chapter 2

Question 1

political economy

Answer 1

stresses the fact that the political, economic, and legal systems of a country are interdependent. they interact with and influence each other and affect the level of economic well-being.

Question 2

political system

Answer 2

the system of government in a nation. it shapes its economic and legal systems. they can assessed according to two dimensions; (1) degree to which they emphasis collectivism as opposed to individualism, and (2) degree to which they are democratic or totalitarian. these dimensions are interrelated; systems that emphasise collectivism lean toward totalitarianism, whereas those that emphasise individualism tend to be democratic.

Question 3

collectivism

Answer 3

refers to a political system that stresses the primacy of collective goals over individual goals. the needs of society are viewed as more important than individual freedoms. plato argued that individual rights should be sacrificed for the good of the majority and property should be owned in common.

Question 4

modern socialists

Answer 4

trace their intellectual roots to Karl Marx, who argued that the few benefits at the expense of the many in a capitalist society where individual freedoms are not restricted.

Question 5

communists

Answer 5

believed that socialism could be achieved through violent revolution and totalitarian dictatorship.

Question 6

social democrats

Answer 6

committed themselves to achieving socialism by democratic means, turning their backs on violent revolution and dictatorship.

Question 7

privatisation

Answer 7

the process of selling state-owned enterprises to private investors.

Question 8

individualism

Answer 8

refers to a philosophy in which an individual should have freedom in his or her economic and political pursuits. it stresses that the interests of the individual should take precedence over the interests of the state. according to aristotle, communal property receives little care, whereas property owned by an individual will receive the greatest care and thus be most productive.

Question 9

democracy

Answer 9

refers to a political system in which government is by the people, exercised either directly or through elected representatives.

Question 10

totalitarianism

Answer 10

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.

Question 11

theocratic totalitarianism

Answer 11

found in states where political power is monopolised by a party, group, or individual that governs according to religious principles. the most common form is based on the Islam, eg. in Iran and Saudi Arabia.

Question 12

tribal totalitarianism

Answer 12

arisen from time to time in African countries. it occurs when a political party that represents the interests of a particular tribe (and not always the majority tribe) monopolises power.

Question 13

right-wing totalitarianism

Answer 13

generally permits some individual economic freedom but restricts individual political freedom, frequently on the grounds that it would lead to the rise of communism. a common feature is overt hostility to socialist or communist ideas. many governments are backed by military, eg. fascist regimes in Germany and Italy.

Question 14

pure form of democracy

Answer 14

based on a belief that citizens should be directly involved in decision making. it was originally practiced in ancient Greece.

Question 15

representative democracy

Answer 15

practiced by most modern democratic states. citizens periodically elect individuals to represent them.

Question 16

totalitarian states

Answer 16

often experience widespread political repression, lacking free and fair elections, heavily censored media, denied basic civil liberties, and those who question the right of the rulers to rule are imprisoned or worse.

Question 17

market economy

Answer 17

all productive activities are privately owned, as opposed to being owned by the state. production is determined by the interaction of supply and demand and signaled to producers through the price system. in this system, consumers are sovereign. the role of the government is to encourage vigorous free and fair competition, eg. by banning restrictive business practices.

Question 18

command economy

Answer 18

the government plans the goods and services, quantity, and prices. it is consistent with collectivist ideology. the objective is to allocate resources for the “good of society”. all businesses are state owned, as the government can direct them to make investments that are best in the interests of the nation. there is no incentive for individuals to look for better ways to serve needs.

Question 19

mixed economy

Answer 19

can be found between market and command economies. certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning. the government may help troubled firms whose operations are vital to national interests.

Question 20

legal system

Answer 20

refers to the laws that regulate behaviour along with the processes by which the laws are enforced. a country’s laws regulate business practice, define the way business transactions are to be executed, and set down the rights and obligations of those involved in business transactions.

Question 21

common law

Answer 21

based on tradition, precedent, and custom. judges have the power to interpret the law so that it applies to the unique circumstances of an individual case. it evolved in England and can now be found in most of its former colonies.

Question 22

tradition

Answer 22

refers to a country’s legal history.

Question 23

precedent

Answer 23

cases that have come before the courts in the past.

Question 24

custom

Answer 24

the ways in which laws are applied in specific situations.

Question 25

civil law system

Answer 25

based on a detailed set of laws organised into codes. when law courts interpret civil law, they do so regarding these codes. it tends to be less adversarial than a common law system because the judges rely on detailed legal codes rather than interpreting tradition, precedent, and custom.

Question 26

theocratic law system

Answer 26

one in which the law is based on religious teachings. Islamic law is the most widely practiced theocratic legal system in the modern world.

Question 27

contract

Answer 27

a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved.

Question 28

contract law

Answer 28

the body of law that governs the contract enforcement.

Question 29

United Nations Convention on Contracts for the International Sale of Goods (CISG)

Answer 29

when contract disputes arise in international trade, there is always the question of which country’s laws to apply. the CISG resolves this. it 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. when firms do not wish to accept the CISG, they often opt for arbitration by a recognished arbitration court to settle contract disputes. it applies automatically to all contracts for the sale of goods between different firms based in countries that have ratified the convention, unless the parties opt out.

Question 30

property rights

Answer 30

refer to the 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 resource. they can be violated in two ways; through private action and public action.

Question 31

private action

Answer 31

refers to theft, piracy, blackmail, and the like by private individuals or groups. theft occurs in all countries, but a weak legal system allows a much higher level of criminal action.

Question 32

public action

Answer 32

occurs when public officials, eg. politicians and government bureaucrats, extort income, resources, or the property itself from property holders. this can be done through legal mechanisms, eg. levying excessive taxation, requiring expensive licenses or permits from property holders, taking assets into state ownership without compensation, or redistributing assets without compensation. it can be done illegally through bribery and corruption.

Question 33

Foreign Corrupt Practice Act (FCPA)

Answer 33

a law that makes it illegal to bribe a foreign government official to obtain or maintain business over which that foreign official has authority. it requires all publicly traded companies to keep detailed records that would reveal whether a violation of the act has occurred. it was passed in the US in the 1970s.

Question 34

intellectual property

Answer 34

refers to property that is product of intellectual activity, eg. computer software, a screenplay, music score, or chemical formula for a new drug. patents, copyrights, and trademarks establish ownership rights over intellectual property.

Question 35

patent

Answer 35

grants the inventor of a new product or process exclusive rights for a defined period to manufacture, use, or sale of that invention.

Question 36

copyrights

Answer 36

exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit.

Question 37

trademarks

Answer 37

designs and names, officially registered, by which merchants of manufacturers designate and differentiate their product.

Question 38

World Intellectual Property Organisation

Answer 38

has 192 members which have signed international treaties to protect intellectual property, including the oldest such treaty, the Paris Convention for the Protection of Industrial Property.

Question 39

product safety laws

Answer 39

set certain safety standards to which a product must adhere.

Question 40

product liability

Answer 40

involves holding a firm and its officers responsible when a product causes injury, death, or damage. it can be much greater if a product does not conform to required safety standards. both civil and criminal product liability law exist. it raises ethical issues when doing business abroad.

Question 41

civil product liability law

Answer 41

calls for payment and monetary damages.

Question 42

criminal liability law

Answer 42

results in fines or imprisonment.

Question 43

socialism

Answer 43

public ownership of the means of production for common good. Karl Marx described that the few benefit at the expense of many in a capitalist society where individual freedoms are not restricted.