Chapter 1: Globalization

1. Which of the following is not characteristic of globalization? 

A. National economies are turning into independent economic systems.

B. Material culture is starting to look similar the world over.
C. Perceived distance is shrinking due to advances in transportation and
telecommunications.
D. Barriers to cross-border trade and investment are declining.

2. Globalization has _____ the opportunities for a firm to expand its revenues by selling
around the world and _____ its costs by producing in nations where key inputs are
cheap. 

A. reduced, reduced
B. increased, increased
C. increased, reduced
D. reduced, increased

3. Since the collapse of communism at the end of the 1980s, the erstwhile communist
nations have transformed their economies by encouraging all of the following except: 

A. privatizing state-owned enterprises.

B. regulating markets.
C. increasing competition.
D. welcoming investment by foreign businesses.

4. Identify the incorrect statement concerning globalization. 

A. It has been blamed for unemployment in developed nations, environmental

degradation and the Americanization of popular culture.

B. It has created new threats for businesses accustomed to dominating their domestic
markets.

C. It is transforming industries and is highly welcomed by those who believed their

jobs were protected from foreign competition.

D. According to most economists it is a very beneficial process where gains outweigh the
losses by a wide margin.
5. The most global markets currently are markets for: 

A. services.
B. consumer goods.
C. consumer durables.
D. industrial goods.

6. Which of the following is not an impediment that makes it difficult for firms to achieve
the optimal dispersion of their productive activities to locations around the globe? 

A. Reduced transportation costs.

B. Government regulations.
C. Issues associated with economic and political risk.
D. Barriers to foreign direct investment.

7. The ______ is primarily responsible for policing the world trading system and making
sure nation-states adhere to the rules laid down in trade treaties signed by member states. 

A. International Development Association

B. World Bank
C. International Court of justice
D. World Trade Organization

8. The _____ was created in 1944 by 44 nations that met in Breton Woods, New
Hampshire to promote economic development. 

A. World Bank
B. International Trade Center
C. World Trade Organization
D. United Nations

9. The institution, created in 1944 at Bretton Woods, responsible for maintaining order in
the international monetary system is the 

A. IMF.
B. WTO.
C. UN.
D. UNESCO.
10. _____ occur(s) when a firm exports goods or services to consumers in another
country. 

A. International trade
B. Foreign direct investment
C. Inward investment
D. Merger and acquisitions

11. The _____ was established to remove barriers to the free flow of goods, services, and
capital between nations. 

A. UN
B. IMF
C. GATT
D. IDA

12. At the Doha Round of the WTO in late 2001, 

A. the WTO was established.

B. GATT was extended to include services.
C. world trade volume increased.
D. an agenda was established to phase out subsidies to agricultural producers.

13. The reduction in the average tariff rates on manufactured products since 1950 implies
all of the following except that 

A. firms are dispersing parts of their production process to global locations to drive down
production costs and increase product quality.

B. the economies of the world's nation states are becoming more intertwined.

C. nations are becoming increasingly independent of each other for important goods
and services.

D. the world has become significantly wealthier since 1950.

14. The growing integration of the world economy is: 

A. increasing the intensity of competition in a wide range of manufacturing and

service industries.

B. decreasing the intensity of competition in manufacturing industries, and increasing the

intensity of competition in services.

C. increasing the intensity of competition in manufacturing industries, and decreasing the

intensity of competition in services.

D. narrowing the scope of competition in a wide range of service, commodity, and

manufacturing industries.

15. Which of the following statements regarding cross-border trade and investment is not
true? 

A. "Protection" from foreign competitors has been, at times, demanded by the United
States.

B. Forecasts indicate a return to the restrictive trade policies of the 1920s and 30s.

C. If trade barriers decline no further they will put a brake upon the globalization of both
markets and production.

D. It is not clear whether the political majority in the industrialized world favors further
reductions in trade barriers.

16. Identify the incorrect statement pertaining to the World Wide Web. 

A. It makes it much easier for buyers and sellers to find each other.

B. Viewed globally, it is emerging as an equalizer.

C. It rolls back all of the constraints of location, scale, and time zones.

D. It allows businesses to expand their global presence at a lower cost than ever before.

17. Since 1980, the world's containership fleet has more than _____, reflecting in part the
growing volume of international trade. 

A. doubled
B. tripled
C. quadrupled
D. quintupled

18. Technological innovations have facilitated all of the following except: 

A. globalization of production.
B. globalization of markets.
C. creation of electronic global marketplaces.
D. creation of absolutely homogeneous consumer markets.

19. According to World Bank numbers, 

A. developing nations currently account for more than 60 percent of world economic
activity.

B. rich nations currently account for more than 70 percent of world economic activity.

C. today's rich nations may account for 55 percent of world economic activity by 2020.

D. today's developing nations may account for more than 60 percent of world
economic activity by 2020.

20. In the 1970s, many Japanese firms invested in North America and Europe 

A. to avoid a highly competitive domestic market.

B. to exploit high domestic tariff barriers.
C. as a hedge against unfavorable currency movements.
D. to take advantage of low labor costs.

21. What is the total cumulative value of foreign investments best referred to as? 

A. Accumulation of foreign shares

B. Portfolio investments
C. Stock of foreign direct investments
D. Stock market investments

22. The share of the total FDI stock accounted for by which of the following countries
increased markedly from 1980 to 2000? 

A. United States
B. France
C. United Kingdom
D. Netherlands

23. Firms based in _____ accounted for 17.5 percent of the stock of foreign direct
investment in 2011, up from only 1.1 percent in 1980. 

A. Asia
B. developing countries
C. United Kingdom
D. NAFTA region

24. Which of these statements pertaining to cross-border FDI flows is true? 

A. The growth of FDI resumed in 2004 and continued through 2006.

B. A surge in FDI from 1995 to 1997 was followed by a slump from 1998 to 2000.

C. Among developing nations, the largest recipient of FDI has been Russia.

D. The dramatic increase in FDI reflects the decreasing internationalization of business

corporations.

25. Which of the following countries has been the largest recipient of foreign direct
investment and received about $70 billion a year in inflows in 2005 and 2006? 

A. Brazil
B. Russia
C. India
D. China

26. Identify the incorrect statement regarding the former Communist nations of Europe
and Asia. 

A. The economies of most of the former Communist states are very strong and
developed.

B. Many of the former Communist nations of Europe and Asia share a commitment to
free market economies.

C. As a result of disturbing signs of growing unrest and totalitarian tendencies, the risks
involved in doing business in these countries is very high.

D. For about half a century these countries were essentially closed to Western
international business.

27. Which of the following observations concerning Latin American countries is true? 

A. Complete restrictions on direct investment by foreign firms.

B. Characterized by low growth, high debt, and hyperinflation.
C. Debt and inflation are up compared to previous decades.
D. Substantial opportunities exist, but are accompanied by substantial risks.
28. Which of the following statement pertaining to changes in the global economy of the
21st century is not true? 

A. Barriers to the free flow of goods, services, and capital have been coming down.

B. Volume of cross-border trade and investment has been growing more rapidly than
global output.

C. National economies are becoming more independent and moving away from the
global economic system.

D. As economies advance, more nations are joining the ranks of the developed world.

29. Which of the following does not help create an economic system that is favorable to
international business? 

A. Decreased privatization
B. Widespread deregulation
C. Open markets
D. Falling trade and investment barriers

30. When a company "exports jobs" overseas, the company is: 

A. helping domestic workers by pushing up wage rates.

B. increasing the demand of qualified domestic workers.
C. taking advantage of lower wages in foreign markets.
D. deceiving the supporters of globalization.

31. If the critics of globalization are correct, all of the following things must be shown
except: 

A. the share of national income received by labor, as opposed to the share received by the
owners of capital should have declined in advanced nations.

B. even though labor's share of the economic pie may have declined, living standards
need not deteriorate if the size of the total pie has increased sufficiently to offset the
decline in labor's share.

C. the decline in labor's share of national income must be due to moving production to
low-wage countries, as opposed to improving production technology and productivity.
D. economic growth in developed nations has offset the fall in unskilled workers'
share of national income, raising their living standards.

32. A study by the OECD, whose members include the 20 richest economies in the world,
noted all of the following except: 

A. the gap between the poorest and richest segments of society in some OECD countries
widened.

B. in almost all countries real income levels rose over the 20-year period studied.

C. falling unemployment rates brought gains to low-wage workers and fairly broad-based
wage growth.

D. the gap between rich and poor had narrowed in all OECD countries.

33. Critics of globalization maintain that the apparent decline in real wage rates of
unskilled workers 

A. owes far more to a technology-induced shift within advanced economies toward jobs
that require significant education and skills.

B. is due to the migration of low-wage manufacturing jobs offshore and a

corresponding reduction in demand for unskilled workers.

C. has been impacted most by technological change.

D. can be checked by increasing society's investment in education to reduce the supply of

unskilled workers.

CHAPTER 3: DIFFERENCES IN CULTURE

1. During the 1960s and 1970s, class divisions in _____ raised the cost of doing business
there, relative to other European countries.
A. Great Britain
B. Switzerland

C. Norway
D. Germany

2. Which of the following is not true regarding culture?

A. Culture is static
B. Culture is evolving
C. It is a system of values and norms that are shared among a group of people

D. It involves the knowledge and beliefs of people

3. _____ is/are best defined as shared assumptions about how things ought to be.

A. Norms
B. Values
C. Society

D. Culture

4. The system of values and norms that are shared among a group of people and that
when taken together constitute a design for living best defines:
A. society.
B. value systems.

C. principles.
D. culture.

5. Social rules and guidelines that prescribe appropriate behavior in particular situations
are best described as:

A. norms.
B. values.
C. culture.

D. society.

6. A group of people who share a common set of values and norms form a:

A. culture.
B. society.
C. country.

D. caste.

7. _____ are the routine conventions of everyday life.

A. Folkways
B. Mores
C. Rites
D. Beliefs

8. _____ are social conventions concerning things such as the appropriate dress code in a
particular situation, good social manners, eating with the correct utensils, neighborly
behavior, and the like.
A. Values
B. Beliefs

C. Mores
D. Folkways

9. An act, as simple as shaking hands when meeting new people is an example of:

A. values.
B. symbolic behavior.
C. mores.

D. social stratification.

10. A Japanese executive's ritual of presenting a business card to a foreign business

executive is an example of:

A. mores.

B. values.
C. attitudes.
D. folkways.

11. Mores are:

A. the norms that are seen as central to the functioning of a society and its social life.
B. the routine conventions of everyday life.
C. abstract ideas about what a group believes to be right, good, and desirable.
D. the social rules and guidelines that prescribe appropriate behavior in particular
situations.

12. Which of the following statements about values and norms of a culture is not true?

A. The values and norms of a society do not emerge fully formed

B. They are the evolutionary product of a number of factors
C. They are influenced by religion

D. They do not influence social structure

13. The social organization of Western society tends to emphasize on:

A. a group orientation.
B. the family.
C. individual achievement.

D.workgroups.

14. Emphasis on individualism results in all of the following disadvantages except:

A. managers tend to develop good general skills but lack the company-specific
experience.

B. difficulty in building teams within an organization to perform collective tasks.

C. executives are not exposed to different ways of doing business.
D. difficulty to achieve cooperation both within a company and between companies.

15. A central value of Japanese culture is the importance attached to:

A. the individual.

B. group membership.
C. individual achievement.
D. personal accomplishments.

16. It has been argued that the success of Japanese enterprises in the global economy has
been based partly on all of the following except:
A. the diffusion of self-managing work teams.
B. the close cooperation among different functions within Japanese companies.

C. the high degree of managerial mobility between companies.

D. the cooperation between a company and its suppliers on issues such as design, quality
control, and inventory reduction.

17. Which of the following refers to the extent to which individuals can move out of the
strata into which they are born?

A. Caste stratification
B. Class system
C. Social mobility

D. Individual potential
18. A _____ is a closed system of stratification in which social position is determined by
the family into which a person is born, and change in that position is usually not possible
during an individual's lifetime.
A. caste system
B. class system
C. social system
D. culture system

19. This is a less rigid form of social stratification in which social mobility is possible.

A. Social system
B. Caste system
C. Cultural system

D. Class system

20. These strata are typically defined on the basis of characteristics such as family
background, occupation, and income.

A. Demographic strata
B. Economic strata
C. Social strata

D. Cultural strataC

21. A class system:

A. is the same as a caste system.

B. is a rigid form of social stratification that does not permit social mobility.

C. allows an individual to change his/her position via personal achievements.

D. is more rigid than the caste system.

22. A condition where people tend to perceive themselves in terms of their class
background and this shapes their relationships with members of other classes is known
as:
A. economic classification.
B. social mobility.
C. class mobility.
D. class consciousness.
23. In China, class divisions:
A. have historically been of no importance.
B. were strengthened during the high point of Communist rule.
C. increased even during reforms of the late 1970s and early 1980s.
D. were weakened because of a rigid system of household registration.

24. The emergence of class consciousness in Great Britain can be attributed to:

A. the relative lack of class mobility.

B. a high degree of social mobility.
C. an extreme emphasis on individualism.

D. most of the population perceiving itself to be middle class.

25. Ethical systems are:

A. a set of moral principles, or values, that are used to guide and shape behavior.

B. shared beliefs and rituals that are concerned with the realm of the sacred.
C. routine conventions of everyday life.
D. social rules that govern peoples' actions toward each other.

26. Religion may be defined as:

A. routine conventions of everyday life.
B. social rules that govern peoples' actions toward each other.
C. shared beliefs and rituals that are concerned with the realm of the sacred.
D. a set of moral principles, or values, that are used to guide and shape behavior.

27. According to sociologists, which of the following branches of Christianity has the
most important economic implications?

A. Catholic
B. Orthodox
C. Protestant

D. Mormon

28. Which of the following observations is correct?

A. None of the economic principles established in the Koran are pro-free enterprise.
B. The Koran speaks approvingly of free enterprise.
C. The Koran speaks disapprovingly of earning legitimate profit through trade and
commerce.

D. Protection of the right to private property is not embedded within Islam.

29. According to Islam, those who hold property are regarded as:

A. trustees.
B. owners.
C. tenants.

D. speculators.

30. This is an Islamic banking method where banks lend money to a business, and rather
than charging that business interest on the loan, they take a share in the profits that are
derived from the investment.
A. Mudarabah
B. Murabaha

C. Maysir
D. Mudarib

31. Which Islamic banking method is the most widely used among the world's Islamic
banks, primarily because it is the easiest to implement?
A. Mudarib
B. Murabaha

C. Maysir
D. Mudarabah

32. According to Max Weber:

A. principles embedded in Hinduism encourage high levels of entrepreneurial activity.
B. Hindu values emphasize that individuals should be judged by their material
achievements.
C. pursuit of material well-being makes the attainment of nirvana easier.
D. devout Hindus would be less likely to engage in entrepreneurial activity than
devout Protestants.

33. Three values central to the Confucian system of ethics have very important economic
implications. Which of the following is not one among them?
A. Loyalty
B. Rule-based law

C. Reciprocal obligations
D. Honesty in dealings with others
34. Which of the following statements about the use of spoken language is false?
A. The nature of a language structures the way we perceive the world.
B. The language of a society can direct the attention of its members to certain features of
the world rather than others. C. Countries with more than one language often have more
than one culture.
D. Most people prefer to converse in English rather than their own language.

35. The _____ dimension of Hofstede's study explores how a society deals with the fact
that people are unequal in physical and intellectual capabilities.
A. power distance
B. individualism vs. collectivism

C. uncertainty avoidance
D. masculinity vs. femininity

36. The individualism vs. collectivism dimension of Hofstede's study explored:

A. the extent to which different cultures socialized their members into accepting
ambiguous situations and tolerating uncertainty.
B. the relationship between gender and work roles.
C. how a society deals with the fact that people are unequal in physical and intellectual
capabilities.
D. the relationship between the individual and his/her fellows.

37. Hofstede's uncertainty avoidance dimension considered:

A. the extent to which different cultures socialized their members into accepting
ambiguous situations and tolerating uncertainty.
B. the relationship between gender and work roles.
C. how a society deals with the fact that people are unequal in physical and intellectual
capabilities.
D. the relationship between the individual and his or her fellows.

38. Hofstede's masculinity vs. femininity dimension examined:

A. the extent to which different cultures socialized their members into accepting
ambiguous situations and tolerating uncertainty.
B. the relationship between gender and work roles.
C. how a society deals with the fact that people are unequal in physical and intellectual
capabilities.

D. the relationship between the individual and his or her fellows.

39. Hofstede's dimension of Confucian dynamism:
A. captures attitudes toward time, persistence, ordering by status, protection of face,
respect for tradition, and reciprocation of gifts and favors.
B. focuses on how a society deals with the fact that people are unequal in physical and
intellectual capabilities.
C. explores the relationship between the individual and his/her fellows.
D. looks at the relationship between gender and the ability to accept ambiguous
situations.

40. The belief in the superiority of one's own culture is known as:

A. ethnocentrism.
B. egocentrism.
C. polycentrism.

D. theocentricism.

CHAPTER 8: REGIONAL ECONOMIC INTERGRATION

1. An agreement between countries in a geographic region to reduce tariff and nontariff
barriers to the free flow of goods, services, and factors of production between each other
is referred to as:
A. regional economic integration.
B. socioeconomic integration.

C. political integration.
D. economic-political integration.

2. The movement toward regional economic integration has been most successful in:

A. Latin America.
B. North America.
C. Europe.

D. Asia.

3. Identify the incorrect statement pertaining to the European Union.

A. In 1993, it formally removed many bathers to doing business across borders within the
EU B. Its member states have launched a single currency, the elm°.
C. It was joined by two countries Switzerland and Norway, in 2007.
D. It has expanded to 27 countries in 2007.
4. On January 1, 1993 ______ moved toward a single market with 340 million
consumers.

A. the European Union

B. MERCOSUR
C. the Andean community

D. NAFTA

5. In 1991, Argentina, Brazil, Paraguay, and Uruguay implemented an agreement known

as:

A. NAFTA
B. MERCOSUR
C. APEC

D. FTAA

6. These are the most popular form of regional economic integration, accounting for
almost 90% of regional agreements

A. Free trade areas

B. Customs unions
C. Common markets
D. Economic unions

7. Which of the following selections accurately depicts the levels of economic integration
from least integrated to most integrated?
A. Economic union, common market, customs union, free trade area, and full political
union.
B. Common market, economic union, full political union, free trade area, and customs
union.

C. Free trade area, customs union, common market, economic union, and full
political union

D. Full political union, free trade area, common market, customs union, and economic
union.

8. In a free trade area:

A. barriers to the trade of goods and services among member nations are removed.
B. a common currency is adopted
C. a single parliament determines political and foreign policy.
D. a common external trade policy is adopted.

9. In a(n)____, no discriminatory tariffs, quotas, subsidies, or administrative impediments

are allowed to distort trade between member nations; however, each country is allowed to
determine its own trade policies with regard to nonmembers. A. common market
B. economic union
C. political union
D. free trade area

10. The most enduring free trade area in the world is the:

A. Asia Pacific Economic Cooperation

B. MERCOSUR
C. European Free Trade Association

D. North American Free Trade Association

11. Which of the following statements best defines a common market?

A. All barriers to trade of goods and services among member countries are removed and
each country maintains its own policy toward nonmember countries.
B. It involves the free flow of products and factors of production between member
countries and adoption of individual external trade policies
C. It has no barriers to trade between member countries, includes a common
external trade policy, and allows factors of production to move freely between
members
D. It eliminates trade between member countries and adopts a common external trade
policy.

12. Which of the following statements best defines a customs union?

A. All barriers to trade of goods and services among member countries are removed and
each country maintains its own policy toward nonmember countries.
B. It involves the free flow of products and factors of production between member
countries and adoption of individual external trade policies
C. It has no barriers to trade between member countries, includes a common external
trade policy, and allows factors of production to move freely between members
D. It eliminates trade between member countries and adopts a common external
trade policy.
13. The Andean Pact is an example of a(n):

A. economic union
B. customs union
C. common market

D. political union

14. Identify the incorrect statement about a common market

A. It has no barriers to trade between member countries

B. It includes a common external trade policy

C. It establishes a central political apparatus coordinating the economic, social, and
foreign policy of the member states.

D. It allows factors of production to move freely between members

15. A(n) _____ involves the free flow of products and factors of production between
member countries and the adoption of a common external trade policy, along with a
common currency, harmonization of members' tax rates, and a common monetary and
fiscal policy.
A. free trade area

B. economic union
C. common market
D. customs union

16. A political benefits of economic integration is that:

A. It enables participants to achieve gains from the free flow of trade
B. it enables participants to achieve gains from the free flow of investment
C. it allow countries to specialize in the production of goods and services that they can
produce most efficiently.
D. linking neighboring economies creates incentives for cooperation between the
neighboring states and reduces the potential for violent conflict.

17. All of the following are reasons why economic integration has never been easy to
achieve or sustain except:

A. even though it aids the majority, it has its costs.

B. a nation as a whole may benefit significantly, but certain groups may lose.
C. There are concerns over loss of national soverignty
D. Linking neighboring economies makes them increasingly dependent on each
other

18. ___ occurs when high-cost domestic producers are replaced low-cost domestic
producers within the free trade area.

A. A free trade zone

B. Trade diversion
C. Trade creation

D. Trade interpretation

19. Trade diversion occurs when:

A. low-cost producers within the free trade replace high-cost domestic producers.
B. lower-cost suppliers replace higher-cost external suppliers within the free trade area
C. higher-cost external suppliers replace lower-cost domestic producers within the free
trade area.

D. higher-cost suppliers replace lower-cost external suppliers within the free trade
area.

20. The European Community was established by:

A. The Treaty of Rome signed in 1957

B. The Maastricht Treaty signed in 1991
C. The Maastricht Treaty of 1994

D. The Single European Act of 1987

21. The European Coal and Steel Community, formed in 1951, was a forerunner of:

A. EFTA
B. EU
C. MERCOSUR

D. APEC

22. Which of the following is not a main institution in the political structure of the EU?
A. The European Parliament
B. The European Central Bank
C. The European Commision

D. Council of the European Union

23. The _____ is responsible for proposing EU legislation, implementing it, and
monitoring compliance with EU laws by member states.
A. European Parliament
B. European Commission

C. Council of the European Union

D. Court of Justice

24. The______ represents the interests of member states and is clearly the ultimate
controlling authority within the EU.

A. European Parliament
B. European Commission
C. European Council

D. Court of Justice

25. Which of the following is directly elected by the populations of the member states
and is primarily a consultative rather than legislative body?
A. The European Parliament
B. The European Commission

C. The Council of the European Union

D. The Court of Justice

26. Identify the incorrect statement pertaining to the EU's Court of Justice A. It is
comprised of one judge from each country
B. It is the supreme appeals court for EU law
C. Its judges are required to act as representatives of national interests

D. A member country can bring other members to the court for failing to meet EU treaty
obligations

27. The ___ , adopted by the member nations of the European Community in 1987,
committed member countries to work toward the establishment of a single market by
December 31, 1992
A. Maastricht Treaty
B. Treaty of Rome

C. Single European Act

D. Delores Commission
28. All of the following are true of the euro except:
A. its notes and coins were first issued on January 1, 1999
B. It required participating countries to give up their own currencies
C. countries lost control of monetary policy when it was establish
D. it created the second largest currency zone in the world

29. In December 1991, EC members signed this treaty that committed them to adopting a
common currency by January 1, 1999.
A. The Treaty of Rome
B. The Delores Commission
C. The Maastricht Treaty
D. The Single European Act

30. Which of the following is seen as a disadvantage of the euro?

A. Higher foreign exchange and hedging costs

B. National authorities losing control over monetary policy
C. It becomes difficult to compare prices across Europe

D. Undermines the development of a pan-European capital market.

31. Bolivia, Peru, Ecuador, Columbia, and Venezuela are all members of:

A. the EU
B. NAFTA
C. APEC

D. the Andean Pact

32. MERCOSUR originated as a(n)_____ between Brazil and Argentina in 1988

A. open market
B. free trade pact
C. customs union

D. free trade zone

33. According to Alexander Yeats:

A. The trade diversion effects of MERCOSUR outweigh its trade creation effects.
B. The faster growing items in intra-MERCOSUR trade were capital-intensive goods
produced efficiently in the member countries.
C. MERCOSUR countries will be able to compete globally once the group's external
trade barriers come down
D. Countries with more efficient manufacturing enterprises are getting a level playing
field because of MERCOSUR's reduction in trade barriers.

34. In early 2006, six CARICOM members abd the United States established the_____,
which was modeled on the EU's single market.
A. Central American Common Market
B. Central America Free Trade Agreement

C. Caribbean Single Market and Economy.

D. North American Free Trade Area

35. All of the following are seen as stumbling blocks towards the establishment of the
Free Trade Area of he Americas exeption A. Brazil and Argentina want the United State
to reduce its subsidies to U.S agricultural producers
B. The United State wants its southern neighbors to agree to tougher enforcement of
intellectual property rights
C. Brazil and Argentina want the United State to scrap tariffs on agricultural imports

D. The United States want its southern neighbors to increase manufacturing tariffs

36. Which of the following is not true of ASEAN?

A. Cambodia, Laos, Myanmar, and singapore are among its members.
B. Its basic objective is to foster freer trade between member countries and to achieve
cooperation in their industrial policies.

C. It has been highly successful in achieving cooperation in its industrial policies.

D. It is punishing for free trade agreement with China, Japan, and South Korea.

37. Which of the following is true of the Asia-Pacific Economic Cooperation (APEC)?

A. It was founded in 2001

B. It currently has 57 member states
C. United States and japan are not members of this body

D. Collectively, the member states account for much of the growth in the world
economy

38. Collectively, the _______ member states account for about 55 percent of the world's
GNP and 49 percent of world trade.

A. APEC
B. EU
C. NAFTA
D. MERCOSU

39. For international business, regional economic integration such as the EU:
A. Raise the cost of doing business in the region.
B. Eliminates differences in culture, allowing companies to standardize marketing
activities.
C. Opens markets that had formerly been protected.
D. Standardizes competitive practics, enabling companies to realize substantial cost
economies

40. Which of the following is not a threat that emerges for international business as a
result of regional economic integration?

A. The business environment within each grouping becomes morecompetetive

B. There is a risk of being shut out of the single market by the creation of a "trade
fortress"
C. It limits the ability of firms to pursue the corporate strategy of their choice.

D. The cost of doing business in a single market may fall.

CHAPTER 14: Entry Strategy and Strategic Alliances

1. Other things being equal, the benefit-cost-risk trade-off is likely to be most favorable
in:

A. politically unstable developing nations that operate with a mixed or command

economy.

B. nations where there is a dramatic upsurge in either inflation rates or private-sector

debt.

C. politically stable developed and developing nations that have free market
systems.

D. developing nations where speculative financial bubbles have led to excess borrowing.

2. Which of the following is not an advantage associated with entering a foreign market
before other international businesses?
A. Ability to preempt rivals and capture demand by establishing a strong brand name.
B. Ability to ride down the experience curve ahead of rivals.

C. Ability to create switching costs.

D. Ability to avoid pioneering costs.
3. Switching costs:
A. drive early entrants out of the market.
B. make it easy for later entrants to win business.
C. make it difficult for later entrants to win business.
D. give later entrants a cost advantage over early entrants.

4. Early entrants to a market that are able to create switching costs that tie the customer to
the product are capitalizing on:

A. economies of scale.
B. pioneering costs.
C. first-mover advantages.

D. late-mover advantages.

5. All of the following are examples of pioneering costs except the costs of:

A. business failure.
B. educating consumers.
C. promoting and establishing a product offering.

D. learning from the mistakes of early entrants.

6. The costs of promoting and establishing a product offering when a firm enters a
foreign market prior to its rivals are known as:
A. switching costs.
B. market development costs.

C. pioneering costs.
D. promotional development costs. C

7. A large-scale entrant is more likely than a small-scale entrant to be able to capture

first-mover advantages associated with:

A. demand preemption.
B. diseconomies of scale.
C. pioneering costs.

D. diseconomies of scope.

8. Which of the following statements about small-scale entry is true?

A. The commitment associated with a small-scale entry makes it possible for the small-
scale entrant to capture first-mover advantages.
B. Small-scale entry is a way to gather information about a foreign market before
deciding whether to enter on a significant scale.
C. By giving a firm time to collect information, small-scale entry increases the risks
associated with a subsequent large-scale entry.
D. Small-scale entry limits a firms ability to learn about a foreign market thereby also
limiting the firm's exposure to that market.

9. Which of the following is not an advantage of a small-scale entry?

A. A small-scale entrant is more likely to be able to capture first-mover advantages
associated with demand preemption, scale economies, and switching costs.
B. Small-scale entry is a way to gather information about a foreign market before
deciding how best to enter.
C. By giving the firm time to collect information, small-scale entry reduces the risks
associated with a subsequent large-scale entry.
D. Small-scale entry allows a firm to learn about a foreign market while limiting the
firm's exposure to that market.

10. If a firm can realize location economies by moving production elsewhere, it should
avoid:

A. exporting.
B. turnkey contracts.
C. licensing.
D. wholly owned subsidiaries.

11. Which of the following is a distinct advantage of exporting?

A. It avoids the often substantial costs of establishing manufacturing operations in
the host country.

B. Benefits from a local partner's knowledge of the host country's competitive conditions.
C. Avoids the threat of tariff barriers by the host-country government.
D. Appropriate if lower cost locations for manufacturing the product can be found
abroad.

12. When a firm faces significant transportation costs, _____ can be uneconomical.

A. joint ventures
B. greenfield investments
C. licensing agreements

D. exporting
13. When an exporting firm finds that its local agent is also carrying competitors'
products, the firm may switch to a _____ to handle local marketing, sales, and service.
A. wholly owned subsidiary
B. franchising arrangement

C. turnkey operation
D. licensing agreement

14. When local agents carry the products of competing firms and have divided loyalties,
_____ is not appropriate.

A. franchising
B. licensing
C. exporting

D. greenfield investment

15. The threat of tariff barriers by the host government can make _____ very risky.

A. greenfield investment
B. franchising
C. licensing

D. exporting

16. Identify the incorrect statement about turnkey projects.

A. The contractor agrees to handle every detail of the project for a foreign client.
B. They are most common in industries which use inexpensive production
technologies.

C. This is a means of exporting process technology to other countries.

D. They create efficient global competitors in the process.

17. In which of the following industries are turnkey projects the most common?
A. Fresh fruit, grain, and meat products.
B. Chemical, pharmaceutical, and metal refining.
C. Consumer durables, computer peripherals, and automotive parts.
D. Apparel, shoes, and leather products.

18. A turnkey strategy:

A. is always riskier than conventional FDI.
B. is never used in a country with unstable political and economic environments.
C. is useful where FDI is limited by host-government regulations.
D. is a strong indicator of a firm's long-term interest in a foreign country.

19. Many Western firms that sold oil-refining technology to firms in Gulf states now find
themselves competing with these firms in the world oil market. This is an example of:
A. the firm entering into a turnkey project with a foreign enterprise, inadvertently
creating a competitor.

B. the firm entering into a turnkey deal having no long-term interest in the foreign
country.
C. the country subsequently proving to be a major market for the output of the process
that has been
exported.
D. selling the firm's process technology through a turnkey project which is also selling
competitive advantage to potential competitors

20. Firms that lack the capital necessary to develop foreign operations may choose _____
as a means of expanding internationally.
A. turnkey projects
B. licensing

C. greenfield investments

D. acquisitions

21. An arrangement whereby a firm grants the right of intangible property to another
entity for a specified time period in exchange for royalties is a(n) _____ agreement.
A. wholly owned subsidiary
B. turnkey

C. licensing
D. exporting

22. Patents, inventions, formulas, processes, designs, copyrights, and trademarks are all
forms of

A. licensing agreements.
B. franchising agreements.
C. intangible property.

D. tangible property.
23. What is the primary advantage of licensing?
A. It helps a firm avoid the development costs associated with opening a foreign
market.

B. It gives a firm the tight control over manufacturing, marketing, and strategy.
C. It helps a firm achieve experience curve and location economies.
D. It increases a firm's ability to utilize a coordinated strategy.

24. Which of the following is a disadvantage of licensing?

A. It does not help firms that lack capital to develop operations overseas.
B. It does not give a firm the tight control over strategy that is required for realizing
experience curve and location economies.

C. It cannot be used when a firm possesses some intangible property that might have
business applications.
D. The firm has to bear the development costs and risks associated with opening a foreign
market.

25. When a company has some intangible property that might have business applications,
but the firm does not want to develop those applications itself, _____ makes sense.
A. exporting
B. a turnkey project

C. licensing
D. a wholly owned subsidiary

26. Cross-licensing agreements are increasingly common in the _____ industry.

A. transportation
B. high-technology
C. construction
D. consumer durables

27. Which mode of entry is pursued primarily by manufacturing firms?

A. Franchising
B. Turnkey
C. Licensing

D. Strategic alliance

28. This mode of entry is primarily used by service firms.

A. Franchising
B. Licensing
C. A strategic alliance

D. A turnkey project

29. If a service firm wants to build a global presence quickly and at a relatively low cost
and risk, _____ makes sense.
A. a wholly owned subsidiary
B. exporting

C. a turnkey project

D. franchising

30. Which of the following statements about franchising is true?

A. It guarantees consistent product quality.
B. It tends to involve more short-term commitments than licensing.

C. It is a specialized form of licensing.

D. It is employed primarily by manufacturing firms.

31. Which of the following is an advantage of franchising?

A. A firm takes profits out of one country to support competitive attacks in another.
B. A firm is relieved of many of the costs and risks of opening a foreign market on
its own.

C. It guarantees consistent product quality.

D. It achieves experience curve and location economies.

32. Firms engaging in _____ with a local company can benefit from a local partner's
knowledge of the host country's competitive conditions, culture, language, political
systems, and business systems.
A. turnkey projects
B. joint ventures

C. greenfield investments
D. licensing arrangements

33. Identify the advantage of establishing wholly owned subsidiaries.

A. It is the least expensive method of serving a foreign market from a capital investment
standpoint.
B. Political considerations make it the most feasible entry mode.
C. It may be required if a firm is trying to realize location and experience curve
economies.
D. It is particularly useful where FDI is limited by host-government regulations.

34. A wholly owned subsidiary is appropriate when:

A. the firm wants to share the cost and risk of developing a foreign market.

B. the firm wants 100 percent of the profits generated in a foreign market.

C. the firm wants a plant that is ready to operate.

D. the firm wants to test a market.

35. A firm that establishes a _____ must bear the full costs and risks of entering a foreign
market.

A. licensing agreement
B. wholly owned subsidiary
C. franchise

D. joint venture

36. A _____ is the most costly method of serving a foreign market from a capital
investment standpoint.

A. wholly owned subsidiary

B. franchising agreement
C. turnkey project

D. joint venture

37. "Protection of technology and The Ability to engage in global strategic coordination"
are advantages of which of the following?
A. Franchising
B. Turnkey contracts

C. Joint ventures
D. Wholly owned subsidiaries

38. If a firm's core competency is based on control over proprietary technological know-
how, it should avoid _____ and _____ arrangements if possible, to minimize the risk of
losing control over that technology.
A. licensing, joint-venture
B. wholly owned subsidiary, exporting
C. turnkey contracts, exporting
D. exporting, joint-venture

39. If a high-tech firm sets up operations in a foreign country to profit from a core
competency in technological know-how, which of the following entry strategy is best?
A. Joint ventures
B. Licensing

C. Wholly owned subsidiaries

D. Turnkey contacts

40. Most service firms have found that _____ with local partners work best for
controlling subsidiaries.

A. joint ventures
B. licensing agreements
C. greenfield investments

D. turnkey project

41. Firms may prefer acquisitions to greenfield investments for all of the following
reasons except:

A. they allow companies to completely sidestep government regulations on

investment.
B. they are quick to execute.
C. they enable the firm to preempt competitors.

D. managers believe acquisitions are less risky.

42. According to the _____, top managers typically overestimate their ability to create
value from an acquisition.

A. misvaluation theory
B. performance extrapolation hypothesis
C. market timing theory

D. hubris hypothesis

43. To increase the potential for a successful acquisition, a firm should:

A. always bid low to allow for partial failure.
B. try to acquire a firm with a very different corporate culture so there is no forced
"overlap".
C. seek companies only from similar national cultures.
D. screen the foreign enterprise to be acquired.

44. Which of the following is not important in the acquisition process?

A. Firms should strive to limit unwanted management attrition after acquisition. B. An
integration plan should quickly be implemented.
C. Proper screening of the company to be acquired should take place.
D. The hubris hypothesis should be maintained.

45. When a firm wants to enter a market where there are already well-established
incumbent companies, and where global competitors are also interested in establishing a
presence, the firm should consider:
A. joint ventures.
B. turnkey projects.

C. acquisitions.

D. greenfield investments.

46. Firms entering markets where there are no incumbent competitors to be acquired
should choose:

A. greenfield investments.
B. joint ventures.
C. acquisitions.

D. takeovers

47. Which of the following is not an advantage of strategic alliances?

A. It allows firms to share the fixed costs of developing new products or processes.
B. It is a way to bring together complementary skills and assets that neither company
could easily develop on its own. C. It will help the firm establish technological standards
for the industry that will benefit the firm.
D. It gives a firm tight control over operations in different countries.

CHAPTER 5: International Trade Theory

1. Which of the following refers to the purchase, sale, or exchange of goods and services
across national borders?
A) Domestic trade
B) Foreign direct investment
C) International trade
D) Mercantilism
2. ________ occurs between different states, regions, or cities within a country.
A) Domestic trade
B) Foreign direct investment
C) International trade
D) Mercantilism

3. One way to measure the importance of trade to a nation is to examine ________.

A) its human development index relative to its CPI
B) the availability of natural resources and ease of extracting them
C) its comparative advantage relative to those of its neighbors
D) the volume of an economy's trade relative to its total output

4. Which of the following statements is NOT true about the services trade today?
A) Trade in services makes up about 20 percent of total world trade.
B) Trade in services tends to be more important for emerging markets.
C) The United States is a top exporter of services in the world.
D) Trade in services is growing for many nations.

5. The U.S. Department of Commerce estimates that for every $1 billion increase in
exports, ________ jobs are created in the United States.
A) 22,800
B) 35,000
C) 42,500
D) 63,000

6. Most of the world merchandise trade is comprised of trade in ________.

A) natural resources
B) services
C) manufactured goods
D) knowledge-based goods

7.When a country has a weak currency relative to other nations, imports are ________
relative to domestic products.
A) more expensive
B) equal in price
C) more attractive
D) less expensive

8.The majority of total world merchandise trade occurs among ________.

A) high-income countries and low- and middle-income nations
B) high-income economies
C) low- and middle-income nations
D) emerging markets
9. Trade among the world's high-income economies accounts for roughly ________
percent of total world merchandise trade.
A) 20
B) 40
C) 60
D) 80

10. Merchandise trade between low- and middle-income nations accounts for about
________ percent of total world trade.
A) 6
B) 23
C) 42
D) 61

11. The smallest portion of total world trade takes place between ________.
A) high-income countries and low- and middle-income nations
B) high-income economies
C) low- and middle-income nations
D) emerging markets

12. Which of the following countries is the most important trading partner of the Central
and Eastern European nations that recently joined the European Union?
A) Germany
B) Hungary
C) Japan
D) United States

13. When doing business in the Pacific Rim, ________.

A) carry business cards printed only in the home country language
B) be persistent and aggressive, because Asians often take a while before they agree to a
meeting
C) don't accept invitations to dine at someone's house; go for a neutral location
D) tone down the use of legal language

14. Companies are leaving Mexico for Asia and Europe because of differences in all of
the following EXCEPT ________.
A) education
B) climate
C) red tape
D) taxes

15. According to ________, measures of a nation's well-being are irrelevant.

A) mercantilism
B) absolute advantage theory
C) factor proportions theory
D) new trade theory

16. The most prominent mercantilist nations included all of the following EXCEPT
________.
A) the Netherlands
B) Spain
C) the United States
D) Portugal

17. The trade theory that nations should accumulate financial wealth, usually in the form
of gold, by encouraging exports and discouraging imports is called ________.
A) absolute advantage
B) mercantilism
C) comparative advantage
D) factor proportions theory

18. The practice of mercantilism rested upon each of the following EXCEPT ________.
A) enhanced trade deficits
B) government intervention
C) colonialism
D) trade surpluses

19. The condition that results when the value of a nation's exports is greater than the
value of its imports is called ________.
A) a trade deficit
B) mercantilism
C) a trade surplus
D) absolute advantage

20. The condition that results when the value of a country's imports is greater than the
value of its exports is called ________.
A) a trade deficit
B) mercantilism
C) a trade surplus
D) absolute advantage

21. According to mercantilism, accumulation of national wealth depended on ________.

A) increasing a nation's trade surplus
B) expanding a nation's total value of trade
C) expanding a nation's total volume of trade
D) increasing a nation's trade deficit
22. Colonies were important to mercantilist nations for all the following reasons
EXCEPT ________.
A) to serve as sources of inexpensive raw materials
B) to serve as markets for higher-priced finished goods
C) to serve as a source of profits for mercantilist powers
D) to serve as a source of military protection

23. Nations following the theory of ________ believed that the world's wealth was
limited and that a nation could increase its share of the pie only at the expense of its
neighbors.
A) absolute advantage
B) comparative advantage
C) mercantilism
D) factor proportions

24. Which of the following refers to the ability of a nation to produce a good more
efficiently than any other nation?
A) Mercantilism
B) Comparative advantage
C) Absolute advantage
D) Zero-sum game

25. Who proposed the theory of absolute advantage?

A) David Ricardo
B) Adam Smith
C) Bertil Ohlin
D) Raymond Vernon

26. Adam Smith believed which of the following?

A) International trade should be restricted by tariffs and quotas.
B) Governments should intervene to maintain a balance of exports and imports.
C) Market forces should determine trade flows.
D) Countries should produce most goods themselves and trade as little as possible.

27. The theory of absolute advantage measures a nation's wealth by determining the
________.
A) gold it has on reserve
B) silver it has on reserve
C) cash it has on reserve
D) living standards of its people

28. The theory of absolute advantage destroys the mercantilist idea that international
trade is a ________.
A) positive-sum game
B) zero-sum game
C) negative-sum game
D) no-win game

29. The theory of ________ measures a nation's wealth by the living standards of its
people.
A) mercantilism
B) factor proportions
C) absolute advantage
D) advanced factors

30. When there are gains to be had by both countries that are party to an exchange,
international trade is considered a(n) ________.
A) positive-sum game
B) zero-sum game
C) negative-sum game
D) equal-sum game

31. When a country is not able to produce a good more efficiently than other nations, but
produces the good more efficiently than it does any other good, it is said to have a(n)
________.
A) absolute advantage
B) resource advantage
C) first-mover advantage
D) comparative advantage

32. Which of the following developed the theory of comparative advantage?

A) David Ricardo
B) Adam Smith
C) Bertil Ohlin
D) Raymond Vernon

33. To complete his business bookkeeping each month, a small business owner spends
about 20 hours and gives up $2,000 in income. If he hired a bookkeeper to do the work,
the job would be completed in 15 hours and would cost $600. Should the owner hire the
bookkeeper or continue to do the work himself?
A) He should hire the bookkeeper because the bookkeeper has an absolute
advantage in completing the books.
B) He should do the bookkeeping himself because he has an absolute advantage in
completing the books.
C) He should hire the bookkeeper only if the bookkeeper agrees to give him a discount on
the service price.
D) He should hire the bookkeeper only if the bookkeeper is willing to complete the books
more quickly.

34. Country A produces one ton of coffee using one unit of resources. Country B
produces two tons of coffee using one unit of resources. Which of the following is true
regarding Country A and Country B?
A) Country A has an absolute advantage in producing coffee.
B) Neither Country A nor Country B has an absolute advantage in producing coffee.
C) Country B has an absolute advantage in producing coffee.
D) Both Country A and Country B have an absolute advantage in producing coffee.

35. According to the theory of ________, trade is still beneficial even if one country is
less efficient in the production of two goods, as long as it is less inefficient in the
production of one of the goods.
A) absolute advantage
B) mercantilism
C) comparative advantage
D) factor proportions

36. Which of the following is NOT a limitation of the absolute and comparative
advantage theories?
A) The theories assume that there are only two countries engaged in the production and
consumption of just two goods.
B) The theories assume that there are no costs for transporting traded goods from one
country to another.
C) The theories consider labor the only resource used in the production process.
D) The theories assume that specialization in the production of one particular good
results in gains in efficiency.

37. Comparative advantage theory focuses on which of the following?

A) Maximization of production and consumption
B) Logistics planning
C) Resource assessment
D) Creation of trade surpluses

38. Both absolute and comparative advantage theories assume that ________ is the only
resource used in the production process.
A) land
B) labor
C) capital
D) information
39. The ________ theory states that countries produce and export goods that require
resources that are abundant and import goods that require resources in short supply.
A) new trade
B) absolute advantage
C) international product life cycle
D) factor proportions

40. The focus of factor proportions theory is on the ________.

A) productivity of the production process
B) cost-effectiveness of the production process
C) use of abundant production factors
D) use of expensive production factors

41. Factor proportions theory was developed by ________.

A) Smith and Ricardo
B) Ricardo and Ohlin
C) Hecksher and Ohlin
D) Hecksher and Smith

42. Under factor proportions theory, a nation's resources include all of the following
EXCEPT ________.
A) labor
B) land
C) information
D) capital equipment

43. Factor proportions theory argues that a country should produce and export goods
________.
A) that require factors of production that are most abundant
B) where it is most productive to do so
C) where it is most efficient to do so
D) that require factors of production that are most advanced

44. Country X is a small country with a large population. Most of its land is devoted to
housing and commercial developments; agricultural land is in short supply. According to
the factor proportions theory, which of the following would Country X most likely
import?
A) Software
B) Crops such as wheat and corn
C) Fiber optic cables
D) Consulting services
45. The Leontief paradox describes evidence ________.
A) that U.S. exports require more labor-intensive production than its imports
B) in support of factor proportions theory
C) that U.S. exports require more capital-intensive production than its imports
D) that the assumptions of new trade theory are invalid

46. The international product life cycle theory was developed by ________.
A) Milton Friedman
B) Karl Marx
C) Michael Porter
D) Raymond Vernon

47. The international product life cycle theory was put forth for which type of goods?
A) Service goods
B) Knowledge-based goods
C) Manufactured goods
D) Natural resources

48. During which stage of the international product life cycle theory does high purchasing
power and buyer demand in an industrialized nation encourage a company to design and
introduce a product concept?
A) Idiosyncratic stage
B) New product stage
C) Maturing product stage
D) Standardized product stage

49. During which stage of the international product life cycle theory does demand rise
and remain sustained over a fairly lengthy period of time?
A) Idiosyncratic stage
B) New product stage
C) Maturing product stage
D) Standardized product stage

50. During which stage of the product life cycle are companies looking for low-cost
production bases in developing nations to supply a growing worldwide market?
A) Idiosyncratic stage
B) New product stage
C) Maturing product stage
D) Standardized product stage

51. A product's components are made in a country that can produce them at a high level
of productivity and assembled in another country where productivity in assembly is high.
This process resembles the theory of ________.
A) comparative advantage
B) advantage savings
C) the international product life cycle
D) factor proportions

52. Much production in the world today closely resembles what is predicted by the
________.
A) new trade theory
B) international product life cycle
C) theory of comparative advantage
D) theory of factor proportions

53. Which of the following is NOT an argument offered by the new trade theory?
A) Gains can arise from diversification and managed growth.
B) Gains can arise from specialization and increasing economies of scale.
C) Companies first to enter a market can create barriers to entry.
D) Government may play a role in assisting its home companies.

54. New trade theory is in line with the theory of ________ but at odds with ________
theory.
A) international product life cycle; comparative advantage
B) comparative advantage; factor proportions
C) national competitive advantage; international product life cycle
D) factor proportions; absolute advantage

55. National competitive advantage theory states that a nation's competitiveness in an

industry depends on ________.
A) the capacity of the industry to innovate and upgrade
B) the level of government subsidy available
C) obtaining first-mover status
D) practicing neomercantilism

56. The Porter diamond consists of all the following EXCEPT ________.
A) factor conditions
B) demand conditions
C) supply conditions
D) firm strategy, structure, and rivalry

57. Which element of national competitive advantage theory divides resources into two
groups: basic and advanced?
A) Demand conditions
B) Factor conditions
C) Related and supporting industries
D) Firm, strategy, structure, and rivalry