International Business and Trades
Chapter 1: TEN PRINCIPLES OF
ECONOMICS
Economy
- Greek word for “one who manages a
household.”
A household and an economy face many
decisions:
Who will work?
What goods and how many of them should be
produced?
What resources should be used in production?
At what price should the goods be sold?
Society and Scarce Resources:
The management of society’s resources is
important because resources are scarce.
Scarcity
- means that society has limited resources and
therefore cannot produce all the goods and
services people wish to have.
- to live wit your means, expand your means
Economics
- is the study of how society manages its scarce
resources.
- is a Social science concerned with the way
society chooses to employ its limited resources
which have alternative uses to produce goods
and
services for present and future consumption.
How people make decisions?
People face trade-offs.
The cost of something is what you give up to get
it - opportunity cost.
Rational people think at the margin cost.
People respond to incentives.
How people interact with each other.
Trade
- can make everyone better off.
Markets
- are usually a good way to organize economic
activity.
Governments
- can sometimes improve economic outcomes.
- impose price control (price floorwage and price
ceiling)
The forces and trends that affect how the
economy as a whole works.
The standard of living depends on a country’s
production. - increasing GDP
Prices rise when the government prints too
much money. - Inflation
Society faces a short-run trade-off between
inflation and unemployment. - inflation
Principle #1: People Face Trade-offs.
“There is no such thing as a free lunch!”
To get one thing, we usually have to give up
another thing.
Example: Food vs. Clothing
Note: Making decisions requires trading-off
one goal against another.
Efficiency
-means society gets the most that it can from its
scarce resources.
Equity
- means the benefits of those resources are
distributed fairly among the members of society.
Principle #2: The Cost of Something Is What
You Give Up to Get It.
Decisions require comparing costs and benefits
of alternatives.
Example:
Whether to go to college or to work?
Whether to study or go out on a date?
Whether to go to class or sleep in?
Opportunity cost
- is what you give up to obtain that item.
 International Business and Trades
Marginal changes
- are small, incremental adjustments to an
existing plan of action.
Note: People make decisions by comparing
costs and benefits at the margin.
Principle #4: People Respond to Incentives.
Marginal changes in costs or benefits motivate
people to respond.
The decision to choose one alternative over
another occurs when that alternative’s
marginal benefits exceed its marginal costs!
Principle #5: Trade Can Make Everyone
Better Off.
People
- gain from their ability to trade with one
another.
Competition
- results in gains from trading.
Trade
- allows people to specialize (choose) in what
they do best.
- more options.
- interdepence (disadvantages)
Principle #6: Markets Are Usually a Good
Way to Organize Economic Activity.
Market economy
- is an economy that allocates resources through
the decentralized decisions of many firms and
households as they interact in markets for goods
and services.
• Households decide what to buy and who to
work for.
• Firms decide who to hire and what to produce.
Principle #7: Governments Can Sometimes
Improve Market Outcomes.
Market failure
- occurs when the market fails to allocate
resources efficiently.
- When the market fails (breaks down)
government can intervene to promote efficiency
and equity.
Market failure may be caused by
• an externality, which is the impact of one
person or firm’s actions on the well-being of a
bystander.
• market power, which is the ability of a single
person or firm to unduly influence market prices.
Principle #8: The Standard of Living Depends
on a Country’s Production.
• Standard of living may be measured in different
ways:
• By comparing personal incomes.
• By comparing the total market value of a
nation’s production.
• Almost all variations in living standards are
explained by differences in countries’
productivities.
Productivity
- is the amount of goods and services produced
from each hour of a worker’s time.
Principle #9: Government Prices Rise When
the Prints Too Much Money.
Inflation
- is an increase in the overall level of prices in
the economy.
- One cause of inflation is the growth in the
quantity of money.
- When the government creates large quantities
of money, the value of the money falls.
 International Business and Trades

Principle #10: Society Faces a Short-run Macroenvironment (external) Customers

Trade-off Between Inflation and - larger societal forces that affect the whole - five types markets that purchase of a
Unemployment. microenvironment. company’s goods and a services.

The Phillips Curve illustrates the trade-off The Microenvironment Customer’s Market
between inflation and unemployment:
Forces Affecting Company’s Ability to
⇩Inflation ⇨ ⇧Unemployment It’s a short-run Serve Customers
tradeoff! Company or Company’s Internal
Environment
Trade Barriers - functional areas such as top management,
finance, and manufacturing, etc.
Tariff
- type of tax on imports/exports. Publics
- any group that perceives itself having an
Quota interest in a company’s ability to achieve its
- fee ⇨tax objectives. Macroenvironment

Chapter 3: Marketing Environment Suppliers Forces that Shape Economic Opportunities

Marketing Environment
- All the actors and forces influencing the
company’s ability to transact business effectively
with it’s target market.
Two Environments
Microenvironment (internal)
- forces close to the company that affect its
ability to serve its customers.
- provide the resources needed to produce goods
and services.
Competitors
- those who serve a target market with similar
products and services.
Intermediaries or Marketing Intermediaries
- help the company to promote, sell, and
distribute its goods to final buyers.
and Pose Threats to a Company
Demographic
- monitors population in terms of age, sex, race,
occupation, location and other statistics.
Cultural
-forces that affect a society’s basic values,
perceptions, preferences, and behaviors.
Political
 International Business and Trades
-laws, agencies and groups that influence or limit
marketing actions.
Natural
- natural resources needed as inputs by marketers
or that are affected by marketing activities.
Technological
= forces that create new product and market
opportunities.
Economic
- factors that affect consumer buying power and
patterns.
Responding to the Marketing Environment
Environmental Management Perspective
Taking a proactive approach to managing the
microenvironment and the macroenvironment to
affect changes that are favorable for the
company. How? Hire lobbyists , run
“advertorials”, file law suits and complaints, and
form agreements.
Chapter 4
The External Marketing Environment
Target market
- a group of people or organizations for which an
organization designs, implements, and maintains
a marketing mix to meet the need of that group,
resulting in mutually satisfying exchanges
- Important for marketing managers in order to
plan for the future
Social change
- is the most difficult external variable for
marketing managers to forecast, influence, or
integrate into marketing plans.
American Values
America’s core values have strongly influenced
Americans’ attitudes and lifestyles
Component lifestyles
- the practice of choosing goods and services that
meet one’s diverse needs and interests rather
than conforming to a single, traditional lifestyle
- Increase the complexity of consumers’ buying
habits
Social media
- are web-based technology for creating and
exchanging content
Demography
- the study of people’s vital statistics, such as
age, race and ethnicity, and location
- People are the basis for any market
Tweens (10-13)
- Live in a period of transition—bridging
between being a kid and being a teenager
Teens spend a lot of time using media
- Many teens pass technology down to their
parents
- They command an immense amount of buying
power
Generation Z
- people born between 1995 and 2010
- Have never known a world without social
media or smartphones
- embraces multiculturalism as a touchstone of
who they are
- Have high product and service quality
expectations
Millennials
- people born between 1979 and 1994
Are currently in two stages:
- People born in 1994 have entered young
adulthood
- People born in 1979 have established careers
and have started families
- are more idealistic and eager to please
- Exposed to digital world from childhood
Generation X
- people born between 1965 and 1978
- Independent, resilient, and adaptable
- Saving money is a major priority
 International Business and Trades
- Most plan to keep working during their
retirement years
- Many support their aging parents
- Place a high value on education and knowledge
Purchasing power
- a comparison of income versus the relative cost
of a standard set of goods and services in
different geographic areas
- Also known as the cost of living
Recession
- a period of economic activity characterized by
negative growth, which reduces demand for
goods and services
- Also defined as occurring when the gross
domestic product falls for two consecutive
quarters
Gross domestic product (GDP)
- is the total market value of all final goods and
services produced during a period of time
Inflation
- a measure of the decrease in the value of
money, expressed as the percentage reduction in
value since the previous year
Basic research
- pure research that aims to confirm an existing
theory or to learn more about a concept or
phenomenon
- Over time, basic research often leads to a) utility
innovations in the marketplace b) abstract
c) market
d) incentive
4. If people want more cars than there are cars
Applied research available, then it must be true that
- research that attempts to develop new or a) there is a decreased supply of cars.
improved products b) there is a surplus of cars.
c) none of the above
Quiz d) cars are scarce.
5. Because producers are better able to organize
1. Economists believe that people's wants are than consumers are, we would expect there to be
a finite political pressure to create
b infinite a. free trade
c irrational b. import restrictions
d unimportant because needs are more important c. export restrictions
than wants d. none of the above
2. Which of the following statements about trade 6. Scarcity means
is true? a. wants are limited.
a. Trade can benefit everyone in society because b. wants are greater than the limited
it allows people to specialize in activities in resources available to satisfy these wants.
which they have an absolute advantage. c. resources are infinite.
b. Unrestricted international trade benefits every d. wants are less than the limited resources
person in a country equally. available to satisfy these wants.
c. Trade can benefit everyone in society 7. A rational person does not act unless
because it allows people to specialize in a. action is ethical
activities in which they have a comparative b. the action produces marginal costs that exceed
advantage. marginal benefits
d. People that are skilled at all activities cannot c. the action produces marginal benefits that
benefit from trade. exceed marginal costs.
3. Something that motivates or encourages d. Consumers will gain and producers will lose.
people to take an action is referred to as a(n)
 International Business and Trades
8. Decision making “at the margin" means
making choice based on __________ of a
decision.
a. The total benefits
b. The total costs
c. Comparing the total benefits and costs
d. Comparing the additional benefits and
costs
9. If free trade is allowed, a country will export a
good if the world price is?
a. below the before-trade domestic price of the
good.
b. above the before-trade domestic price of the
good.
c. equal to the before-trade domestic price of the
good.
d. none of the above.
10. Since people respond to incentives, we would
expect that, if the average salary of accountants
increases by 50% while the average salary of
teachers increases by 20%:
a. Fewer students will attend college
b. Students will shift majors from accounting to
education.
c. Students will shift majors from education to
accounting.
d. None of the above.
11. In engaging Foreign trade
a. allows a country to have a greater variety of
products at a lower cost than if it tried to
produce everything at home.
b. allows a country to avoid trade-offs.
c. makes the members of a country more equal.
d. increases the scarcity of resources.
e. is none of the above.
12. Which of the following statements about
trade is false?
a. an import quota that restricts imports to
the same degree as a tariff raises more
government revenue than the equivalent
tariff.
b. opponents of free trade often argue that free
trade destroys domestic jobs.
c. if a foreign country subsidizes its export
industries, its tax payers are paying to improve
the welfare of consumers in the importing
countries.
d. all statements are true
13. If it is discovered that using drugs enhances a
person's chance of contracting a lethal disease,
the cost of using drugs
a. increases
b. decreases
c. is not affected.
d. is irrelevant, since they are illegal anyway.
14. If the world price for a good exceeds the
before-trade domestic price for a good, then that
country must have?
a. an absolute advantage in the production of the
good.
b. an absolute disadvantage in the production of
the good.
c. a comparative advantage in the production
of the good.
d. a comparative disadvantage in the production
of the good.
15. When economists say, "There is no such
thing as a free lunch," they mean that all
economic decisions involve trade-offs. (T or F)
-T
16. Rational people act only when the marginal
benefit of the action exceeds the marginal cost.
(T or F) - T
17. A tax on alcoholic drinks raises the price of
alcoholic drinks and provides an incentive for
consumers to drink more. (T or F) - F
18. An unintended consequence of public support
for higher education is that low tuition provides
an incentive for many people to attend state
universities even if they have no desire to learn
anything. (T or F) - T
19. High and persistent inflation is caused by
excessive growth in the quantity of money in the
economy. (T or F) - T
20. In the short run, a reduction in inflation tends
to cause a reduction in unemployment. (T or F)
-F
21. Self-sufficiency is the best way to increase
one's material welfare. (T or F) - F
22. If trade benefits one country, its trading
partner must be worse off due to trade. (T or F) -
F
23. When a country removes a specific import
restriction, it always benefits every worker in
that country. (T or F) - F
 International Business and Trades
24. If gains from trade are based solely on
comparative advantage, and if all countries have
the same opportunity costs of production, then
there are no gains from trade. (T or F) - T
25. If the world price for a good exceeds the
before-trade domestic price for that good, the
country should import that good. (T or F) - F
26. Countries should import products for which
they have a comparative advantage in
production. (T or F) - F
27. If free trade is allowed and a country imports
wheat, domestic buyers of bread are better off
and domestic farmers are worse off when
compared to the before-trade domestic
equilibrium. (T or F) - T
28. If free trade is allowed and a country exports
a good, the gains of domestic producers exceed
the losses of domestic consumers and total
surplus rises. (T or F) - T
29. Trade can make everyone better off if the
winners from the trade compensate the losers
form trade. (T or F) - T