Chapter 2+3

Question 1

What does the term “political economy” refer to?

Answer 1

Political, economic, and legal systems of a country are interdependent and influence each other

Question 2

The system of government in a nation is called the ___

Answer 2

political system

Question 3

What are the 2 dimensions designated to assess a country’s political system?

Answer 3

1. Emphasis on collectivism or individualism
2. Degree to which they are democratic or totalitarian

Question 4

What are the 3 broad types of economic systems?

Answer 4

Market, command, and mixed

Question 5

Explain the discrepancy between the objective and the reality of a command economy

Answer 5

Objective: to mobilize economic resources for the public good. Reality: Opposite seems to occur. State-owned enterprises have little incentive to control costs and be efficient because they cannot go out of business

Question 6

What is a command economy?

Answer 6

Government plans the goods and services, quantity and price, then allocates them for “the good of society”. All businesses are state-owned. Historically found in communist countries. No incentive for individuals to look for better ways to serve needs. All productive activities are privately owned. Production is determined by supply and demand. To work, supply must not be restricted. Role of government is to encourage vigorous free and fair competition

Question 7

Explain the mixed economy

Answer 7

Some sectors are privately owned, some are government owned. Once common in developed world, less so now. Government may aid troubled firms whose operations are vital to national interests. ex: US helped Citygroup, General Motors in 2008 recession

Question 8

What is the definition of legal systems? What influences them?

Answer 8

Rules or laws that regulate behaviour. Process through which laws are enforced. Process through which redress for grievances is obtained.

Influenced by the prevailing political system

Question 9

What is the difference in contracts between civil and common law?

Answer 9

Common law: Contracts are very detailed with all contigencies spelled out. More expensive and can be adversarial.

Civil Law: Contracts tend to be much shorter and less specific.

Question 10

What is the idea behind the UN Convention for Contracts on the International Sale of Goods? (CISG)?

Answer 10

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.

Question 11

What is an example of a recognized arbitration court to settle contract disputes when countries do not ratify the CISG?

Answer 11

International Court of Arbitration of the International Chamber of Commerce in Paris

Question 12

What are some legal systems to mark intellectual property

Answer 12

Copyright, trademark, patent, world intellectual property organization => Paris Convention

Question 13

Give examples of trends fostering economic development

Answer 13

Democratic forms of government, market-based economic reforms, legal systems that better enforce property rights

Question 14

T/F: GDP considers differences in the cost of living

Answer 14

False

Question 15

What is a better adjusted index for GDP that also reflects differences in cost of living?

Answer 15

Purchasing Power Parity (PPP)

Question 16

The Human Development Index (HDI) is scaled from __ to __.

Answer 16

0 to 1. Countries scoring less than 0.55 are classified as having low HD, those between 0.55 and 0.8 are classified as having medium HD, and those who score above 0.8 are classified as having high HD

Question 17

FITB: Political economy and economic progress
a) Fuelled by ___ and ___
b) Enhanced in ___ economies
c) Promoted by strong ___ rights
d) Influenced by ___ system
e) Advanced by favourable ____ ____
f) Powered by ___
g) Stimulated by a ___, ____ population

Answer 17

a) Innovation, entrepreneurship
b) market
c) property
d) political
e) geographic locations
f) education
g) young, growing

Question 18

Author Francis Fukuyama argues the new world order will be characterized by
a) democratic regimes and free market capitalism
b) modernization and westernization
c) totalitarian, communist regimes

Answer 18

a)

Question 19

Political scientist Samuel Huntigton argues that while many societies are modernizing…
a) they are becoming more Western
b) They are becoming less Western
c) They are not becoming more western

Answer 19

c)

Question 20

What do Francis Fukuyama and Samuel Huntington’s arguments predict?

Answer 20

Predicts a world split into different civilizations that will be in conflict, making business difficult. Political position is more likely to be somewhere between Fukuyama and Huntington.

Question 21

FITB: States in Transition
a) The spread of ___-based systems
b) A shift from ____ planned economies to ____-based economies
c) More than 30 countries in the former Soviet Union and eastern European communist bloc have ___ economic systems
d) Change also occuring in ___ and ___ states

Answer 21

a) market
b) centrally, market
c) changed
d) Asian, African

Question 22

What is the nature of economic transformation shift toward market based systems?

Answer 22

deregulation, privatization, legal system to safeguard property rights

Question 23

What determines a country’s overall attractiveness?

Answer 23

• Benefits: size of economy, likely economic growth
• Costs: Corruption, Lack of infrastructure, Legal Costs
• Risks: political risks (social unrest/antibusiness trends), economic risks (economic mismanagement), legal risks (failure to safeguard property rights)

Question 24

The overall attractiveness of a country as a market or investment site depends on balancing the likely long-term ___ of doing business in that country against the likely ___ and ___

Answer 24

benefits, costs, risks

Question 25

T/F: A country with democratic political institutions, a market-based economic system, and a strong legal system is more attractive to do business in.

Answer 25

True

Question 26

What are 2 broad implications for international business?

Answer 26

1. Political, economic, and legal systems of a country raise important ethical issues that have implications for international business.
2. Political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market or investment site.