identity; 3rd party will punish if don't listen to their policies) -increased rich/poor wage gap

question

Political Economy

answer

combination of political, economic, and legal systems stress interdependence of political, economic, and legal systems

question

Political Systems

answer

System of government (i.e. how government elected? level of control? etc.) 1) democracy vs totalitarian 2) collective vs. individual

question

Collectivism

answer

Political system that stresses primacy of collective goals over individual goals (needs of society are greater than individual freedoms) FROM PLATO Ex: Asia Under this, socialists, which then split into communism vs social democrats

question

Socialists

answer

state ownership so workers fully compensated for labor KARL MARX Split into communism and social democrats

question

Communism

answer

Socialism can only be achieved through violet revolution and total dictatorship Decreased in world since mid-1990s (peaked in 1970s)

question

Social Democrats

answer

Socialism is achieved through democratic means Decreasing as move toward free market economy State owned enterprise becomes privatized

question

Privatization

answer

Sell state owned enterprise to private investors (esp to market economy and esp 1980s)--hard to find buyers

question

Ways to Force Privatization

answer

1) give citizens shares of company (ex: Russia--no one knows what there are, almost giving away, created billionaires) 2) open up to foreigners to buy/own (out of Russia's control b/c wanted to get into global economy--especially result in Eastern Europe) 3) give incentives/low prices

question

Individualism

answer

Individual should have freedom in economic and political pursuits 1) important to guarantee individual freedom and self expression 2) welfare of society best served letting people pursue own economic self interests Ex: USA FROM ARISTOTLE Split into democracy and totalitarianism

question

Democracy

answer

Elected, lower control Political system where government is by the people, exercised directly or through elected representatives (most common) Citizens directly involved in decisions Freedom of speech, right to gather, freedom of press, etc.

question

Pseudo-Democracy

answer

Between democracy and totalitarian system "Imperfect democracy" Authoritarian elements capture state and attempt to deny basic political/civil liberties Ex: Russia under Putin

question

Totalitarian

answer

No election, high control (low personal freedom) No political opposition 1 person/party has absolute control & prohibits opposing political parties Can be individualist in economy Types: communism, theocratic, tribal, and right wing

question

Communistic Totalitarianism

answer

Previously widespread, now in decline, ex: China, Cuba, etc.

question

Theocratic Totalitarianism

answer

Political power monopoly by party/group/individual government by religious principles (esp. Islam in Iran and Saudi Arabia)

question

Tribal Totalitarianism

answer

esp. Africa Political party represents particular tribe and monopolizes power

question

Right-Wing Totalitarianism

answer

Permits some individual economic freedom but restricts political freedom, hostile to communism and socialistic ideas Backed by/led by military Previously South Korea and Brazil

question

Economic System

answer

market, mixed, or command economy

question

Market Economy

answer

Market decides/free trade, government hands off All products - privately owned Driven by supply and demand (no one planning) Consumer is sovereign Can't restrict supply (i.e. monopoly) Role of government - encourage free (fair competition) **NO such thing as FULL market economy, some government always involved

question

Mixed Economy

answer

Combination of market and command economies Some private, some state ownership Previously more common (Great Britain, Franc, etc. State may seize troubled firm if seen as vital (i.e. government bailouts)

question

Command Economy

answer

Government plans Communist/government central planner decides all--what to produce, how to produce it (labor + capital), where to distribute it Same wage, more or less for everyone, NO unemployment

question

Legal System

answer

Rules/laws regulating behavior along with processes by which laws are enforced and handle grievances Common, Civil/Codified, and Theocratic law

question

Common Law

answer

Anyone associated with England--US, Canada, Australia, etc. Laws based on traditions and customs/precedent

question

Civil (Codified) Law

answer

Ex: France Laws organized into codes (Judge looks at codes over traditions)

question

Theocratic Law

answer

Laws based on religious teachings (esp. Islamic law) with elements of civil and common law

question

Contract Law

answer

government contract enforcement (within common law = ill specified)

question

Angelo-American

answer

1. Automatic Growth (market forces) 2. Consumer is king 3. Process/rules of game count 4. Individual 5. Business as peace (harmonious process, can gain fair process)

question

German-Japanese

answer

1. Developmental role of stock 2. Producer is king 3. Outcome is all that matters 4. Group 5. Business as war (losers vs winners)

question

Property Rights

answer

Bundle of legal rights over use of resources and use mode of any mans that may be derived from that resource Violated through: 1) Private Action (theft, piracy, blackmail, etc.) 2) Public Action/Corruption (by public officials through excessive ax, expensive licenses/permits, seizing assets without compensation, or redistribute assets without compensation to prior owners, or bribery)

question

Foreign corruption Practices Act (FCPA)

answer

1970s Us offer bribes of government officials in foreign companies

question

Protect Intellectual Property

answer

Laws differ internationally IP, patent, copyrights, trademark, world IP org.

question

Product Safety Laws

answer

Standards products must adhere to

question

Product Liability

answer

Holding firms and its officers responsible when products cause injury, death, damage, etc.

question

Cross-Cultural Literacy

answer

an understanding of how cultural differences across and within nations can affect the way business is practiced global communications, global trends, fast cycle times, worldwide markets, technology,and global supply chains characterize today's world despite globalization and modernism, deep cultural differences often remain

question

Culture

answer

A system of values and norms that are shared among a group of people and that when taken together constitute a design for living

question

Values

answer

Abstract ideas about what a group believes to be good, right, and desirable Shared assumptions about how things OUGHT to be

question

Norms

answer

Social rules and guidelines that prescribe appropriate behavior in particular situations

question

Society

answer

A group of people sharing a common set of values and norms (may be a country, or subcultures, or multiple countries like Scandinavia)

question

Folkways

answer

TYPE OF NORM Routine conventions of everyday life Actions of little moral significance, rather, they are social conventions concerning things such as the appropriate dress code in a situation, good social manners, eating with the correct utensils, neighborly behavior, etc.

question

Mores

answer

TYPE OF NORM Norms that are more widely observed, have greater moral significance than other norms, and are central to the functioning of a society and to its social life Have a much greater significance than folkways Violating these can bring serious retribution, ill will, and collapse of any business deal in the making Include indictments against theft, adultery, incest, and cannibalism, in many societies, they have been enacted into law (i.e. theft, adultery, and cannibalism, or alcohol in Saudi Arabia)

question

Determinants of Culture

answer

Religion Political Structure Economic Philosophy Education Language Social Structure

question

Social Structure

answer

Basic social organization and this social organization is both emergent from and determinant of the behaviors of individuals Two dimensions particularly important to explain differences in culture: 1) Degree to which the basic unit of social organization is the individual, as opposed to the group 2) Degree to which a society is stratified into class or castes

question

Group

answer

Association of 2 or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other's behavior In Western society, individual is basic building block of social organization--effects political, economic organization or society and how people perceive themselves and others vs Asian countries, social status of an individual is traditionally determined as much by standing of the group to which he or she belongs as by his or her individual performance

question

Social Strata

answer

Social categories societies are stratified into on hierarchical basis Defined on the basis of socioeconomic characteristics such as family background, occupation and income Individuals born into certain stratum Better to be born in higher strata Differ in degree of mobility between stratum and in regard to significance attached to social strata in business contexts Based on 4 basic principles: 1. Social stratification is a trait of society, not a reflection of individual differences. 2. Social stratification carries over a generation to the next generation. 3. Social stratification is generally universal but variable. 4. Social stratification involves not just inequality but also beliefs.

question

Social Mobility

answer

Extent to which individuals can move out of the strata into which they are born

question

Caste System

answer

Closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual's lifetime Often, caste position carries with it a specific occupation and are passed down through generations

question

Class System

answer

Less rigid form of Social stratification in which social mobility is possible. Open stratification in which the position a person has by birth can be changed through his or her own achievements or luck Can work way up or slip down.

question

Class Consciousness

answer

Condition by which people tend to perceive themselves in terms of their class background and this shapes their relationships with members of other classes

question

Religion

answer

System of shared beliefs and rituals that are concerned with the realm of the sacred Implications of Christianity = Protestantism associated with "spirit of capitalism" because emphasize importance of hard work and wealth creation, vs. Catholic church highly emphasizes hierarchy Implications of Islam = must approves of free enterprise and earning legitimate profit through trade and commerce, protect right to private property, but not favorable to earn profit through exploitation of others. Consider interest (riba) payment or receipt usury, so Islamic banks used to ignore this--only Iran and Sudan enforce Islamic banking conventions. If don't charge interest, use: 1) "Mudarabah" contract--similar to profit sharing scheme; bank lends money to a business, rather than charge that business interest on the loan, it takes a share in the profits that are derived from investment; treated equity investment or 2) "Murabaha" contract--most widely used among world's Islamic banks, because easier to implement--when firm wishes the purchase something using a loan, the firm tells the bank after having negotiated the price with the equipment manufacturer. The bank then buys the equipment for the stated price and the borrower buys it back form the bank at some later date with markup. Implications of Hinduism = traditionally emphasize individuals should be judged not by their material achievements, but by their spiritual achievements, so less likely to engage in entrepreneurial activity; but modern India is dynamic entrepreneurial society and growing economy, also though caste system no long supported, still plays role Implications of Buddhism = no emphasis on wealth creation, so do not see same kind of cultural stress on entrepreneurial behavior; no caste system; historically deeply rooted in local place in natural world, so localized economies Implications of Confucianism = lowering costs of doing business in Asian countries, may help explain their economic success; three values central to Confucian system of ethics are loyalty, reciprocal obligations and honesty in dealings with other; "guanxi" = relationship networks supported by reciprocal obligations.

question

Ethical Systems

answer

Refers to the moral principles or values that are used to guide and shape behavior Most of the world's ethical systems the product of religions (*Note: Confucianism effect behavior and shapes culture but it is NOT a religion)

question

Power Distance

answer

(Hofstede) Dimension focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities High power distance culture in countries that let inequalities grow over time into inequalities of power and wealth vs low power distance because societies tried to play down such inequalities

question

Individualism vs Collectivism

answer

(Hofstede) Dimension focused on relationship between individual and his or her fellows Individualistic societies = ties between individuals are loose, individual achievement and freedom highly values Collectivism = look after interest of his or her collective

question

Uncertainty Avoidance

answer

(Hofstede) Dimension measured extent to which different cultures socialized their members into accepting ambiguous situations and tolerating uncertainty High uncertainty avoidance cultures placed premium on job security, career patterns, retirement benefits, etc. also strong need for rules and regulations Low uncertainty avoidance have greater readiness to take risks and less emotional resistance to change

question

Masculinity vs Femininity

answer

(Hofstede) Dimension looked at relationship between gender and work roles Masculine cultures = sex roles sharply differentiated and traditional "masculine values" such as achievement and effective exercise of power determined cultural ideals Feminine cultures = sex roles less sharply distinguished and little differentiation made between men and women in same job

question

Long-Term vs Short-Term Orientation

answer

(Hofstede) Dimension refers to extent to which a culture programs its citizens to accept delayed gratification of their material, social, and emotional needs

question

Ethnocentrism

answer

belief in superiority of one's own ethnic group or culture

question

Ethics

answer

Accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization

question

Business Ethics

answer

Accepted principles of right or wrong that governing the conduct of business-people

question

Ethical Strategy

answer

Strategy, or course of action, that does not violate these accepted principles

question

Foreign Corrupt Practices Act (FCPA)

answer

in US Act outlawed the paying of bribes to foreign government officials to gain business US firms objected that put US firms at competitive disadvantage (though no evidence that occurred) The act was subsequently amended to allow for "facilitating payments" aka "speed money" or "grease payments"--NOT payments to secure contracts that would not otherwise be secured, nor are the payments to obtain exclusive preferential treatment

question

Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

answer

Obliges member states and other signatories to make teh bribery of foreign public officials a criminal offense. Excludes facilitating payments made to expedite routine government action from the convention "Speed money"/facilitating payments are excluded, so ethical implications are unclear

question

Ethical Dilemma

answer

Situations in which none of the available alternatives seems ethically acceptable

question

Organizational Culture

answer

Values and norms that are shared among employees of an organization

question

Ethical Behavior

answer

Societal Culture Decision-Making Processes Leadership Unrealistic Performance Goals Organizational Culture Personal ethics

question

Straw Men

answer

Either deny the value of business ethics or apply the concept in a very unsatisfactory way These approaches to business ethics are raised by business ethics scholars primarily to demonstrate that they offer inappropriate guidelines for ethical decision making in a multinational enterprise

question

Friedman Doctrine

answer

The social responsibility of the business is to increase profits, s long as the company stays within the rules of law Rejects that businesses should undertake social expenditures beyond those mandated by law and required for efficient running of a business

question

Cultural Relativism

answer

Belief that ethics are nothing more than the reflection of a culture--all ethics are culturally determined--and that accordingly, a firm should adopt the ethics of the culture in which it is operating "When in Rome, do as the Roman's do."

question

Righteous Moralist

answer

Multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries

question

Naive Immoralist

answer

If a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either.

question

Utilitarian Approach to Ethics

answer

Hold that the moral worth of actions or practices is determined by their consequences. An action is judged desirable if it leads to the best possible balance of good consequences over bad consequences. David Hume, Jeremy Bentham, and John Stuart Mill Committed to maximization of good and minimization of harm. Recognizes that actions have multiple consequences

question

Kantian Ethics

answer

Immanuel Kant Holds that people should be treated as ends and never purely as means to the ends of others

question

Rights Theories

answer

recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures Establish a minimum level of morally acceptable behavior

question

Universal Declaration of Human Rights

answer

by UN Ratified by almost every country on planet Lays basic principles that should always be adhered to irrespective of culture in which one is doing business. Article one echoes Kantian ethics.

question

Just Distribution

answer

Is one that is considered fair and equitable

question

Code of ethics

answer

Formal statement of the ethical priorities a business adheres to Draws heavily on documents like Universal Declaration of Human Rights

question

Stakeholders

answer

Individuals or groups that have an interest, claim, or stake in company, in what it does and in how well it performs

question

Internal Stakeholders

answer

Individuals or groups who work for or own the business Include primary stakeholders such as employees, board of directors, and shareholders

question

External Stakeholders

answer

Other individuals and groups that have some direct or indirect claim on the firm i.e. customers, suppliers, governments, and local communities as well as secondary stakeholders such as special-interest groups, competitors, trade associations, mass media, and social media

question

Corporate Social Responsibility (CSR)

answer

Idea that business people should consider the social consequences of economic actions when making business decisions and that there should be presumption in favor of decisions that have both good economic and social consequences

question

Sustainable Strategies

answer

Strategies that not only help the multinational firm bake good profits, but that also do so without harming the environment while simultaneously ensuring that the corporation acts in a socially responsible manner with regard to its stakeholders

question

Free Trade

answer

Situation in which a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country Import controls may benefit businesses and employees, but economy as whole might is hurt by such actions

question

New Trade Theory

answer

Stresses that in some cases countries specialize in production and export of particular products not because underlying differences in factor endorsements, but because in certain industries the world market can support a limited number of firms, in these industries firms that enter the market first are able to build a competitive advantage that is subsequently difficult to challenge. Implications: -Trade allows a nation to specialize in production of certain products, attaining scale economies and lowering costs of producing these products -Country may predominate in export of a good simply because it was lucky enough to have one or more firms among the first to produce that good -Most contentious implication is argument that it generates for government intervention and strategic trade policy

question

Mercantilism

answer

Gold and silver were currency of trade between countries, so country wants trade surplus (export more than imported) to accumulate more gold and silver, increasing national wealth, prestige, and power. Flaw is that it seems trade as zero-sum game

question

Zero-Sum Game

answer

Gain by one country results in loss by another

question

Absolute Advantage

answer

When country is more efficient than any other country at producing it According to ADAM SMITH, countries should specialize in production of goods for which they have an absolute advantage and trade goods for those produced by other countries So countries should never produce goods at home they can buy at a lower cost from other countries

question

Comparative (Relative Advantage)

answer

DAVID RICARDO Potential world production is greater with unrestricted free trade than it is with restricted trade Suggests that trade is positive sum game in which all countries that participate realize economic gains Arises from differences in productivity

question

Constant Returns to Specialization

answer

Units of resources required to produce a good are assumed to remain constant no matter where one is on a country's production possibility frontier (PPF)

question

Samuelson Critique

answer

What happens when a rich country enters into a free trade agreement with a poor country--the lower price that the rich country's consumer pays for goods imported form poorer country following the introduction of free trade regime MAY NOT be enough to produce a net gain for richer economy inf the dynamic effect of free trade is to lower real wage rates in richer country.

question

Factor Endowments

answer

HECKSCHER-OHLIN Comparative advantage arises form differences in national factor endowment, or the extent to which a country is endowed with such resources as land, labor, and capital Different factor endowments explain differences in factor cost--more abundant a factor the lower its cost. Economists prefer this theory on theoretical rounds, but it s a relatively poor predictor of real world international trade patterns, but see Riccardo's theory as too limited, though actually predicts trade patterns with greater accuracy.

question

Economies of Scale

answer

Unit cost reductions associated with a large scale of output Sources include ability to spread fixed costs over large volume and ability of large volume producers to utilize specialized employees and equipment that are more productive than less specialized employees and equipment.

question

First-Mover Advantages

answer

Economic strategic advantages that accrue to early entrants into an industry Can gain scale-based cost advantage that later entrants find almost impossible to match

question

Porter's Diamond

answer

Factor Endowments Firm Strategy, structure, and rivalry Demand conditions Related and supporting industries (all interconnected) Argues firms are more likely to succeed in industries or industry segments where the diamond is most favorable; also argues diamond is mutually reinforcing system

International Business–Exam #1 (Ch. 1, 2, 4-6) – Flashcards

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