Economics

CH.4( GLOBALISATION)

SMQs

1.What are MNCs? Why they set their business units in other countries?
Ans.
Multinational Companies (MNCs)
A company that controls or owns production in more than one country is known as a MNC.
MNCs set up factories and offices for production in regions where they can get cheap resources
including cheap labour.
The above actions are taken by MNCs with the objective of earning greater profits and to keep
the cost of production low.

Q.2.Where MNCs set uo their business?

Ans.
Multinational corporation or MNC set up their offices and factories only in certain areas due to
the following reasons:
A multinational corporation is set up in those areas where there is easily available raw material
in abundance. This will save the cost of procuring raw material and transporting it to their site of
manufacturing.
It is set up in an area which has good transportation facilities from the manufacturing area to
the market area.
Another factor considered in setting up of an MNC is the easy accessibility to the market.
MNCs are also willing to set up in those areas which have favorable government policies.
Availability of cheap labour is also considered.

Q.3.What is Globalisation? Which factors are responsible for Globalisation?

Ans.
Globalisation- The result of greater foreign investment and greater foreign trade has been
greater integration of production and markets across countries. Globalisation is this process of
rapid integration or interconnection between countries.

Factors enabling globalisation

(i) Technology: Rapid improvement in technology has been one major factor that has
stimulated the globalisation process.
(ii) Trade barrier: Tax on imports is an example of trade barrier. It is called a barrier because
some restriction has been setup.
(iii) Liberalisation: Removing barriers or restrictions set by the government is what is known as
liberalisation. With liberalisation of trade, businesses are allowed to make decisions freely about
what they wish to import or export.
Q.4. What is liberalisation?
Ans.
Liberalisation: Removing barriers or restrictions set by the government is what is known as
liberalisation. With liberalisation of trade, businesses are allowed to make decisions freely about
what they wish to import or export.

Q.5. Give one characteristic feature of a ‘Special Economic Zone’?

Answer:
Special Economic Zones or SEZs are industrial zones set up by the government having world
class facilities such as electricity, water, roads, transport, storage, recreational and educational
facilities. Companies who set up production units in SEZs are exempted from taxes for an initial
period of five years.
Q.6. Why had the Indian Government put barriers to foreign trade and foreign investment
after independence? State any one reason. (2015 D)
Answer:
The Indian government after independence had put barriers to foreign trade and investment.

This was done to protect the producers within the country from foreign competition.
To protect the Indian economy from foreign infiltration in industries affecting the economic
growth of the country as planned.
Q.7. What is meant by trade barrier? (2015 OD
Answer:
Barriers or restrictions that are imposed by the government on free import and export activities
are called trade barriers. Tax on imports is an example of a trade barrier because it increases
the price of imported • commodities. The government can use a trade barrier like ‘tax’ to
increase or decrease (regulate) foreign trade and to decide what kind of goods and how much
of what should come into the country.
Q. 8.Give the meaning of WTO? What is the major aim of WTO? Mention any two
shortcomings of WTO? (2011 D, 2012 OD)
Answer:
WTO (World Trade Organization). WTO believes that there should not be any barriers between
trade of different countries. Trade between countries should be free.
Aims of WTO:
i) To liberalize international trade.
ii) To establish rules regarding international trade.
Two shortcomings of WTO:
i) Though WTO is supposed to allow free trade for all, in practice, it is seen that the developed
countries have unfairly retained trade barriers and continued to provide protection to their
producers. For example, farmers in the US receive huge sums of money from the government
and as a result can sell the farm products at abnormally low prices in other countries, adversely
affecting farmers in those countries.

ii) On the other hand WTO rules have forced the developing countries to remove trade barriers