Chap 4

International Business: The Challenges of Globalization, 7e (Wild)
Chapter 4 Economics and Emerging Markets
1) China relies on its cheap labor for economic development and India on the brainpower of its
people.
Answer: TRUE
AACSB: Dynamics of the global economy
Skill: Concept
Objective: 1
Difficulty: Easy
Course LO: Define the fundamental concepts of international business
2) Incentives and rewards for individual business initiatives are an important aspect of
collectivist cultures.
Answer: FALSE
AACSB: Multicultural and diversity understanding
Skill: Concept
Objective: 1
Difficulty: Moderate
Course LO: Explain how differences in culture affect the international business environment
3) Individualist cultures tend to offer fewer incentives and rewards than collectivist cultures.
Answer: FALSE
Skill: Concept
Objective: 1
4) Entrepreneurs are businesspeople who accept the risks and opportunities involved in operating
new business ventures.
Answer: TRUE
Skill: Concept
Objective: 1
Difficulty: Easy
5) No nation has a completely individualist or completely collectivist cultural orientation.

Answer: TRUE
Skill: Concept
Objective: 1
1
Copyright © 2014 Pearson Education, Inc.
6) Central planning is rooted in the ideology that the welfare of a group is more important than
individual well-being.
Answer: TRUE
Skill: Concept
Objective: 1
7) Frederick Taylor popularized the idea of central economic planning in the nineteenth century.
Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
8) The ultimate goal of a market economy is to ensure that the government takes complete
control over the distribution of a nation's resources.
Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
Course LO: Describe how differences in political economy influence economic development
9) The government makes nearly all economy-related decisions in a market economy.

Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
10) One of the reasons for the decline of central planning was its failure to create economic value
for customers.
Answer: TRUE
Skill: Concept
Objective: 1
2
11) Central planning led to little economic growth and consistently low standards of living.
Answer: TRUE
Skill: Concept
Objective: 1
12) A centrally planned economy gives individuals access to alternative purchase options.
Answer: FALSE
Skill: Concept
Objective: 3
Difficulty: Easy
13) An economic system based on public ownership fosters growth much better than an economy
based on private ownership.
Answer: FALSE
Skill: Concept
Objective: 1
14) The Chinese term "guanxi" means government ownership.

Answer: FALSE
Skill: Concept
Objective: 1
Difficulty: Easy
15) In a mixed economy, the government tends to control the economic sectors that are important
for national security.
Answer: TRUE
Skill: Concept
Objective: 2
3
16) When the assets of a country are owned by the government, there seems to be more incentive
to eliminate waste.
Answer: FALSE
Skill: Concept
Objective: 2
17) As supply and demand change for a good or service, so does its selling price.
Answer: TRUE
AACSB: Analytic skills
Skill: Concept
Objective: 3
18) Interfering with the price mechanism is a violation of a fundamental principle of the market
economy.
Answer: TRUE
Skill: Concept
Objective: 3
19) Both GDP and GNP measure a nation's income per person.
Answer: FALSE
Skill: Concept
Objective: 4
Difficulty: Easy
20) Volunteer work and unpaid household work are included in GNP.
Answer: FALSE
Skill: Concept
Objective: 4
Difficulty: Easy
4
21) Barter is an alternative for buyers who lack money needed to pay for imports.
Answer: TRUE
Skill: Concept
Objective: 4
Difficulty: Easy
22) The concept of purchasing power parity (PPP) must be applied to understand the true value
of a currency in its home country.
Answer: FALSE
Skill: Concept
Objective: 4
23) The human development index (HDI) demonstrates that high national income alone
guarantees human progress.
Answer: FALSE
Skill: Concept
Objective: 4
Difficulty: Easy
24) Nations with the poorest infrastructures and lowest personal incomes are called developing
countries.
Answer: TRUE
Skill: Concept
Objective: 4
Difficulty: Easy
25) One of the key obstacles faced by countries in economic transition is the lack of managerial
expertise.
Answer: TRUE
Skill: Concept
Objective: 5
Difficulty: Easy
5
26) Businesspeople who accept the risks and opportunities involved in creating and operating
new business ventures are called ________.
A) managers
B) supervisors
C) entrepreneurs
D) angel investors
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
27) In ________ cultures, economic systems tend to provide incentives and rewards for a
person's private business initiatives.
A) individualist
B) high uncertainty avoidance
C) feminine
D) large power distance
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
28) The ________ system of a country consists of the structure and processes it uses to allocate
its resources and to conduct its commercial activities.
A) political
B) economic
C) social
D) cultural
Answer: B
Skill: Concept
Objective: 1
Difficulty: Easy
6
29) A ________ economy is a system in which the government owns a nation's land, factories,
and other economic resources, and schedules nearly all economic activities.
A) mixed
B) market
C) centrally planned
D) laissez-faire
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
30) Central planning is rooted in the ideology that ________.

A) the welfare of a group is more important than individual well-being
B) individual concerns should be placed above group consensus
C) individual and group concerns are just as important as government concerns
D) privatization will enhance a country's economic well-being
Answer: A
Skill: Concept
Objective: 1
31) Which of the following statements is true of a centrally planned economy?

A) Individual concerns are as important as the government's concerns.
B) Consumers determine the prices of products and labor.
C) Factories are privately owned.
D) The government sets the production goals.
Answer: D
Skill: Concept
Objective: 1
32) In most centrally planned economies that failed, ________.

A) market conditions had determined who would produce goods
B) prices of products were seen as a function of supply and demand
C) central planning agencies had specified the production goals
D) central planners had paid attention to efficiency improvement
Answer: C
Skill: Concept
Objective: 1
7
33) Who among the following popularized the idea of central economic planning in the
nineteenth century?
A) Frederick Taylor
B) Karl Marx
C) Peter Drucker
D) Henry Fayol
Answer: B
Skill: Concept
Objective: 1
Difficulty: Easy
34) North Korea practices a policy of self-reliance known as ________.

A) guanxi
B) laissez-faire
C) juche
D) kaizen
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
35) Which of the following disagrees with the concept of centrally planned economies?
A) At the time of their collapse, standards of living in most centrally planned economies were at
or above those of market economies.
B) Basic necessities were often not provided to citizens in centrally planned economies.
C) Underground economies for goods and services thrived in most centrally planned economies.
D) Prices on the black market were much higher than the official prices set by governments.
Answer: A
Skill: Concept
Objective: 1
36) Which of the following emerged during the failure of centrally planned economic systems?
A) black markets
B) public markets
C) free enterprise system
D) market economies
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
8
37) Which of the following is an important factor in forming successful business ventures in
China?
A) following the strategies of western countries for establishing business relationships
B) focusing on establishing tight formal contracts
C) giving high importance to written contracts
D) establishing a trusting relationship before proceeding with business
Answer: D
Skill: Concept
Objective: 1
38) Guanxi, in the Chinese business context, means ________.

A) bribing government officials
B) manufacturing inexpensive products
C) personal relationships
D) preference for communism
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
39) In which of the following systems is land, factories, and other economic resources equally
split between private and government ownership?
A) market economy
B) black market economy
C) mixed economy
D) centrally planned economy
Answer: C
Skill: Concept
Objective: 2
Difficulty: Easy
9
40) The government maintains control over the banking industry in a country. Which of the
following is most likely true if the country has a mixed economy?
A) Businesses in most economic sectors of the country are privately owned.
B) The government considers banking sector as important to national security.
C) The country has never experienced threats against its long-term stability.
D) The government views banking as more important than manufacturing.
Answer: B
Skill: Application
Objective: 2
Difficulty: Hard
41) France, Germany, and Sweden are examples of ________.

A) centrally planned economies
B) market economies
C) closed economies
D) mixed economies
Answer: D
Skill: Concept
Objective: 2
Difficulty: Easy
42) In which of the following economies would manufacturing firms most likely produce
defective products due to low incentives for quality outputs?
A) centrally planned economies
B) market economies
C) closed economies
D) mixed economies
Answer: A
Skill: Concept
Objective: 2
Difficulty: Easy
10
43) The selling of government-owned economic resources to private operators is called
________.
A) price mechanism
B) social stratification
C) privatization
D) guanxi
Answer: C
Skill: Concept
Objective: 2
Difficulty: Easy
44) Which of the following is the main goal of privatization?

A) to ensure that the government specifies production goals
B) to increase economic efficiency
C) to increase subsidies to companies
D) to increase government's control on the market
Answer: B
Skill: Concept
Objective: 2
45) In a market economy, economy-related decisions are determined by the interactions between
________.
A) the government and individuals
B) supply and demand
C) customers and employees
D) large and small businesses
Answer: B
Skill: Concept
Objective: 3
Difficulty: Easy
46) Which of the following dictates supply and demand in a market economy?
A) privatization
B) production quotas
C) price mechanism
D) government intervention
Answer: C
Skill: Concept
Objective: 3
Difficulty: Easy
11
47) A market economy is rooted in the belief that ________.
A) all the economic resources should be owned by the government
B) individual concerns should be placed above group concerns
C) every individual's business goals must be set by the government
D) government concerns matter the most in a country's economy
Answer: B
Skill: Concept
Objective: 3
48) Assuming insects destroyed most of the coffee crops in key coffee-producing countries
worldwide, which of the following would most likely occur within the coffee market?
A) Coffee prices would increase.
B) Coffee prices would decrease.
C) Demand for coffee would increase.
D) Demand for coffee would decrease.
Answer: A
Skill: Application
Objective: 3
Difficulty: Hard
49) Which of the following countries has a contemporary market economy?

A) France
B) Sweden
C) India
D) United States
Answer: D
Skill: Concept
Objective: 3
Difficulty: Easy
12
50) Several research studies were published lately that documented the health benefits of a
certain grain. Which of the following is the most likely economic result of these findings?
A) Demand for the grain increases.
B) Equilibrium in terms of demand and supply is maintained.
C) The price of the grain decreases.
D) Supply of the grain remains constant.
Answer: A
Skill: Application
Objective: 3
Difficulty: Hard
Course LO: Describe how global production and logistics decisions are made
51) Laissez-faire economics refers to ________.

A) less government interference in commerce and greater individual economic freedom
B) a government-controlled system with less economic freedom at the individual level
C) a centrally planned economic system
D) creating monopolies through government partnership
Answer: A
Skill: Concept
Objective: 3
Difficulty: Easy
52) To function smoothly and properly, a market economy requires ________.

A) government partnership
B) the practice of monopoly
C) price flexibility
D) nationalization
Answer: C
Skill: Concept
Objective: 3
Difficulty: Easy
53) Supply and demand are dictated by ________.

A) government ownership
B) free enterprise
C) the price mechanism
D) the management's decisions
Answer: C
Skill: Concept
Objective: 3
Difficulty: Easy
13
54) In a market economy, access to alternative purchase options is known as ________.
A) price-sensitivity
B) economic transition
C) laissez-faire
D) free choice
Answer: D
Skill: Concept
Objective: 3
Difficulty: Easy
55) Which of the following statements is most accurate regarding the element of free choice
when market economies are compared with centrally planned economies?
A) Consumers have free choice in both types of economies.
B) Free choice exists in market economies, but choices are restricted in planned economies.
C) Planned economies allow for greater free choice than do market economies.
D) Consumers do not have free choice in either of these economies.
Answer: B
Skill: Concept
Objective: 1, 3
56) When one company alone controls a product's supply and therefore, its price, it is considered
a(n) ________.
A) oligopsony
B) monopoly
C) duopoly
D) oligopoly
Answer: B
Skill: Concept
Objective: 3
Difficulty: Easy
14
57) Which of the following control inflation through policies regarding taxation and government
spending in a market economy?
A) fiscal policies
B) monetary policies
C) social policies
D) trade policies
Answer: A
Skill: Concept
Objective: 3
Difficulty: Easy
58) ________ policies control the currency supply and interest rates in a market economy.
A) Fiscal
B) Economic
C) Monetary
D) Social
Answer: C
Skill: Concept
Objective: 3
Difficulty: Easy
59) Which of the following would characterize a nation with high degree of economic freedom?
A) low tariffs
B) strict trade policies
C) government interventions
D) flourishing black markets
Answer: A
Skill: Concept
Objective: 3
15
60) The ________ approach to national economics calls for less government interference in
commerce and greater individual economic freedom.
A) totalitarian
B) laissez-faire
C) guanxi
D) centrally planned economy
Answer: B
Skill: Concept
Objective: 3
Difficulty: Easy
61) Which of the following would most likely characterize a nation with a low degree of
economic freedom?
A) low government intervention
B) protected property rights
C) strict trade policies
D) low tariffs
Answer: C
Skill: Concept
Objective: 3
62) Which of the following terms refers to the broadest measure of economic development of a
country?
A) gross domestic product (GDP)
B) purchasing power parity (PPP)
C) gross national product (GNP)
D) human development index (HDI)
Answer: C
Skill: Concept
Objective: 4
Difficulty: Easy
16
63) ________ is the value of all goods and services produced by the domestic economy over a
one-year period.
A) Gross domestic product (GDP)
B) Human development index (HDI)
C) Gross national product (GNP)
D) Purchasing power parity (PPP)
Answer: A
Skill: Concept
Objective: 4
Difficulty: Easy
64) The ________ of a country is its gross national product divided by its population.
A) GNP per capita
B) GDP per capita
C) purchasing power parity
D) purchasing power
Answer: A
Skill: Concept
Objective: 4
Difficulty: Easy
65) The relative ability of two countries' currencies to buy the same basket of goods in those two
countries is called ________.
A) gross national product
B) gross domestic product
C) purchasing power
D) purchasing power parity
Answer: D
Skill: Concept
Objective: 4
Difficulty: Easy
17
66) ________ is the value of goods and services that can be purchased with one unit of a
country's currency.
A) Potential output
B) Gross national product
C) Purchasing power
D) Gross domestic product
Answer: C
Skill: Concept
Objective: 4
Difficulty: Easy
67) An investor wants to invest in a country that has a high gross national income (GNI). Which
of the following countries would most likely qualify as a prospect?
A) Nepal
B) India
C) Japan
D) Vietnam
Answer: C
Skill: Concept
Objective: 4
68) Which of the following terms is used to refer to the exchange of goods and services for other
goods and services instead of money?
A) fiat money
B) letter of credit
C) barter
D) guanxi
Answer: C
Skill: Concept
Objective: 4
Difficulty: Easy
18
69) The GDP per capita of a country is lower than that of France. If the GDP per capita of the
country is adjusted for PPP, the country's revised GDP is higher than that of France. Which of the
following is most likely true about the country?
A) The cost of living in the country is higher than that of France.
B) The cost of living in the country is lower than that of France.
C) The cost of living in the country is approximately equal to that of France.
D) The cost of living in the country has increased over the past decade.
Answer: B
Skill: Application
Objective: 4
Difficulty: Hard
70) The GDP per capita of a country is higher than that of Thailand. If the GDP per capita of the
country is adjusted for PPP, the country's revised GDP is lower than that of Thailand. Which of
the following is most likely true about the country?
A) There are fewer goods available for purchase in the country than in Thailand.
B) The cost to buy everyday goods in the country is approximately the same as in Thailand.
C) It costs less to buy everyday goods in the country than in Thailand.
D) It costs more to buy everyday goods in the country than in Thailand.
Answer: D
Skill: Application
Objective: 4
Difficulty: Hard
71) Which of the following measures the extent to which a government equitably provides its
people with a long and healthy life, an education, and a decent standard of living?
A) category development index
B) gross national product index
C) human development index
D) purchasing power index
Answer: C
Skill: Concept
Objective: 4
Difficulty: Easy
19
72) A company is conducting a research on new markets by comparing countries in terms of their
human development index (HDI) scores. The company wishes to expand into a market where
individuals experience a very high level of total well-being. Which of the following countries
would the company most likely choose?
A) Russia
B) Mexico
C) China
D) Japan
Answer: D
Skill: Application
Objective: 4
Difficulty: Hard
73) Which of the following is true about economic development of a nation?

A) The purchasing power parity is a poor indicator of a people's total well-being.
B) GDP is a larger figure and includes a nation's income generated from exports, imports, and
international operations.
C) Illegal activities such as gambling and black market transactions are considered in GDP and
GNP.
D) Using gross product figures to compare production across countries accounts for different
cost of living in each country.
Answer: A
Skill: Concept
Objective: 4
74) Which of the following statements is true of national production?

A) Marketers use GDP or GNP figures to determine whether a country's population is wealthy
enough to purchase its products.
B) Per capita numbers provide a detailed picture of development of the entire country.
C) Gross product figures accurately indicate whether a nation's economy is growing or shrinking.
D) Volunteer work and unpaid household work are considered in GDP and GNP.
Answer: A
Skill: Concept
Objective: 4
20
75) Nations having the poorest infrastructures and lowest personal incomes are called ________.
A) developed countries
B) newly industrialized countries
C) emerging markets
D) developing countries
Answer: D
Skill: Concept
Objective: 4
Difficulty: Easy
76) A country that has recently increased the portion of its national production and exports
derived from industrial operations is called a(n) ________.
A) newly industrialized country (NIC)
B) developing country
C) emerging market
D) developed country
Answer: A
Skill: Concept
Objective: 4
Difficulty: Easy
77) ________ is the process by which a nation changes its fundamental economic organization
and creates new free-market institutions.
A) Central planning
B) Economic transition
C) Industrialization
D) Economic liberalism
Answer: B
Skill: Concept
Objective: 5
Difficulty: Easy
21
78) Which of the following is a major obstacle to economic transition?
A) lack of government support
B) environmental degradation
C) privatization
D) black markets
Answer: B
Skill: Concept
Objective: 5
79) Economic transition is the process of moving from ________.

A) developed to developing economies
B) centrally planned to free-market economies
C) developed to emerging economies
D) free-market to centrally planned economies
Answer: B
Skill: Concept
Objective: 5
Difficulty: Easy
22
Scenario: Stephanie Wong
Stephanie Wong, a Chinese-American, owns a consultancy that advises clients on strategies for
business expansions into China. Wong is to lead a symposium for small and mid-sized exporters
who are planning on expanding their businesses in China. Therefore, she is preparing answers in
advance for questions that symposium participants would most likely ask.
80) The first question that Stephanie expects participants to ask is: "Which is more important for
the Chinese, contacts or contracts?" Which of the following is the most effective response
Stephanie could give for this question?
A) Contracts are critical because of their extreme importance in Chinese business.
B) Face-to-face communications and personal relationships take priority over written contracts.
C) Non-Chinese businesspeople should take time to agree on a legal contract before developing
personal relationships.
D) Business relationships are established only after successful legal dealings are concluded.
Answer: B
AACSB: Reflective thinking skills
Skill: Critical Thinking
Objective: 1
81) Stephanie also expects participants to ask: "Are the Chinese as formal and business-oriented
as Americans are?" Which of the following would most likely be Stephanie's response?
A) The Chinese operate very much like Americans, for them business is more important than
pleasure.
B) The Chinese dislike guessing games; give them your sales pitch right away and let the
meeting develop.
C) Don't overlook the importance of personal relationships; friendship comes before business.
D) The Chinese are very flexible and will easily adapt to your culture's way of doing business.
Answer: C
Objective: 1
Difficulty: Easy
23
82) Another question that Stephanie anticipates concerns the acceptability of certain topics of
discussion like: "Should we avoid discussing our families and spouses?" Which of the following
represents the most effective response to this question?
A) Absolutely, family is kept completely separate from business in China.
B) Yes, because it is considered very rude by businesspeople to discuss family.
C) No, Chinese businesspeople may invite business partners to family functions.
D) It's fine to discuss family, but never agree to go to a business partner's house.
Answer: C
Objective: 1
Scenario: Learning the American Way

Sergei Chernovl is a Russian exchange student. To learn more about how a market economy
functions, Sergei is conducting research comparing businesses in Russia with businesses in the
United States.
83) Sergei believes that it is important to know the origin of the economic system in each
country. He learns that the idea of central economic planning that was practiced in Russia, was
popularized in the nineteenth century by ________.
A) Peter Drucker
B) Frederick Taylor
C) Karl Marx
D) Abraham Maslow
Answer: C
Skill: Concept
Objective: 1
Difficulty: Easy
84) Sergei recognizes that one of the major reasons why central planning declined was its failure
to ________.
A) create economic value
B) take care of national security
C) control rampant economic growth
D) satisfy government requirements
Answer: A
Skill: Concept
Objective: 1
Difficulty: Easy
24
85) Sergei learns that an important aspect of market-based economies is the private ownership of
companies. As Russia goes through the privatization process, it aims to ________.
A) increase tax revenues
B) improve military defense
C) increase social welfare
D) increase economic efficiency
Answer: D
Skill: Concept
Objective: 2
86) Sergei finds out that prices in a market economy are determined by the interplay of
________.
A) government and labor
B) labor and management
C) demand and prices
D) supply and demand
Answer: D
Skill: Concept
Objective: 3
Difficulty: Easy
25
Scenario: Cleanshot USA in Russia
When Cleanshot USA, a photography products company, decided to enter the international
arena, it chose Russia as its main market. Although Russia has been in transition for years,
Cleanshot managers believe their company has tremendous opportunities there.
87) Russia is in transition from ________.

A) a capitalist economy to a mixed economy
B) a centrally planned economy to a free-market economy
C) a market economy to a centrally planned economy
D) a mixed economy to a centrally planned economy
Answer: B
Skill: Concept
Objective: 5
Difficulty: Easy
88) Which of the following challenges is Cleanshot most likely to face in Russia?
A) organized crime
B) too many competitors
C) low demand for the products of non-Russian companies
D) fading underground economy
Answer: A
Skill: Concept
Objective: 5
89) Given the lack of available hard currency, Russian businesses often use goods and services as
payment for other products they buy from abroad. This practice is referred to as ________.
A) letter of credit
B) fiat money
C) barter
D) guanxi
Answer: C
Skill: Concept
Objective: 4
Difficulty: Easy
26
90) Describe the three main types of economic systems.
Answer: A country's economic system consists of the structure and processes that it uses to
allocate its resources and conduct its commercial activities. Every economy displays a tendency
toward individualist or collectivist economic values. If national economies are arranged on a
horizontal scale that is anchored by two extremes, at one end of the scale is a theoretical pure
centrally planned economy, at the other end is a theoretical pure market economy, and in between
is a mixed economy.
A centrally planned economy is a system in which a nation's land, factories, and other economic
resources are owned by the government. The government makes nearly all economy-
related decisions—including who produces what and the prices of products, labor, and capital.
Central planning agencies specify production goals for factories and other production units, and
they even decide prices. The ultimate goal of central planning is to achieve a wide range of
political, social, and economic objectives by taking complete control over the production and
distribution of a nation's resources.
A mixed economy is a system in which land, factories, and other economic resources are rather
equally split between private and government ownership. In a mixed economy, the
government owns fewer economic resources than does the government in a centrally planned
economy. Yet in a mixed economy, the government tends to control the economic
sectors that it considers important to national security and long-term stability. Many mixed
economies also maintain generous welfare systems to support the unemployed and provide
health care for the general population.
In a market economy, the majority of a nation's land, factories, and other economic resources are
privately owned, either by individuals or businesses. This means that who
produces what and the prices of products, labor, and capital in a market economy are determined
by the interplay of two forces: supply and demand. Market economics is rooted in the belief that
individual concerns should be placed above group concerns.
Skill: Synthesis
Objective: 1, 2, 3
Difficulty: Hard
27
91) Discuss the factors that contributed to the collapse of centrally planned economies.
Answer: Centrally planned economies collapsed due to the following reasons. First, they failed
to create economic value. They failed to see that commercial activities succeed when they create
economic value for customers. Along the way, scarce resources were wasted in the pursuit of
commercial activities that were not self-sustaining.
Second, they failed to provide incentives for economic success. Government ownership of
economic resources drastically reduced incentives for businesses to maximize the output
obtained from those resources. Except for aerospace, nuclear power, and other sciences (in which
government scientists excelled), there were few incentives to create new technologies, new
products, and new production methods. The result was little or no economic growth and
consistently low standards of living.
Third, they failed to achieve rapid growth. Leaders in communist nations took note of the high
rates of economic growth in countries such as Hong Kong, Singapore, South Korea, and Taiwan
—called Asia's four tigers. That a once-poor region of the world had so rapidly achieved such
astounding growth awakened central planners to the possibilities. They realized that an economic
system based on private ownership fosters growth much better than one hampered by central
planning.
Finally, centrally planned economies failed to satisfy consumer needs. People in centrally
planned economies were tired of a standard of living that had slipped far below that found in
market economies. Ironically, although central planning was conceived as a means to create a
more equitable system of distributing wealth, too many central planners failed to provide even
basic necessities such as adequate food, housing, and medical care.
Skill: Concept
Objective: 1
28
92) Discuss the challenges China faces as it continues its experiment on "socialism with Chinese
characteristics."
Answer: Three factors have posed challenges for China in its transition to a market economy.
First, political and social problems pose threats to China's future economic performance. For the
most part, political leaders restrict advanced democratic reforms. Protests sporadically arise from
time to time whenever ordinary Chinese citizens grow impatient with political progress.
Another potential problem is unemployment. Intensified competition and the entry of
international companies into China are placing greater emphasis on efficiency and the cutting of
payrolls in some industries. But the biggest contributor to the unemployed sector seems to be
migrant workers. Hundreds of thousands of workers have left their farms and now go from city
to city searching for better-paying factory work or construction jobs.
Another key issue is reunification of "greater China." China regained control of Hong Kong in
1997 after 99 years under British rule. For the most part, China has kept its promise of "one
country, two systems." Although the economic freedoms of people in Hong Kong have remained
largely intact, the rest of China has continued along lines drawn by the communist leadership.
Skill: Concept
Objective: 1
93) Why are many mixed economies converting to market-based systems? How does the role of
government change when a mixed economy transitions to a market economy?
Answer: Many mixed economies are remaking themselves to more closely resemble free
markets. When assets are owned by the government there seems to be less incentive to eliminate
waste or to practice innovation. Extensive government ownership on a national level tends to
result in a lack of accountability, rising costs, defective products, and slow economic growth.
Many government-owned businesses in mixed economies need large infusions of taxpayer
money to survive as world-class competitors, which raises taxes and prices for goods and
services. Underpinning the move toward market-based systems is the sale of government-owned
businesses.
In a market economy, the government has relatively little direct involvement in business
activities. Even so, it usually plays four important roles: enforcing antitrust laws, preserving
property rights, providing a stable fiscal and monetary environment, and preserving political
stability.
Skill: Synthesis
Objective: 2, 3
Difficulty: Hard
29
94) How does economic development in countries affect international business?
Answer: Economic development is an increasingly important topic for international
businesspeople as companies pursue business opportunities in emerging markets. Productivity is
a key factor that drives economic growth and rising living standards. For a company to boost its
productivity, it must increase the value of its outputs using the same amount of inputs, create the
same value of outputs with fewer inputs, or do both at the same time.
Raising living standards in an economy depends in large part on unlocking the gains that
productivity offers. Mixed economies in Western Europe continue to privatize state-owned
companies to boost productivity and competitiveness. Former centrally planned economies in
Eastern Europe implemented free market reforms to raise living standards. Even North Korea
(with one of the lowest standards of living outside Africa) is being compelled to consider
economic reform.
As the poorest nations invest in the fundamental drivers of productivity growth (such as basic
infrastructure), the richest nations exploit the latest technological advancements.
Information technology is driving productivity gains in online customer service, online
purchasing of materials and parts, outsourcing operations, and other areas of business.
Skill: Concept
Objective: 4
95) Differentiate between GDP and GNP. Briefly discuss the drawbacks of using GDP and GNP
as indicators of economic development.
Answer: Gross national product (GNP) is the value of all goods and services produced by a
country's domestic and international activities over a one-year period. Gross domestic product
(GDP) is the value of all goods and services produced by a domestic economy over a one-year
period. GDP is a narrower figure that excludes a nation's income generated from exports,
imports, and the international operations of its companies.
Although GDP and GNP are the most popular indicators of economic development, they have
several important drawbacks. First, for a variety of reasons, many of a nation's transactions do
not get counted in either GDP or GNP. Second, gross product figures do not indicate whether a
nation's economy is growing or shrinking—they are simply a snapshot of one year's economic
output. Third, per capita numbers provide an average figure for an entire country, which does not
give us a very detailed picture of development. Finally, country comparisons using gross product
figures can be misleading.
Skill: Concept
Objective: 4
30
96) How are countries classified? Explain with examples.
Answer: Nations are commonly classified as being developed, newly industrialized, or
developing.
Countries that are highly industrialized and highly efficient, and whose people enjoy a high
quality of life are developed countries. People in developed countries usually receive the finest
health care and benefit from the best educational systems in the world. Countries in this category
include Australia, Canada, Japan, New Zealand, and the United States.
Countries that recently increased the portion of their national production and exports derived
from industrial operations are newly industrialized countries (NICs). The NICs are located
primarily in Asia and Latin America. Most listings of NICs include Asia's "four tigers" (Hong
Kong, South Korea, Singapore, and Taiwan), Brazil, China, India, Malaysia, Mexico, South
Africa, and Thailand.
Nations with the poorest infrastructures and lowest personal incomes are called developing
countries (also called less-developed countries). These countries often rely heavily on one or a
few sectors of production, such as agriculture, mineral mining, or oil drilling. They might show
potential for becoming newly industrialized countries, but typically lack the necessary resources
and skills to do so. Most lists of developing countries include many nations in Africa, the Middle
East, and the poorest formerly communist nations in Eastern Europe and Asia.
Skill: Concept
Objective: 4
97) Does greater economic freedom guarantee a higher standard of living? Provide examples of
two specific countries to support your answer.
Answer: Factors making up each country's economic freedom rating include trade policy,
government intervention in the economy, property rights, black markets, and wage and price
controls. Most developed economies are rated completely "free" or "mostly free."
It can only be said that countries with the greatest economic freedom tend to have the highest
standards of living, whereas those with the lowest freedom tend to have the lowest standards of
living. The United States and Zimbabwe are two examples: the U.S. has high economic freedom
and a high GNI, while Zimbabwe has low economic freedom and a low GNI.
Greater economic freedom does not guarantee a high per capita income, however. A country can
rank very low on economic freedom yet have a higher per capita income than a country with far
greater freedom. Saudi Arabia, for instance, has relatively low economic freedom with a
relatively high GNI.
Skill: Synthesis
Objective: 3, 4
Difficulty: Hard
31
98) What is economic transition? Describe the obstacles that countries face during economic
transition.
Answer: Economic transition is the process through which countries move from centrally
planned economies to stronger market economies. This process involves changing a nation's
fundamental economic organization and creating entirely new free-market institutions. It
typically involves four reform measures: (1) stabilizing the economy; (2) allowing prices to
reflect supply and demand; (3) legalizing private business; and (4) reducing barriers to trade.
Transition from central planning to free-market economics generates tremendous international
business opportunities. Yet difficulties arising from years of socialist economic principles
hampered progress from the start, and some countries still endure high unemployment rates.
Countries in transition face four key obstacles. These are: lack of managerial expertise, lack of
capital, cultural differences, and environmental degradation.
Recent years are seeing higher quality management in transition countries. Reasons for this trend
include improved education, opportunities to study and work abroad, and changes in work habits
caused by companies investing locally. Economic transition is expensive. The governments of
many countries in transition cannot afford all the investments required of them. Economic
transition and reform make deep cultural impressions on a nation's people. It can, in many cases,
lead to culture shock. The environment in these countries become highly polluted. Countries in
transition often suffer periods during which the negative effects of a market economy seem to
outweigh its benefits.
Skill: Concept
Objective: 5
Difficulty: Easy
32
99) What is privatization? What role does it play in economic transition?
Answer: The selling of government-owned economic resources to private operators is called
privatization. Privatization helps eliminate subsidized materials, labor, and capital formerly
provided to government-owned companies. It also curtails the practice of appointing managers
for political reasons rather than for their professional expertise. To survive, newly privatized
companies must produce competitive products at fair prices because they are subject to forces of
the free market. The overall aim of privatization is to increase economic efficiency, boost
productivity, and raise living standards.
Economic transition is the process through which countries move from centrally planned
economies to stronger market economies. This process involves changing a nation's fundamental
economic organization and creating entirely new free-market institutions. It typically involves
four reform measures: (1) stabilizing the economy; (2) allowing prices to reflect supply and
demand; (3) legalizing private business; and (4) reducing barriers to trade.
During economic transition, privatization occurs as part of establishing a free market system. To
solidify the new economy, governments must legalize private business, sell state-owned
companies, and support property rights as this legalization helps in increasing economic
efficiency, boosting productivity and raising the standard of living of a country.
Skill: Synthesis
Objective: 2, 5
Difficulty: Hard
100) Compare and contrast the business environments in China and Russia.
Answer: Doing Business–China and Russia share certain similarities in terms of what it takes to
do business in those countries. In both cultures, patience is required to develop business
arrangements. The quality of personal interactions also appears to be very important. In Russia,
individual personalities have a significant impact on business dealings. In China, personal
relationships are highly valued and must be established first before business agreements.
Economic Obstacles–Similar obstacles that both countries face are political and social problems
that can lead to social unrest, and a lack of managerial expertise stemming from the fact that such
expertise was not required of managers in both countries' centrally planned economies. The
countries differ with respect to certain other key obstacles, however. China's progress is hindered
by issues concerning unification, which is not a challenge faced by Russia. In addition, Russia
maintains an unstable investment climate, while China has attracted huge sums of investment
due to its immense population, rising incomes, and expanding opportunities.
Skill: Synthesis
Objective: 1, 5
Difficulty: Hard
33

Chap 4

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chap 4

Uploaded by

Copyright:

Available Formats

International Business: The Challenges of Globalization, 7e (Wild)

Chapter 4 Economics and Emerging Markets

5) No nation has a completely individualist or completely collectivist cultural orientation.

9) The government makes nearly all economy-related decisions in a market economy.

14) The Chinese term "guanxi" means government ownership.

30) Central planning is rooted in the ideology that ________.

31) Which of the following statements is true of a centrally planned economy?

32) In most centrally planned economies that failed, ________.

34) North Korea practices a policy of self-reliance known as ________.

38) Guanxi, in the Chinese business context, means ________.

41) France, Germany, and Sweden are examples of ________.

44) Which of the following is the main goal of privatization?

49) Which of the following countries has a contemporary market economy?

51) Laissez-faire economics refers to ________.

52) To function smoothly and properly, a market economy requires ________.

53) Supply and demand are dictated by ________.

73) Which of the following is true about economic development of a nation?

74) Which of the following statements is true of national production?

79) Economic transition is the process of moving from ________.

Scenario: Learning the American Way

87) Russia is in transition from ________.

You might also like