Unit 7

Question 1

Explain nationalisation and its motivation

Answer 1

The taking of private property by a government to
make it public

 Nationalisation is motivated by the belief that government can manage
a public good or necessity better than can the private, profit-driven
sector

Question 2

what are Other reasons to nationalise businesses ? (6)

Answer 2

o to extract more money from the firms, if the government suspects they are concealing
profits
o to increase profitability, if the government believes it can run the firms more efficiently
and make more money
o to follow an economic or political ideology
o to save jobs by propping up dying industries
o to control an earlier investment in a firm
o to enact political goals

Question 3

Explain privatisation and 3 reasons for it

Answer 3

The selling of government owned property to the private sector;
o to gain more efficiency in business operations
o to raise money
o to reduce the government’s size or the extent of its bureaucracy

Question 4

Explain stability and instability for Governments

Answer 4

 Stability
o Characteristic of a government that maintains itself in power and whose fiscal,
monetary, and political policies are predictable and not subject to sudden, radical
changes
 Instability
o Characteristics of a government that cannot maintain itself in power or that makes
sudden, unpredictable, or radical policy changes

Question 5

Governments try to protect the business activities of its citizens and international business managers on four different areas. What are these?

Answer 5

 Terrorism
o Unlawful acts of violence committed for a wide variety of reasons
 Cybercrime
o Any illegal Internet-mediated activity that takes place in electronic
networks
 Kidnapping for ransom is a weapon used by terrorist and other criminals that
target international business managers and tourists.
 Piracy: hijacking that includes kidnapping on the seas.

Question 6

What is a CRA ?

Answer 6

 Country risk assessment (CRA)
o An assessment of a country’s economic situation and politics to determine how much risk to
employees, property, and investment exists for the firm doing business there

Question 7

What are available countermeasures to companies against risks and threats.

Answer 7

o Know country and region so risk-assessment is realistic
o Insurance (KRE-Kidnapping, Ransom and Extortion) usually used to hire negotiators, cover the
salary of the hostage and counselling fir the victim’s family.
o Outsourced skills as needed to cope with crisis
o Providing increased security and evacuations when needed
o Providing basic training to staff on how to navigate some threats

Question 8

What are the 6 Reasons for Restricting Trade

Answer 8

1 Provide for national defense
2 Imposition of sanctions
3 Protection of domestic jobs
4 Protecting an infant / dying industry
5 Ensure fair competition
6 Retaliation

Question 9

Explain 1 Provide for national defense

Answer 9

Certain industries need protection from imports because these industries are vital to security
and must be kept operating, even though they are not competitive with foreign suppliers
 Government subsidies can be used as a way to better protect such industries as explanations
should be provided to taxpayers why maintaining the industry is vital
 Restrictions also on exports in some countries; e.g., advanced tech not exported.

Question 10

Explain 2 Imposition of sanctions

Answer 10

 To inflict economic damage, punish, or encourage some nations to change their behavior.
 The sanctions rarely achieve the goal of forcing change within some of the nations
 The sanctions give the market to international competitors, e.g., if USA sanctioned Nigeria,
then South Africa or Egypt can step in

Question 11

Explain 3 Protection of domestic jobs

Answer 11

 Cheap foreign labor argument is misleading, since labor is only a portion of cost, and wages only
a portion of labor (implying that wages do not account for production cost).
 Also, productivity levels are relevant (the implication is that productivity levels differ across
different citizens).
 The desire to maintain existing jobs threatened by foreign competition is probably
the single most important source of today’s protectionist policies.

Question 12

Explain 4 Protecting an infant / dying industry

Answer 12

 Give infant industries a chance to grow and build comparative advantage
 Slow down impacts on labor of a dying industry—time for retraining, movement of capital into
other sectors

Question 13

Explain ‘Ensure fair competition’ and how this is achieved

Answer 13

 Import duty to bring costs of imports up to cost of domestic goods
 Unfair advantage (technology, lower tax rates, lower labor costs)
 Protects least efficient domestic producer; creates windfall profits for efficient producers;
increases costs to consumers

!How do we ensure fair competition:!
 The aim is that all imported goods must pay an import duty that can bring up the cost of the
imported goods to the cost of domestically produced goods.
 This will then eliminate any unfair advantage a foreign competitor might have due to superior
tech, lower taxes, lower labour cost, etc.

Question 14

Name the 6 parts of Retaliation

Answer 14

1 Dumping
2 predatory dumping
3 social dumping
4 environmental dumping
5 subsidies
6 countervailing duties

Question 15

name and explain the 4 forms of dumping

Answer 15

 Dumping
o Selling a product abroad for less than the cost of production, less than the price in the
home market, or less than the price to third party countries
o Reasons?
 Predatory dumping
o A manufacturer may also lower its export price to force the importing nation’s domestic
producers out of business, expecting to raise prices once that objective has been
accomplished
 Social dumping
o Occurs when producers have lower wage rates, lower social costs such as
unemployment taxes and environmental regulations to support the general welfare, poor
worker benefits, and poor working conditions, all of which undermine social support
systems
 Environmental dumping
o Occurs when an exporter can sell at lower costs due to the country’s lax environmental
standards

Question 16

Explain Subsidies and countervailing duties

Answer 16

 Subsidies
o Financial contributions, provided directly or indirectly by a government, that confer a
benefit, including grants, preferential tax treatment, and government assumption of
normal business expenses
 Countervailing duties
o Additional import taxes levied on imports that have benefited from export subsidies

Question 17

What are tariffs?

Answer 17

o Taxes on imported goods for the purpose of raising their price to reduce competition for
local producers or stimulate local production

Question 18

name and explain the 3 types of traffif barriers

Answer 18

 Ad valorem duty
o An import duty levied as a percentage of the invoice value of imported goods
 Specific duty
o A fixed sum levied on a physical unit of an imported good
 Compound duty
o A combination of specific and ad valorem duties

Question 19

What are the 2 other tariffs and when are they used ?

Answer 19

o In special circumstances, such as an inflationary period, some governments set official
prices or use variable levies
o An official price guarantees that a certain minimum import duty is paid regardless of the
actual invoice price
o A variable levy is an import duty set at the difference between world market prices and
local government-supported prices – updated constantly

Question 20

Name and explain the 3 Nontariff Barriers (Quantitative)

Answer 20

 Nontariff barriers (NTBs)
o All forms of discrimination against imports other than import duties

1. Quotas
   o Numerical limits placed on specific classes of imports
2. Voluntary export restraints (VERs)
   o Export quotas offered by the exporting nation
3. Orderly marketing arrangements
   o Formal agreements (VERs) between exporting and importing countries

Question 21

Name and explain the 3 Nontariff Barriers (Nonquantitative)

Answer 21

1. Direct government participation in trade;
   o Subsidies
   o Government procurement policies
2. Customs and other administrative procedures
3. Standards