PreTest Flashcards
Which theory states that patterns of international trade change across new, maturing, and standardized stages?
Product life cycle theory
What is the financial environment in which exchange rates and payments for goods and services are conducted?
International monetary system
What happens to a country’s real exchange rate and nominal interest rate as the price level increases, assuming all other factors are unchanged?
Exchange rates depreciate; interest rates increase.
What is the easiest method nonfinancial companies use to handle currency fluctuations?
Currency diversification
Which strategy minimizes the risk of unanticipated changes in future exchange rates?
Currency swap
A company is looking for a location with an abundance of ground-breaking individuals, firms, and universities.
Which type of strategic goal is this company demonstrating?
Innovation-seeking
What advantage comes with not sharing benefits with late entrants?
First-mover advantage
Which entry mode is a non-equity arrangement for a company contemplating entry into a foreign market?
Licensing
What size commitment is required for a non-equity mode of entry into a foreign market?
Small commitment
Which view claims that the phenomenon of globalization was initially driven by the desire of Western economies to exploit their power through multinational enterprises?
The new-force view
Economic gains come from international trade because one country’s exported goods, services, or other items are unique, valuable, and difficult to duplicate to the importing countries.
Which view does this statement portray?
Resource-based view
What is the aggregation of importing and exporting that leads to the country-level trade surplus or deficit?
Balance of trade
What is a cost of foreign direct investment?
Developing countries may be exploited by multinational enterprises (MNE).
What may precious, rare, and hard-to-duplicate resources and capabilities lead to for a firm?
Sustained comparative advantage
What are two supportive pillars for an informal institution?
Normative
Cognitive
What is the key role of an institution, according to the institution-based view?
To reduce uncertainty
What are the rules, enforcement mechanisms, and organizations that support market transactions?
Institutions
What is a core proposition underpinning an institutional-based view of global business?
Bounded rationality
n which type of political system do citizens elect representatives to govern the country on their behalf?
Democracy
Which legal system uses comprehensive lists of rules and written codes?
Civil law
What are the legal privileges associated with the use of economic property to obtain income and other benefits from its use?
Property rights
What is the purpose of having property rights and intellectual property rights?
To legally protect the use of tangible and intangible property and allow its lawful owner to derive income and other benefits from it
What are the two polar types of economies?
Market economies
Centrally planned economies
In addition to encouraging efficiency, why might a government intervene in a market?
To promote equality
What is the relationship between total and marginal cost?
Marginal cost is the change in total cost divided by the change in quantity.
A farmer sells wheat in a perfectly competitive market.
Which action should the farmer take to maximize profits?
Produce the quantity where the price equals the farmer’s marginal cost
What is the economic profit of a competitive firm?
The difference between total revenue and total cost
Which condition applies when a competitive firm decides to temporarily shut down?
Average variable costs are above the price.
What is the producer’s demand curve if the producer sells a differentiated product?
Downward sloping
Which statement describes a competitive firm’s demand curve?
It is more elastic than a monopoly’s demand curve.
What is the point at which a monopoly maximizes profit?
Where marginal cost equals marginal revenue
What is a characteristic of monopolistic competition?
Many firms and differentiated products
What is a likely outcome of the standard prisoner’s dilemma game?
Both prisoners confess.
How does the prisoner’s dilemma help in understanding company behavior in an oligopoly?
Company strategies must consider actions by rival firms.
What do economists use to represent a consumer’s preferences?
Indifference curves
What can be assumed that the consumer will buy if it is observed that the consumer’s budget constraint has shifted inward?
Fewer normal goods and more inferior goods
What will happen to the market price and quantity in the short run if there is an increase in market demand in a perfectly competitive market?
The equilibrium price will increase, and the equilibrium quantity will increase.
What will happen to equilibrium quantity and price if both demand and supply decrease?
Quantity will decrease but price can either increase or decrease.
What happens to demand quantity for normal goods as percentage change in income increases?
Demand increases.
What do the positive or negative numbers of cross-price elasticity of demand represent?
Substitutes or complements
What is one way the Federal Reserve influences the reserve ratio?
By altering reserve requirements
Which fiscal policy would be most effective at raising consumer spending and expanding aggregate demand?
Enacting a permanent income tax cut
What is the effect of an increase in the money supply in the short run?
Interest rates decrease and aggregate demand for goods and services increase.
How is consumer surplus represented on a graph?
The area below the demand curve and above price
Which two statements define producer surplus?
The area below the price and above the supply curve on a graph
The amount the seller is paid minus the cost of production
A painter spends $200 on paint. He then bills the homeowner $1,000 to cover his time and his expenses.
What is the amount of these transactions that is added to gross domestic product (GDP)?
$1,000
A U.S. state purchases a fleet of new highway patrol vehicles manufactured in Japan.
Which two statements correctly describe how the components of U.S. gross domestic product (GDP) are affected?
Government expenditures increase.
Net exports decrease.
A nation ends a tariff on bananas, which is an imported product.
What will be the effect on banana prices within that nation?
The price will match the global market price.
What effect does implementing a new tariff have on the government that implements it?
Tax revenue increases.
