Chapter 3 (Competition)

Question 1

Basis for International trade

Answer 1

When both countries have a surplus and decide to import and export.
1. Balance of trade= Exports - Imports
2. Trade deficit= More Imports than Exports
3. Balance of payments= Total inflow – Total outflow

Question 2

Restrictions on International business

Answer 2

1. Reasons for restricting trade:
   From internal political and economic pressures to mistrust of other nations.
2. Nations are generally eager to export their products.
3. Therefore, most trade restrictions apply to other nations’ imports.

Question 3

Types of trade restrictions

Answer 3

1. Import duty (tariff)
   A tax levied on a particular foreign product entering a country
   -Revenue tariffs to generate income for the government
   -Protective tariffs to protect the domestic industry against dumping
2. Non-tariff barriers
   Non-tax measures imposed by a government to favour domestic over foreign suppliers
   -Import quota
   -Embargo
   -Foreign exchange control
   -Currency devaluation

Question 4

Reasons for trade restrictions

Answer 4

To equalize a nation’sbalance of payments
To protect new or weak industries
To protect domestic jobs
To protect national security
To protect the health of citizens
To retaliate for another country’s trade restrictions

Question 5

Reasons against trade restrictions

Answer 5

Higher prices for consumers
Restriction of consumers’ choices
Loss of jobs
Misallocation of international resources
To retaliate for another country’s trade restrictions

Question 6

International trade agreements

Answer 6

1. General Agreement of Tariffs and Trade (GATT)
   International organisation of 164 nations dedicated to reducing or eliminating tariffs and other trade barriers
2. World Trade Organization (WTO)
   WTO oversees GATT provisions, has judicial powers to mediate trade disputes arising from GATT rules and exerts more binding authority than GATT

Question 7

Economic communities (Trade Blocks):
Want to foster trade

Answer 7

1. European Union (EU)- BREXIT
2. North American Free Trade Agreement
3. Common Market of the Southern Cone (MERCOSUR)
4. South African Customs Union (SACU): five countries ofSouthern Africa:Botswana,Lesotho,Namibia, South AfricaandEswatini(formerly Swaziland)
5. South African Development Community (SADC)

Question 8

Methods of entering international business

Answer 8

1. Licensing
   A contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation
2. Exporting
   Manufacturers produce in their own country and export for sale in foreign markets
3. Joint ventures
   A partnership formed to achieve a specific goal or to operate for a specific period of time
4. Totally owned facilities
   Direct Investment
   Production and marketing facilities in one or more foreign nations
   Two forms:
   -Building new facilities in the foreign country
   -Purchasing an existing firm in the foreign country
5. Strategic alliances
   Partnerships formed to create competitive advantage on a worldwide basis
6. Trading companies
   Firms that provide a link between buyers and sellers in different countries
7. Countertrade
   An international barter transaction
8. Multinational enterprise
   A firm that operates on a worldwide scale without ties to any specific nation or region