Q&A Hero

Q: In most cases, which type of government protection assistance is most controversial? A) business development services B) foreign business contacts C) trade expositions D) tariffs

Q: What is the primary difficulty associated with dismantling developed countries' agricultural subsidies? A) Rural areas in the United States, the European Union, and Japan are disproportionately represented in their governments. B) Developing countries put pressure on developed countries to maintain the subsidies so that they receive food products at a lower price. C) The subsidies are used to counter the commodity agreements set up mainly by developing countries. D) The subsidies are at the consumer, rather than producer, level, and everyone benefits from the lower prices.

Q: Which term refers to a tariff or duty assessed as a percentage of an item's value? A) specific duty B) effective tariff C) ad valorem duty D) compound tariff

Q: In addition to protection, tariffs serve to ________. A) generate revenue B) subsidize exports C) subsidize imports D) increase consumption

Q: An import tariff may be protective ________. A) only if it is on imports the country produces domestically B) if it serves primarily to restrict entry of hazardous materials C) if it does not generate significant tax revenue for essential industries D) even though the importing country does not produce the product

Q: The most common type of tariff is the ________ tariff. A) export B) import C) transit D) ad valorem

Q: What is the main motive for countries' protection of their film/cinema industries? A) to keep prices low for their citizens B) to improve their balance of payments C) to diversify their economies D) to maintain their cultural sovereignty

Q: Defense arguments are sometimes used to prevent exports to unfriendly countries. This runs the risk of the targeted country ________. A) becoming politically destabilized B) removing import restrictions C) finding alternative sources of supply D) banding with other countries to form a cartel

Q: A possible drawback to the essential industry argument for import protectionism is ________. A) that such protection hurts the protecting country's balance of payments B) in times of military emergency, almost any product could be considered essential C) other countries find supplies elsewhere D) unemployment increases in the protecting country

Q: An argument against limiting exports to unfriendly countries is that ________. A) the costs of the sanctions are borne by innocent people rather than by leaders B) markets cannot be regained after the countries become friendly C) one country's essential product is superfluous to another D) the exporting nation's cultural identity is harmed

Q: According to the optimum tariff theory, a foreign producer will most likely ________. A) ship highly taxed goods internationally on a per-unit basis B) lower its export prices if the importing country imposes an import tax on its products C) assess a tax on goods shipped internationally based on a percentage of the goods' value D) seek mport tariffs by using the comparable access argument

Q: Countries sometimes fear that foreign producers are pricing their exports artificially low. This fear is most likely based on the assumption that ________. A) foreign companies will lack the earnings to repay their foreign debt B) insufficient earnings will be available to improve product technology C) foreign producers will charge exorbitant prices after putting competitors out of business D) developing countries will be unable to maintain critical industries needed in times of war

Q: There are several reasons for a company to sell products abroad at either below cost or below the price in the home country. Which of the following is one of these reasons? A) encouraging foreign consumers to try new products B) improving the exporting country's terms of trade C) gaining imports that are sold below cost D) following import substitution objectives

Q: Exporting below cost or below the home country price is called ________. A) countertrade B) an export-led development policy C) a strategic trade policy D) dumping

Q: All of the following are potential problems of using export controls EXCEPT which one? A) There is an incentive for other countries to develop production of their own. B) Domestic producers may have less incentive to increase output. C) Prices go up in the country imposing the controls. D) There is more incentive for smuggling.

Q: Export restrictions have a tendency to ________. A) favor domestic consumers B) protect employment in the export-restricted industries C) lower prices in foreign markets D) encourage the development of substitutes in the restricting country

Q: Countries most likely establish export restrictions to ________. A) retaliate against foreign import controls B) raise prices in foreign markets C) encourage substitute products D) reduce domestic production

Q: Country X is withholding goods from international markets in an attempt to raise prices abroad. Such actions will be most effective for Country X if the nation ________. A) supports the development of substitutions B) provides domestic industries with tax breaks C) receives low-interest loans from foreign banks D) holds a monopoly on the product or resource

Q: All of the following are reasons a country might institute import restrictions to improve its balance of trade position with other countries EXCEPT to ________. A) maintain essential industries B) reduce imports and encourage exports C) get comparable access for its companies D) bargain away restrictions by other countries

Q: Country X wants to eliminate its balance of trade deficit while simultaneously keeping prices low for imported essentials. Which of the following methods would most likely achieve these dual objectives? A) devaluing its currency B) enacting selective import restrictions C) using tight monetary policies to deflate price levels D) spurring productivity increases through general tax breaks for industry

Q: It is sometimes contended that by imposing import controls a country might be able to increase its exports. This contention is premised on ________. A) the country's simultaneous currency depreciation, which decreases the price of its exports B) using the import taxes to institute efficiency measures in potential export industries C) raising domestic prices in one industry so that the excess domestic profits in that industry can compensate for the cost of dumping products from another industry into foreign markets D) getting other countries to maintain or relax their current import restrictions instead of escalating restrictions in a trade war

Q: Advocates of the comparable access argument for trade protection primarily assert that domestic industries ________. A) will deteriorate in countries that have lower import restrictions than their trading partners B) should be required to implement export-led development policies on foreign competitors C) are entitled to the same access to foreign markets as foreign industries have to their markets D) are forced to lower prices for domestic consumers because of foreign import restrictions

Q: The relationship between import substitution policies and export-led development policies is best characterized by which of the following? A) Import-substitution policies are more likely to lead to production of mature products, whereas export-led development policies result in production of growth products. B) The two are hard to distinguish because production under import substitution may eventually be exported. C) Production under import substitution policies, as opposed to export-led development policies, is more likely to be located in urban areas. D) Production under import substitution policies, as opposed to export-led development policies, is likely to be more labor-intensive.

Q: Which of the following best explains why the experience of countries such as Taiwan and South Korea are used to support export-led development policies? A) their low inflation B) their increased FDI C) their industry diversity D) their rapid economic growth

Q: Export-led development refers to ________. A) a country's efforts to promote its exports in order to reduce its trade deficits B) a policy to promote domestic production of goods that would otherwise be imported C) a program to promote industries with export potential D) decreases in infrastructure development due to the loss of revenue from export tariffs

Q: Which term refers to restricting imports in order to boost domestic production and consumption of goods that would otherwise be imported? A) import substitution B) terms-of-trade C) most-favored nation D) in-sourcing

Q: Terms of trade refers to ________. A) the quantity of imports that a given quantity of a country's exports can buy B) specific requirements placed on imports and exports at the port of entry or exit C) requirements agreed upon by two countries to regulate bilateral trade D) an account statement showing a country's annual imports and exports

Q: Developing countries have sometimes adopted policies to shift people out of agriculture and into industry by protecting manufactured production. One of the problems they have encountered is that ________. A) people have been too reluctant to leave rural areas to go to the cities B) food shortages have increased in rural areas because of worker shortages C) demand for social and political services has increased excessively in the cities D) developed countries have retaliated with protection of products from the developing countries

Q: Unlike the infant-industry argument, the industrialization argument for trade protection ________. A) requires independence from other countries B) stresses labor-intensive production methods despite high costs C) emphasizes use of locally available raw materials for manufacturing inputs D) presumes that economic growth will occur even if domestic manufactured prices are not globally competitive

Q: The industrialization argument for trade protection in developing countries is based on the assumption that ________. A) the protected industry will become competitive over time with economies of scale B) unemployment and underemployment exists in rural areas, so little agricultural output is lost as people move into industrial jobs C) subsidizing production is a better means of protection than limiting imports D) it is better to depend on buying agricultural surpluses from developed countries than to produce these agricultural goods

Q: Which of the following is a problem with the infant-industry argument for protection? A) Most developed countries increasingly have a larger portion of retirees than youth. B) Consumer groups become very active in protesting the higher prices that result during infancy. C) Other countries retaliate by limiting exports of technology needed by the infant industry producers. D) If the industry does not lower costs sufficiently to be competitive, it becomes a formidable pressure group for continued protection.

Q: A problem that can arise in using trade protectionism to develop international competitiveness for a domestic industry is that ________. A) it is difficult to identify industries that have a high probability of reaching competitiveness B) assistance should be given only if entry barriers to new firms are very low C) the protecting countries lose too much revenue from import duties D) a short product life cycle makes the industry quickly noncompetitive

Q: Which of the following statements most likely undermines the infant-industry argument? A) Total unit costs decrease through economies of scale. B) High tariffs to prevent foreign competition increase government revenues in the protected country. C) Domestic entrepreneurs need assistance to compete in industries with high entry barriers. D) Experience of operating over time triggers higher productivity and global competitiveness.

Q: The rationale for the infant-industry argument for trade protection is that ________. A) incubator centers in which business, government, and academia cooperate will develop entrepreneurial companies B) a country should give one firm in an industry a monopoly status so that it will grow large enough to be competitive internationally C) it takes time for an industry to become competitive in world markets, so protection is needed to help this industry pass through the critical period D) lower restrictions should be placed on products coming from countries where a government has a large sphere of political influence

Q: All of the following are generally true about trade-displaced workers EXCEPT which one? A) They move abroad to take new jobs. B) They earn less in their new jobs than they earned in their old ones. C) They spend their unemployment benefits on living rather than retraining. D) They have difficulty finding new work because of educational deficiencies.

Q: Imports can stimulate exports by ________. A) redistributing the work force B) curtailing domestic competition C) generating more tax revenue D) increasing foreign income

Q: Successful trade retaliation is most likely achieved ________. A) on agricultural products B) on manufactured products C) by a large trading country D) by a small trading country

Q: Unemployed workers are most apt to form a pressure group to support ________. A) export restrictions B) import restrictions C) price limitations D) import subsidies

Q: What is the most likely reason that consumers rarely protest import restrictions that raise the prices they pay for a specific product? A) They reason that if the import restrictions are removed, the foreign producers will raise their prices to those of the domestic producers anyway. B) Many countries prohibit consumers to band together to influence political actions. C) Typically, although the added costs to consumers for a given product are high in aggregate, they are fairly trivial for most individual consumers. D) They reason that if they do something to hurt domestic employment for one product, the displaced workers will then do something that will hurt their own employment.

Q: Assume a government is considering import restrictions on sugar because sugar imports are hurting the domestic industry. Which of the following groups is LEAST likely to speak out on the subject? A) politicians in areas that grow sugar B) employees of sugar companies C) sugar company owners D) sugar consumers

Q: Assume a government places restrictions on a specific product from a specific foreign country. What would be the government's most likely concern about the foreign country's response? A) the foreign producers raising the prices of their exports B) the foreign country restricting its own imports C) the foreign country restricting its exports in that industry D) the foreign producers seeking other markets

Q: The government of Country X imposes import restrictions on steel to help the domestic steel industry in depressed areas. What is the most likely result of such restrictions? A) damaging other industries in Country X B) devaluing the currency of Country X C) lowering steel prices in Country X D) triggering boycotts in Country X

Q: Managers should understand the effect of trade protectionism because ________. A) trade protectionism may limit the number of people permitted to practice a specific profession B) trade protectionism requires the payment of high insurance rates to transport goods internationally C) trade protectionism may prevent companies' enactment of merger and acquisition agreements D) trade protectionism may make it difficult for a company to buy what it needs from foreign suppliers

Q: Why should managers have an understanding of trade protectionism? A) Trade protectionism targets factor endowments, thus affecting the best country to locate production. B) Trade protectionism affects a company's ability to sell abroad and ability to compete at home. C) Trade protectionism affects the number of people permitted to practice a specific profession. D) Trade protectionism prevents companies' enactment of merger and acquisition agreements.

Q: The term protectionism when applied to international trade refers to ________. A) governmental restrictions and competitive support actions to affect trade flows B) payments to dock workers to prevent pilferage of imported shipments C) border checks to prevent entry of illegal aliens D) methods used to prevent intellectual property theft

Q: Trade protectionism will most likely affect which aspect of a company's operations? A) selecting employees B) investing short-term capital C) acquiring foreign supplies D) relocating personnel overseas

Q: According to Adam Smith's theory of absolute advantage, specialization allows countries to increase their efficiency for each of the following reasons EXCEPT ________. A) labor could become more skilled by repeating the same tasks B) transportation costs could be lowered by producing closer to markets C) labor would not lose time in switching from the production of one kind of product to another D) higher production would provide incentives for the development of more effective working methods

Q: Neomercantilism describes the approach of countries that try to run a favorable balance of trade to ________. A) build up gold reserves B) achieve a social or political objective C) lower their rates of inflation D) buy raw materials more cheaply

Q: Which of the following undesirable results will most likely occur for a country running a favorable balance of trade? A) higher unemployment B) higher domestic interest rates C) fewer funds to invest abroad D) granting credit that may be risky

Q: Under mercantilism, governments sought to influence trade by ________. A) establishing bilateral trading agreements with other countries B) limiting exports C) limiting imports and subsidizing exports D) encouraging the development of manufacturing in their colonies

Q: The trade theory that says a country should export more than it imports is known as ________. A) mercantilism B) absolute advantage C) comparative advantage D) import substitution

Q: All countries face the questions of what, how much, and with whom they should import and export. How they answer these questions primarily affects whether ________. A) nontradable goods become tradable B) products go through a lengthy life cycle C) companies adhere to laissez-faire export policies D) a company's present production location will be competitive

Q: Because all countries face the questions of what, how much, and with whom they should import and export, international business managers should most likely ________. A) identify their governments' trade policies to determine if an invisible hand directs these decisions B) understand the theories used to answer these questions because policies affect business operations C) establish operations in small countries where they can exert more political influence D) produce only nontradable goods that are less affected by government policies

Q: Why should managers in international business understand international trade theories? A) Countries' trade policies, based on trade theories, influence which products companies might export to given countries. B) The understanding helps managers decide whether their companies should follow laissez-faire management practices. C) The theories help managers decide whether to use large-scale versus small-scale technologies for serving their export markets. D) The comprehension is useful when deciding whether to transfer managers abroad to manage foreign operations.

Q: Which of the following is NOT a reason that international trade theory is useful for managers to understand? A) Countries use trade theories to help them decide how to improve their competitive positions, such as improving the quantity and quality of production factors. B) Countries' trade policies affect whether imports are allowed to compete against domestic production, thus affecting where companies need to produce to serve given markets. C) Countries use laissez-faire policies to intervene in the free movement of international trade, thus affecting where companies can produce most efficiently. D) Countries wrestle with the questions and set policies on what, with whom, and how much they should import and export, thus affecting companies' abilities to produce given products efficiently and sell them into given markets.

Q: From an economic standpoint, why do production factors move from one country to another? How does factor movement affect international trade?

Q: What are the arguments for and against nations developing and implementing strategic trade policies?

Q: In a short essay, discuss the four stages of the international product life cycle.

Q: What is the country similarity theory? According to this theory, what factors affect trade patterns?

Q: What is the theory of country size? How is country size determined? How does country size affect national trade patterns?

Q: What assumptions underlie the theories of specialization in international trade? What are the limitations of these assumptions?

Q: What is the difference between the free trade theories of absolute advantage and comparative advantage? How can free trade improve global efficiency?

Q: In a short essay, discuss the theory of absolute advantage and the reasons a country's efficiency improves based on this theory.

Q: In a short essay, discuss the theory of mercantilism, and discuss favorable and unfavorable balances of trade as they apply to international business.

Q: As an international business manager, how can you benefit from an understanding of international trade theories?

Q: The growth of small-scale production technology will most likely enable small countries to produce products efficiently for their own consumption.

Q: The finite nature of natural resources should work as a disadvantage for the export prices of developing countries.

Q: The combination of free trade and free movement of production factors offers maximum production efficiency.

Q: The term brain drain describes the export of high-technology products in exchange for low-technology products.

Q: The foreign-born population as a percentage of total population is substantial for some countries and insignificant for others.

Q: The international mobility of labor includes workers, students, tourists, and retirees who travel to another country.

Q: Companies and individuals transfer capital internationally primarily because of expectations of earning higher returns.

Q: A strategic trade policy is one that develops industries to lessen dependence on foreign military goods.

Q: The existence of the four favorable conditions of the diamond of national advantage does not guarantee that an industry will develop in a given locale.

Q: The four favorable domestic conditions of the diamond of national advantage help to explain how and where globally competitive companies develop and sustain themselves.

Q: An exception to the PLC theory in terms of production location is often a product with very rapid change in innovation.

Q: Luxury products are the most likely types of products to behave according to the product life cycle theory of trade.

Q: According to the PLC theory of trade, most new products are produced in countries where wage rates are low.

Q: Many products' location of production will shift internationally as the products go through their life cycle.

Q: Trade occurs more between culturally dissimilar countries than between culturally similar countries.