WGU C211 Chapter 1,2,5,6&7 Summary with COMPLETE solutions

Trade deficit refers to: - ANSWER a. an economic condition in which a nation exports more than it imports. b. an economic condition in which a nation imports more than it exports. * c. an economic condition in which a ...

Trade deficit refers to: - ANSWER a. an economic condition in which a nation exports more than it imports. b. an economic condition in which a nation imports more than it exports. * c. an economic condition in which a nation exports at a low cost. d. an economic condition in which a nation imports at a high cost. The theory of comparative advantage was advocated by: - ANSWER a. Milton Friedman. b. David Ricardo. * c. Michael Porter. d. Adam Smith. The modern trade theories include the following EXCEPT: - ANSWER a. Theory of product life cycle b. Theory of strategic trade c. Theory of comparative advantage * d. Theory of national competitive advantage of industries The theory of mercantilism: - ANSWER a. views international trade as a win-win game. b. believes that a nation that imports more than exports less will become richer. c. views international trade as a zero-sum game. * d. believes that free market forces should determine how much to trade. According to the theory of absolute advantage, under free trade, - ANSWER a. each nation gains by specializing in economic activities in which a nation has absolute advantage. * b. every country has an absolute advantage in a certain economic activity. c. each nation loses by specializing in economic activities in which a nation has absolute advantage. d. no country has an absolute advantage in economic activities. Which of the following is NOT a nontariff trade barrier (NTB)? - ANSWER a. Local content requirements b. Import quotas c. Subsidies d. Cultural distance * Which of the following arguments advocates that the US trade deficit with China is a huge problem? - ANSWER a. Two-thirds of Chinese exports are generated by foreign invested firms in China, and numerous US firms have invested in and benefited from such operations in China. b. Tariffs will not bring back US jobs, which will simply go to Mexico or Malaysia. c. Cheap imports sold at "the China price" push down prices and cause deflation. * d. Every consumer benefits from cheap prices brought from China by US firms such as Wal-Mart. Chile requires 50 units of resource to produce one ton of wine and 20 units of resource to produce one ton of blueberries. France requires 30 units of resource to produce one ton of wine and 40 units of resource to produce one ton of blueberries. Which of the following is true? - ANSWER a. There is no reason for Chile and France to trade. b. France has a comparative advantage in wine. * c. France has a comparative advantage in blueberries. d. Chile has a comparative advantage in wine. Which of the following theories does NOT lead to the conclusion that unrestricted free trade is in the best interests of all countries? - ANSWER a. Strategic trade theory * b. Comparative advantage theory c. Product life cycle theory d. Absolute advantage theory An import quota is: - ANSWER a. Restriction on the quantity of imports that can be brought into a country. * b. Government payments to domestic firms to produce a competitive advantage. c. Restriction on selling below costs. d. Requirements that a certain proportion of the value of the goods must be made in one country. In which of these categories is the United States NOT the top trading nation? - ANSWER a. Top service importer b. Top service exporter c. Top merchandise importer d. Top merchandise exporter * Which of the following is NOT a motivation for trading internationally? - ANSWER a. Firms that are producing valuable, rare, and inimitable goods can earn more revenue by selling their goods to a broader audience. b. Institutions can either limit or facilitate trade. * c. Countries can earn revenue by collecting taxes on imports and exports. d. The people of a country have the opportunity to purchase valuable, rare, and inimitable goods from other countries that would be difficult or impossible to produce in their own countries at a reasonable price. Which of the following are the two key components of a balance of trade? - ANSWER a. Importing and exporting b. Surplus and deficit * c. Offshoring and inshoring d. Service and merchandise Peru is rich with gold and copper mines. Assume that Peruvians have set up expert systems for mining and exporting more of these natural resources than any other country. This is an example of: - ANSWER a. an absolute resource. b. a competitive advantage. c. an absolute advantage. * d. a comparable advantage. The three modern theories of international trade are: - ANSWER a. comparative advantage, product life cycle, absolute advantage. b. product life cycle, strategic trade, national competitive advantage of industries. * c. product life cycle, strategic trade, comparative advantage. d. comparative advantage, product life cycle, national competitive advantage of industries. Free trade is defined as: - ANSWER a. The absence of laws, tariffs, or any other types of barriers to trade. b. The idea that market forces should determine how much to trade with little or no government intervention. * c. The economic advantage one nation enjoys by trading with other nations. d. The exchange of goods and services for similar goods or services rather than currency. Which of the following is an example of a subsidy? - ANSWER a. A government's regulation forbidding firms in that country from exporting a certain type of product or service to any other country. b. A government's regulation forbidding firms in that country from importing a certain type of product from any other country. c. A government guaranteeing that farmers earn a certain amount, regardless of how much food they produce or how much it is worth. * d. A government collecting taxes on products imported from another country. Assume that Germany passes a law regarding automobile manufacturing. The law states that at least 50% of the components of each car must be made in Germany and at least 35% of the assembly work must be done in Germany. This is an example of: - ANSWER a. antidumping duties. b. non-tariff barriers. c. voluntary export restraints. d. local content requirements. * Which of the following is NOT a political argument against free trade? - ANSWER a. Environmental and social responsibility b. National security c. Consumer protection d. Protection for infant industries * Explain the concept of institutions and their key role in reducing uncertainty - ANSWER Institutions are commonly defined as the rules of the game. Institutions have formal and informal components, each with different supportive pillars. Their key function is to reduce uncertainty, curtail transaction costs, and combat opportunism. Articulate the two core propositions underpinning an institution-based view of global business - ANSWER Proposition 1: Managers and firms rationally pursue their interests and make choices within formal and informal institutional constraints in a given institutional framework. Proposition 2: When formal constraints are unclear or fail, informal constraints will play a larger role Identify the basic differences between democracy and totalitarianism - ANSWER Democracy is a political system in which citizens elect representatives to govern the country. Totalitarianism is a political system in which one person or party exercises absolute political control. Outline the differences among civil law, common law, and theocratic law - ANSWER Civil law uses comprehensive statutes and codes as a primary means to form legal judgments. Common law is shaped by precedents and traditions from previous judicial decisions. Theocratic law is a legal system based on religious teachings, such as Islamic law. Understand the importance of property rights and intellectual property rights - ANSWER Property rights are legal rights to use an economic resource and to derive income and other benefits from it. Intellectual property refers to intangible property that is the result of intellectual activity Appreciate the differences among market economy, command economy, and mixed economy - ANSWER A pure market economy is characterized by laissez faire and total control by market forces. A pure command economy is defined by government ownership and control of all means of production. Most countries operate mixed economies, with a different emphasis on market versus command forces Participate in two leading debates concerning politics, laws, and economics - ANSWER What drives economic development: Culture, geography, or institutions? Private ownership versus state ownership Draw implications for action. - ANSWER Have a thorough understanding of the formal institutions before entering a country. Insisting on formalizing the contract in initial negotiations may backfire in some countries Two Main sectors of trade - ANSWER Exports & Imports Exports - ANSWER Selling goods abroad Imports - ANSWER Bring goods in from abroad Trade Deficit - ANSWER A nation imports more than it exports Trade Surplus - ANSWER A nation exports more than it imports balance of trade - ANSWER The aggregation of importing and exporting that leads to the country-level trade surplus or deficit. Classical trade theories - ANSWER The major theories of international trade that were advanced before the 20th century. Consist of mercantilism, absolute advantage, and comparative advantage. Modern trade theories - ANSWER The major theories of international trade that were advanced in the 20th century. Consist of product life cycle, strategic trade, and national competitive advantage of industries. Mercantilism - ANSWER (1600 - 1700) (zero-sum) Theory that suggests the wealth of the world is fixed and that a nation that exports more and imports less will be richer. Protectionism - ANSWER The idea that governments should actively protect domestic industries from imports & vigorously promote exports. Absolute Advantage - ANSWER (Adam Smith) (1776) (win-win) Theory that suggests that under free trade, a nation gains by specializing in economic activities in which it has an absolute advantage. Laissez faire - ANSWER The "invisible hand" of markets, rather than governments, should determine the scale and scope of economic activities. Free Trade - ANSWER The idea that free market forces should determine how much to trade with little or no government intervention. Example of Absolute Advantage - ANSWER Even though both England and Portugal can manufacture wool and wines, each has their own strengths. 1. England should specialize in sheep and wool 2. Portugal should specialize in grapes & wines 3. they should trade with each other. Comparative Advantage - ANSWER (David Ricardo) (1817) Theory that focuses on relative advantage in one economic activity that one nation enjoys in comparison with other nations.