Chapter 2

Question 1

absolute advantage

Answer 1

a country produces a product better than all other countries

Question 2

balance of payments

Answer 2

difference between money coming into a country and money leaving the country

Question 3

The US is the ____ largest exporting nation

Answer 3

Third

Question 4

Importing

Answer 4

buying products from another country

Question 5

Exporting

Answer 5

Selling products to another country

Question 6

Free trade

Answer 6

Movement of goods and services among nations without political or economic obstruction

Question 7

Comparative advantage theory

Answer 7

A country should sell to other countries those products that is produces most effectively and efficiently and should buy from other countries those products that it cannot produce as effectively or efficiently

Question 8

The real potential in global markets may be _______ businesses

Answer 8

Small businesses generate about 1/3 of exports

Question 9

What are the benefits of exporting?

Answer 9

Income and jobs

Question 10

balance of trade

Answer 10

Total value of a nation’s exports compared to its imports measured over a particular period

Question 11

Trade surplus

Answer 11

Exists when the value of a nation’s exports exceeds its imports measured over a particular period

Question 12

Trade defecit

Answer 12

Exists when the value of a nation’s imports exceeds the value of its exports; unfavorable balance of trade

Question 13

Since 1975, the US has run a trade _______

Answer 13

defecit

Question 14

The U.S. has laws to prohibit practices such as ______…

Answer 14

the practice of selling products in a foreign country at lower prices than those charged in the producing country.

Question 15

Licensing

Answer 15

global strategy in which a firm allows a foreign company to produce its products in exchange for a fee (royalty)

Question 16

Advantages of licensing

Answer 16

1. A company can gain additional revenues from a product it would not have produced domestically 2. The firm can sell start-up supplies, component materials and consulting services 3. The licensor spends little or no money to produce or market the product; licensees bear the cost.

Question 17

Disadvantages of licensing

Answer 17

1. Often a firm must grant licensing rights to its product for an extended period of time 2. If a product experiences remarkable growth in the foreign market, the bulk of the revenues goes to the licensee 3. If the foreign licensee learns the technology, it may break the agreement and begin to produce a similar product on its own

Question 18

Franchising

Answer 18

Contractual arrangement whereby someone with a good idea for a business sells the rights to use the business name.

Question 19

Forces affecting trade in global markets

Answer 19

1. culture 2. ethnocentricity 3. religion

Question 20

Never _______ what works in one _________ will work in another

Answer 20

assume; country

Question 21

Exchange Rate

Answer 21

Value of one nation’s currency relative to the currencies of other countries

Question 22

Devaluation

Answer 22

lowering the value of a nation’s currency relative to other currencies

Question 23

Countertrading

Answer 23

Complex form of bartering where several nations maybe involved, each trading goods and services for services.

Question 24

The FOREIGN CORRUPT PRACTICES ACT OF 1978 prohibits “_______” or “_______” payments to foreign officials to secure business contracts.

Answer 24

dubious or questionable