Chapter 3 (Globalization)

Question 1

Nations trade because:

Answer 1

they don’t produce all the products that their inhabitants need

Question 2

Why Import/Export?

Answer 2

not all countries are good at producing or are able to produce the same products

Question 3

These factors of production vary greatly throughout the world (3):

Answer 3

natural resources
The cost of labor
the level of know-how

Question 4

Absolute Advantage

Answer 4

country is the only source of a particular product or can make more of a product with the same amount of or fewer resources than other countries

Question 5

Comparative Advantage

Answer 5

when a country can produce a product at a lower opportunity cost than other nations

Question 6

Balance of Trade

Answer 6

subtracting the value of a country’s imports from the value of its exports

Question 7

Trade Surplus

Answer 7

If a country sells more products than it buys and has a favorable balance

Question 8

Trade Deficit

Answer 8

If it buys more than it sells, it has an unfavorable balance

Question 9

Balance of Payments

Answer 9

the difference, over a period of time, between the total flow coming into a country and the total flow going out (biggest factor is imports and exports)

Question 10

Other transactions included in balance of payments (4):

Answer 10

• cash received from or paid for foreign investment loans
• tourism
• military expenditures
• foreign aid

Question 11

Importing

Answer 11

involves purchasing products from other countries and reselling them in one’s own

Question 12

Exporting

Answer 12

entails selling products to foreign customers

Question 13

Franchise Agreement

Answer 13

a company grants a foreign company the right to use its brand name and sell its products

Question 14

Licensing Agreement

Answer 14

allows a foreign company to sell a company’s products or use its intellectual property in exchange for royalty fees

Question 15

International Contract Manufacturing (Outsourcing)

Answer 15

a company has its products manufactured or services provided in other countries

Question 16

Strategic Alliance

Answer 16

an agreement between two companies to pool talent and resources to achieve business goals that benefit both partners

Question 17

Joint Venture

Answer 17

a specific type of strategic alliance in which a separate entity funded by the participating companies is formed to manage the alliance

Question 18

Foreign Direct Investment (FDI)

Answer 18

the formal establishment of business operations on foreign soil

Question 19

Offshoring

Answer 19

when a company sets up facilities in a foreign country that replaces U.S. manufacturing facilities to produce goods that will be sent back to the United States for sale

Question 20

Foreign Subsidiary

Answer 20

an independent company owned by a foreign firm

Question 21

Multinational Corporation

Answer 21

a company that operates in many countries

Question 22

Cultural Challenges stem from differences in (3):

Answer 22

language
concepts of time and sociability
communication styles

Question 23

Protectionism

Answer 23

the use of controls to restrict free trade, usually to protect a nation’s own economy

Question 24

Tariffs

Answer 24

taxes on imports. Because they raise the price of the foreign-made goods, they make them less competitive

Question 25

Quotas

Answer 25

restrictions on imports that impose a limit on the quantity of a good that can be imported over a period of time. They’re used to protect specific industries, usually new industries or those facing strong competitive pressure from foreign firms

Question 26

Embargo

Answer 26

a quota that, for economic or political reasons, bans the import or export of certain goods to or from a specific country

Question 27

Dumping

Answer 27

the practice of selling exported goods below the price that producers would normally charge in their home markets (and often below the costs of producing the goods)

Question 28

The General Agreement on Tariffs and Trade (GATT)

Answer 28

encourages free trade by regulating and reducing tariffs and by providing a forum for resolving disputes

Question 29

World Trade Organization (WTO)

Answer 29

encourages global commerce and lower trade barriers, enforces international rules of trade, and provides a forum for resolving disputes

Question 30

Trading Blocs

Answer 30

groups of countries that have joined together to allow goods and services to flow without restrictions across their mutual borders

Question 31

International Monetary Fund (IMF) and the World Bank

Answer 31

provide monetary assistance to some of the poorest nations in the world

Question 32

North American Free Trade Association (NAFTA)

Answer 32

an agreement among the governments of the United States, Canada, and Mexico to open their borders to unrestricted trade

Question 33

European Union (EU)

Answer 33

a group of twenty-seven countries that have eliminated trade barriers among themselves

Question 34

Criticisms of MNC’s (3):

Answer 34

1. Destroys livelihoods in home-country
2. Traditional lifestyles/values weakened or destroyed
3. Irreversible damage to environment

Question 35

Defense of MNC’s (4):

Answer 35

1. Better, cheaper products
2. Creates jobs
3. Raises standard of living
4. Increases cross-cultural understanding

Question 36

Pros to trade control (3):

Answer 36

1. Protect specific industries
2. Protect new or struggling industries
3. Shield industries vital to national defense

Question 37

Cons of trade control (4):

Answer 37

1. Restricts free trade; countries cannot compete freely
2. Doesn’t promote level playing field; gives special privileges to some
3. Cannot bring goods to fair/open market
4. Detrimental to world economy; nations cannot focus on what they do best

Question 38

What is Globalization?

Answer 38

the movement towards a more interconnected and interdependent world economy