INTB EXAM 1

Question 1

What is globalization?

Answer 1

The shift toward a more integrated and interdependent world economy.

Question 2

What are globalization’s main drivers?

Answer 2

First - decline in barriers to the free flow of goods, services and capital that has occurred since the end of WWII.

Second, technological change, particularly new forms of communication, information processing,, and transportation technologies.

Single most important innovation as the microprocessor. Also knows what Moore’s law is. World Wide Web, Transportation technology including the most important economically was the development of the commercial jet ands containerization.

Containers revolutionized the transportation industry.

Question 3

What is the globalization of markets?

Answer 3

merging of historically distinctly and separate national markets into one huge global marketplace. -if a firm moves into a nation not served by its rivals, then their rivals are sure to follow into that market.

Question 4

What is the globalization of production?

Answer 4

sourcing of goods and services from locations around the globe to take advantage of factors of production (land, capital, management, labor, technological know-how)

Question 5

What is political economy?

Answer 5

The political, economic, and legal systems of a country.

Question 6

What is a political system?

Answer 6

System of government in a nation.

Question 7

What is collectivism?

Answer 7

Political system that emphasizes collective goals as opposed to individual goals. - socialism (public ownership of means of production) is a part of this. Communists - socialism through revolution, totalitarianism. And social democrats wanted socialism through existing societal structures and government.

Question 8

What is individualism?

Answer 8

emphasis on the importance of guaranteeing individual freedom and self-expression. Two main tenets: 1) emphasis on the importance of guaranteeing individual freedom and self-expression, and the second tenet is that the welfare of society is best served by letting people pursue their own economic self interest. The central message is that the economic and political freedoms for individuals are the ground rules on which a society should be based. Means democratic political systems and market economies.

Question 9

What is a command economy?

Answer 9

allocation of resources, including determination of what goods and services should be produced , and in what quantity, is planned by the government.

Question 10

What is democracy?

Answer 10

A political system in which a government is by the people, exercises either directly or through elected representatives. closely related to individualism.

Question 11

What is totalitarianism?

Answer 11

all the constitutional guarantees on which representative democracies are built are not given to citizens. 4 main types

Question 12

What is the link between political ideology and economic systems?

Answer 12

collectivist = non free market, lower innovation

individualistic = democratic, free market

Question 13

What is a market economy?

Answer 13

the interaction of supply and demand determines the quantity in which goods and services are produced.

Question 14

What is a mixed economy?

Answer 14

certain sectors of the economy are left to private ownership and free markets. while other sectors have significant government intervention.

Question 15

What are the reasons for restricting corruption and bribery? - Slides

Answer 15

.Economic distortions

Diverting resources to inefficient resources, loss of tax revenue

Reduced quality of work, loss of investor confidence.

Undermines public and business confidence, breeds cynicism, often to other crimes.

falls disproportionately on the poor by reducing resources for shelter, food, water, health and education.

Question 16

What is the Foreign Corrupt Practices Act?

Answer 16

Outlawed the paying of bribes to foreign government officials to gain business. This act did allow for what is called facilitating payments - grease money. They are not payments to secure contracts nor are they payments to obtain exclusive preferential treatment.

Question 17

What is culture?

What are the layers of culture?

Answer 17

A shared system of meanings, ideas and thoughts. Defines identity.

Layers of Culture

Artifacts - visible behaviors, clothing, on the surface

Values - Invisible rules that define what is right and wrong and can be inferred or articulated.

Assumptions - taken for granted, widely shared understandings on key issues about the world, hidden, difficult to understand.

Question 18

Why does culture matter for international managers? Why is it important for international managers to be culturally savvy and culturally sensitive?

Answer 18

It matters because it can make or break an expansion into that country if you are no sensitive and aware of the status quo of business practices and dealings.
It is important to develop **cross cultural literacy, **

Examples: employing local workers to help do business, esure executives are aware of how culture impacts business.

Value systems and norms of a country influence the costs and benefits of doing business there.

Question 19

What is mercantilism?

Answer 19

first principle is gold and silver were the mainstays of the national wealth and essential to vigorous commerce. should encourage exports and discourage imports. advocated government intervention to achieve a trade surplus. Viewed international trade as a zero sum game.

Question 20

What are the three main tenets of Smith’s theory of absolute advantages?

Answer 20

1) Specialization increases overall productivity - what good do they have an absolute advantage in?
2) Through specialization, international trade is a positive sum game
3) The benefits of specialization and trade apply to both individuals and nations

Question 21

What is Ricardo’s theory of comparative advantages?

Answer 21

comparative advantage! - what goods they produce most efficiently. - use opportunity costs to find comparative advantage.

But there are two things that make free trade less lucarative than it seems:

1) Immobile resources
2) diminishing returns

Question 22

Could a rich country be worse off with free trade?

Answer 22

Technically yes, but it substantially reduces the benefits of trade, but trade is still beneficial, just less so than we assumed.

Question 23

What is the Hecksher-Olin theory?

Answer 23

comparative advantage arises from differences in national factor endowments. a country is endowed with resources like land, labor, and capital, and the pattern of trade is determined by factor endowments, not differences in productivity.

More abundant= lower cost of that factor.

Leontief paradox - US goods less capital intensive than the model would make us believe.

Question 24

What is the product life cycle theory?

Answer 24

size and wealth of the US gave US firms an advantage in developing new products.

the product would be first sold in the United States.

As demand grew, US firms would begin to export internationally to developed countries and satisfy demand.

Demand for the new product grows in advanced countries, so other foreign producers would begin producing the product for their home markets.

As the market matures, price becomes tantamount, so production of the good moves to developing countries to lower costs.

Made by Ray Vernon

Question 25

Why are economies of scale and first mover advantages important components of New Trade Theory?

Answer 25

.Economies of scale - unit cost reductions from large scale production, and they lead to cost reduction. Through the impact on economies of scale, trade can increase variety and decrease cost of goods.

In some industries, the market is only big enough to support a few producers. Thus, first mover advantages are important.

Governments should consider strategic trade policies that nurture and protect firms and industries where first mover advantages and economies of scale are important.

Nations may benefit from trade even when they do not differ in resources. Might be just because they had one of the first firms to enter that market.

Question 26

What is Porter’s Diamond of Comparative Advantage?

Answer 26

4 attributes of a nation that promote or impede competitive advantage:

1) factor endowments - position in factors of production, (skilled labor, infrastructure) 2)Demand conditions nature of home demand for the product or service.
3) Related and supporting industries - presence of supplier industries and related industries that are internationally competitive.
4) Firm strategy, structure, and rivalry - conditions governing how companies area created, organized, and managed and domestic rivalries.

Question 27

What interests should be the paramount concern of government trade policy- the interests of producers or those of consumers?

Answer 27

free trade oriented policies = consumers

protectionist - producers.

Question 28

What are tariffs?

Answer 28

tax levied on imports or exports - two types 1) specific tariff - fixed charge for each unit of good imported. 2) ad valorum tariff - tariff levied as a proportion of the value of an imported good. Benefits: governments, domestic producers Harms: consumers, foreign producers

Question 29

What are subsidies?

Answer 29

Government payment to producers of a good or service, which is intended to lower their costs. Benefits: domestic producers Money comes from citizens and the government.

Question 30

What are import quotas?

Answer 30

restriction on the quantity of a good that can be imported into a country. Benefits: domestic producers Harms: Consumers.

Question 31

What are voluntary export restraints?

Answer 31

quota imposed from the exporting nation country’s side, instead of the importer’s, usually imposed at the request of the importing country’s government.

Question 32

What are local content requirements?

Answer 32

requirement that a certain fraction of a good be produced domestically. Benefits: domestic producers Harms: consumers

Question 33

What are antidumping policies?

Answer 33

Dumping is selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their fair market value. these punish firms that engage in dumping.

Question 34

What are administrative policies for intervening in markets?

Answer 34

typically adopted by government bureaucracies, that can be used to restrict imports or boost exports. Japanese cutting open tulips and checking packages for pornography.

Question 35

What are the political arguments for government intervention in international trade?

Answer 35

Protecting jobs and industries - unions and industries that are threatened by more efficient foreign producers.

National Security - aerospace important to US dominance.

Retaliation - taking action to make other countries remove different trade barriers, but could result in a trade war.

Protecting Comsumers - EU ban of hormone-treated beef

Furthering foreign policy initiatives - preferential trade terms to countries that we want strong relations with. or punish rogue states.

Protecting Human Rights and the environment.

Question 36

What are the economic arguments for government intervention in international trade?

Answer 36

Infant Industry Argument - an industry should be protected until it can develop and be viable and competitive internationally, accepted as a justification for temporary trade restrictions under the WTO.

Strategic Trade Policy -first mover advantages important to success. governments can help firms achieve theses advantages and overcome barriers to entry into other nations. but, can have retaliations. special interest groups can affect governments in this way.

Concerned with boosting the overall wealth of a nation - to the benefit of both producers and consumers.

Question 37

What are the economic arguments against government intervention in international trade?

Answer 37

.Creates deadweight loss and inefficient allocation of resources, creates artificial imbalances in an economy that favors either domestic producers or consumers, usually with one at the expense of the other.

Question 38

What is a free trade area?

Answer 38

group of countries that remove all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies. EFTA - European Free Trade Association

Question 39

What is a customs union?

Answer 39

.group of countries that are remove all the barriers to the free flow of goods and services and also have a common external trade policy.

Question 40

What is a common market?

Answer 40

Removing barriers to free flow of goods and services, and factor of production, and a common external trade policy.

Question 41

What is an economic union?

Answer 41

removal of barriers to the free flow of goods and services, and factors of production, adoption of a common currency, harmization of tax rates, and a common external trade policy.

Question 42

What is a political union?

Answer 42

.central policy apparatus that coordinates the economic, social, and foreign policy.

Question 43

What are the arguments supporting economic integration?

Answer 43

greater would production and regional efficiency

Linking neighbor econnomies and making them coooperate makes them dependent on one another and reduces the potential for violent conflict.

Question 44

What are the arguments against economic integration?

Answer 44

1) certain groups will lose. inefficient producers will lose, as will countries with higher costs of production.
2) concerns over national sovereignty -

Question 45

What is NAFTA?

Answer 45

.North American Free Trade Agreement -

Question 46

5 positive consequences from NAFTA

Answer 46

1) More open trade
2) Relative political stability in Mexico
3) trade between countries up 250%
4) comparative advantage means more efficient production with less opportunity cost.
5) bigger market for American goods with fewer tariffs on exports from America (services from America also increasing)

Question 47

5 negative consequences of NAFTA

Answer 47

.1) Loss of jobs to Mexico

2) trade deficit with Mexico
3) Weaker Unions
4) Wave of Illegal Immigration
5) Crushed Mexican domestic farming

Question 48

What is trade creation?

Answer 48

trade created due to regional economic integration, occurs when high cost domestic producers are replaced by low-cost foreign producers in a free trade area.

Question 49

What is trade diversion?

Answer 49

trade diverted to regional economic integration, occurs when low cost foreign suppliers outside of a free trade area are replaced by higher cost domestic producers.

Question 50

Privatization

Answer 50

sale of state owned enterprises to private investors. experience demonstrates that sate ownership of the means of production ran counter to the public interest.

Question 51

Representative democracy

Answer 51

A form of democracy that makes large numbers of people able to practice democracy.

Question 52

Communist Totalitarianism

Answer 52

collectivism advocating that socialism can be achieved only through a totalitarian dictatorship.

Question 53

Theocratic totalitarianism

Answer 53

Political power is monopolized by a party, group, or individual that governs according to religious principles.

Question 54

Right wing totalitarianism

Answer 54

political power is monopolized and generally permits economic freedom, but restricts individual political freedom, including free speech. often on the grounds that it world lead to the rise of communism.

Question 55

tribal totalitarianism

Answer 55

monopolized political power that a party, group, or individual that represents the interests of a particular tribe.

Question 56

Tariff rate quota

Answer 56

lower tariff rates applied to imports within the quota than those over the quota.

Question 57

International Monetary Fund

Answer 57

set up to maintain order in the international monetary system. lender of last resort to struggling economies, comes with strings attached, and must adopt specific economic policies.

Question 58

World Bank

Answer 58

promote general economic development to poorer nations. Low interest loans to cash strapped governments in poor nations to undertake infrastructure improvements.

Question 59

Free Trade

Answer 59

absence of barriers to the free flow og goods and services between countries.

Benefits of Free Trade: allows a country to specialize in manufacituring and exporting of a product that can be produced most efficiently in that country. limits on imports benefit domestic producers but not domestic consumers.