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Global Economics for Managers > C211 > Flashcards

C211 Flashcards

1
Q

Describes that firms-specific resources and capabilities that lead to the firm’s success of failure (internal- in the firm’s control).

A

Core perspective 1 -Resource-based view

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2
Q

Describes that formal and informal institutions that lead to firm success and failure (external- outside of the firm’s control).

A

Core perspective 2 - Institution-based view

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3
Q

The close integration of countries and people of the world

A

Globalization

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4
Q

Three views on globalization

A

New Force, A long-run historical evolution, and A pendulum

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5
Q

Sweeping through the world in recent time (A Western ideology focused on exploiting the world through MNEs)

A

New force

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6
Q

A long run historical evolution since the dawn of human history (one directional)

A

A long-run historical evolution

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7
Q

Swings from one extreme to another from time to time (not recent nor one directional)

A

A pendulum

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8
Q

What is FDI

A

Foreign direct investment

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9
Q

Investment in controlling and managing value-added activities in other countries. (key terms: ownership, control)

A

Foreign direct investment (FDI)

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10
Q

Upstream or downstream moves in different value-chain stages in a host country (producing vs. selling)

A

Vertical FDI

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11
Q

Duplicating home country activities at the same value-chain stage in a host country

A

Horizontal FDI

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12
Q

What is the OLI advantage

A

Ownership advantage,
Location advantage,
Internalization advantage

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13
Q

Refers to the multinational firm’s possession and leveraging of a certain valuable, rare, or hard to imitate and or organizationally embedded assets overseas (VIRO)

A

Ownership advantage

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14
Q

Advantages enjoyed by firms because they do business in a certain place. Such as natural resources, labor resources, location proximity.

A

Location advantage

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15
Q

The replacement of cross-border markets such as exporting and importing with one firm locating in two or more countries to avoid taxes and tariffs.

A

Internalization advantage

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16
Q

What are the three political views on FDI?

A

Radical view,
Free market view,
and Pragmatic view

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17
Q

Treats FDI as an instrument of imperialism and as a vehicle for exploitation of domestic resources by foreign capitalists and firms (opponents of FDI).

A

Radical

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18
Q

Suggests that if unrestricted by government intervention it will enable countries to tap into their absolute and competitive advantages by specializing in the production of certain goods and services (a proponent of FDI).

A

Free Market

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19
Q

A view of FDI that had both pros and cons and only approves FDI when benefits outweigh the costs.

A

Pragmatic nationalism view

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20
Q

The collective attempts between competing firms to reduce competition.

A

Collusion

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21
Q

For collusion to exist the following market characteristics must be present

A

few firms - oligopoly market

existence of a price leader

homogeneous product

High barriers for market entry and high commonality

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22
Q

What is VIRO?

A

value (firms must create value when engaging with rivals),

rarity (certain assets are rare generating significant advantage in competitive dynamics),

imitability (trying to imitate successful rival, which fails most of the time),

organization (Some firms are better organized for competitive action)

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23
Q

Informed by the VRIO framework which drive decision and actions associated with competitive dynamics

A

Resource-based essentials

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24
Q

The extent to which a given competitor possesses a strategic endowment comparable in terms of both type and amount to that of the rival firm. IBM and Amazon

A

Resource similarity

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25
Q

A set of actions to gain competitive advantage

A

The theory of attack

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26
Q

A set of actions in response to the attack

A

The theory of counterattack

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27
Q

Choosing to collaborate with other firms to reduce competition

A

Cooperation

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28
Q

The idea that one party (the agent) credibly conveys some information about itself to another party

A

Signaling

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29
Q

four strategies that local firms can take to fight MNEs.

A

Contender, defender, dodger, extender

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30
Q

Firm engages in rapid learning and the expands overseas

A

Contender

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31
Q

centers on local assets in areas in which the multinational firm is weak

A

Defender

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32
Q

cooperates with the multinational firm by going joint venture

A

Dodger

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33
Q

leveraging homegrown competencies abroad

A

Extender

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34
Q

refers to importing more than exporting to other nations

A

Trade deficit

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35
Q

exporting more than importing to other nations

A

Trade surplus

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36
Q

the aggregation of importing and exporting that leads to the country level trade surplus of deficit

A

Balance of trade

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37
Q

three types of classical international trade theories.

A

Mercantilism, Absolute advantage, and Comparative advantage

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38
Q

views the international trade as a zero-sum game meaning they believe that international trade has winner and losers

A

Mercantilism

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39
Q

Advanced by Adam Smith and is defined as economic advantage one nation enjoys that is superior to other nations (key terms: productivity and efficiency).

A

Absolute advantage

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40
Q

Advanced by David Ricardo and states relative advantage in one economic activity comparison with other nations (key terms: lower opportunity cost, who can produce an item cheaper)

A

Comparative advantage

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41
Q

Three types of modern international trade theories

A

Product lifecycle, Strategic trade, and National competitive advantage (diamond theory)

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42
Q

Suggests patterns of trade change over time as production shifts from new to maturity and to a standardized stage.

A

Product lifecycle

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43
Q

Introductory stage – In this stage the firm can command premium prices.

Maturity stage – In this stage the production increases as other developed countries product the item

Standardized stage – the production moves to low-cost countries like developing countries

A

Three stages of product lifecycle

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44
Q

suggests that intervention by government in certain industries can enhance their odds of success.

A

Strategic trade

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45
Q

suggests that the competitive advantage of certain industries depends on four aspects that form a diamond shaped diagram.

A

National competitive advantage (diamond theory)

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46
Q
  1. firm strategy, structure and rivalry,
  2. Country factor and endowments,
  3. Domestic demand condition,
  4. Related supported industries
A

The four aspects of National competitive advantage (diamond theory)

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47
Q

What is the relationship between mercantilism and protectionism?

A

Mercantilism is a protectionist view of trade

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48
Q

What is an exchange rate?

A

The price of a currency in the terms of another currency

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49
Q

How do supply and demand determine the exchange rate of a country?

A

Prices are determined by the forces of supply and demand on a daily basis.

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50
Q

an increase in the value of the currency

A

Currency appreciation

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51
Q

a decrease in the value of a currency

A

Currency depreciation

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52
Q

The government sets exchanges rate of the currency relative to other currencies.

A

Fixed exchange rate policy

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53
Q

Supply and demand conditions determine the exchange rate

A

Floating exchange rate policy

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54
Q

When the government links developing countries currency to a key currency like dollar

A

Pegged exchange rate policy

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55
Q

floating policy with a selective government intervention

A

Managed (dirty) float exchange rates policy

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56
Q

How can changes in the interest rate affect the exchange rate?

A

Interest rate and exchange rate have a positive relationship.

Higher interest rates attract foreign funds therefore, as the demand for the currency increases so does the exchange rate.

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57
Q

How can changes in the inflation rate affect the exchange rate?

A

The inflation rate and the exchange rate have a negative relationship.

Therefore, as inflation increases the exchange rate decreases.

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58
Q

A transaction that protects traders and investors from exposure to fluctuations of the spot rate.

A

Currency hedging

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59
Q

Spreading out activities in many countries in different currency zones to offset currency loss in one zone or region through gains in other regions.

A

Strategic hedging (currency diversification)

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60
Q

Three types of currency transactions

A
  1. Spot rate
  2. Forward transactions 3. Currency swap
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61
Q

a single shot exchange of one currency for another

A

Spot rate

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62
Q

buy and sell currencies now for future delivery to reduce your risk in the future

A

Forward transaction

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63
Q

One currency is converted into another at time 1 with the agreement to revert it to the original currency at time 2 in the future

A

Currency swap

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64
Q

If a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this?

A

Forward transactions

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65
Q

a. Establishing entry barriers for late movers

b. Avoidance with clash of dominant firms at home

A

First mover

66
Q

a. Free ride on first mover investment

b. Resolution of technological and market uncertainties

A

Later mover

67
Q

Two modes of foreign market entries

A
  1. Equity
  2. Non-equity
68
Q

Large-scale entry, requires more risk, and ownership. Examples: wholly owned subsidiary, joint venture, greenfield, acquisition

A

Equity

69
Q

Small scale, less risk, no ownership. Examples: Contracts, R&D contracts, turnkey projects, licensing agreements

A

Non-equity

70
Q

How do institutions reduce uncertainty?

A

By singling which actions are acceptable and which are not.

71
Q

the three pillars under the institution-based view of global business.

A

regulatory, normative, and cognitive

72
Q

The coercive power of government (formal), such as contracts and red lights

A

Regulatory pillar

73
Q

How the values, beliefs, and actions of other players influence individual firms (informal), and they differ in different countries. Example: a thumbs up is good in the US but a bad sign in Persia

A

Normative pillar

74
Q

Internalized taken for granted values and beliefs that guide behavior (informal). Example: Whistleblower

A

Cognitive pillar

75
Q

laws, regulations, and rules focusing on political, legal and economic systems

A

Formal institutions

76
Q

norms, culture, and ethics that define acceptable standards

A

Informal institutions

77
Q

Mangers and firms rationally purse their interest within formal and informal constraints (boundless rationality)

A

Core proposition 1 of institution-based view of global business

78
Q

State where formal constrains are unclear or fail, informal constrains will play a larger role in reducing uncertainty and providing constancy to individual firms

A

Core proposition 2 of institution-based view of global business

79
Q

A system in which only one person or party exercise absolute political control over the population. Example: Iraq, Libya, Syria

A

Totalitarianism

80
Q

Types of totalitarianism

A

Communism, right-wing, theocratic, tribal

81
Q

Communist(m)

A

centers on the communist party

82
Q

Right-wing

A

Against communism, backed by the military, restricts political freedom

83
Q

Theocratic

A

Religious led party

84
Q

Tribal

A

One tribe or ethic group monopolizes power

85
Q

Citizens elect representatives to the government of the country on their behalf.

Individual right to freedom of expression and organization is highly recognized. People are free to open businesses and the laws are transparent

A

political system of Democracy

86
Q

Derived from roman law, is the oldest and most widely distributed around the world. Comprehensive statues and code

A

Civil Law

87
Q

English origin, shaped by precedents and traditions from previous judicial decisions (more flexible compared to civil law)

A

Common Law

88
Q

Based on religious teachings (Saudi Arabia, United Arab Emirates, and Iran)

A

Theocratic Law

89
Q

characterized by invisible hand or market forces or supply and demand. All factors of production should be privately owned

A

Market economy

90
Q

A system in which factors of production are owned by government, supply and demand and pricing are planned by government

A

Command economy (centrally planned)

91
Q

Has elements of both a market economy and a command economy. Most economies are mixed

A

Mixed economy

92
Q

Totalitarianism countries often experience war, riots, protests, chaos, and breakdowns, which result in higher political risk having a negative impact on domestic and foreign firms. Example – Iran, Saddam Hussein,

A

Political risk

93
Q

The legal rights to use an economic property and derive income other benefits from it

A

Property right

94
Q

Intangible assets resulting from intellectual activity such as patents, copyrights, and trademarks

A

Intellectual property rights

95
Q

how are they property rights protected?

A

Property rights are protected on a country-by-country basis

96
Q

the gold standard for a high level of intellectual property right protection that countries are required to adopt to become a signatory country to the World Trade Organization

A

the Paris Convention

97
Q

Agreement on trade-related aspects of intellectual property rights is also called what?

A

TRIPS

98
Q

What are the reasons why intellectual property protections are critical in today’s global business environment?

A

usually different among different countries and enforced differently

99
Q

Shows what combination of goods one can afford given the price of those good and the given income

A

Budget constraint

100
Q

What information is being represented by the constraint?

A

The price of the good/services and the consumers income

101
Q

How would an increase in income impact a budget constraint?

A

the consumer can buy more goods, the budget line shifts out to right

102
Q

How would the increased price of a good impact a budget constraint?

A

the consumer can afford less of that product

103
Q

If the price of both goods decreased by 10%; what is the impact on the budget constraint?

A

the consumer can now afford 10% more of the goods

104
Q

represents all combinations of goods/services that a person is different to.

A

Indifference Curve

105
Q

What are the 4 properties of indifference curves?

A
  1. Downward sloping
  2. Higher ones are better
  3. Don’t cross
  4. Bowed inward
106
Q

Two types of cost that make up total cost.

A

Fixed and variable costs

107
Q

The cost of a firm factors of production (land, capital, and entrepreneurship) Total fixed cost doesn’t change as output changes.

A

Fixed costs

108
Q

The cost of variable factors of production used by a firm (the cost of labor, inputs/ingredients).

A

Variable costs

109
Q

The additional cost of producing one more unit (the change in total cost given the in quantity (growth)

A

Marginal costs

110
Q

Average total cost equals what?

A

Average fixed cost + average variable cost

111
Q

total fixed cost per unit of output

A

Average fixed costs

112
Q

total variable cost per unit of output

A

Average Variable cost

113
Q

total cost per unit of output

A

Average total cost

114
Q

What is the relationship between Marginal Cost and Average Variable and Average Total Costs?

A

a. If marginal cost is below average variable and average total costs the averages cost are decreasing.

b. If marginal cost is above averages then the averages begin to increase

c. The marginal cost cross both average curves at their minimums

115
Q

At least one input is fixed. Ex: rent

A

Short-run

116
Q

All inputs are variable.

A

Long-run

117
Q

What is the Federal Funds rate?

A

The equilibrium interest rate

118
Q

A percentage of every individual bank deposit that banks hold.

A

Bank reserves

119
Q

The discount interest rate that the Federal Reserve charges to loan out money

A

The discount window rate (window right)

120
Q

The discount interest rate that the Federal Reserve charges to loan out money

A

Require reserve ratio

121
Q

The buying and selling of government treasury bonds

A

Open market operations

122
Q

What three actions could the Federal Reserve take to DECREASE the money supply?

A

a. Open market sale – The Fed takes M1 money in exchange for bonds

b. Increase the Discount Window Rate – Cost if borrowing for banks rises so they lend less

c. Increase reserve requirement ratio – Banks have less money to lend

123
Q

What impact will the decrease in the money supply have on the Federal Funds rate?

A

The market interest rate increases, decreasing investments and aggregate demand

124
Q

The economy is experiencing a recession. What are three ways the Federal Reserve can DECREASE the interest rate (federal funds rate)?

A

a. Decrease the reserve requirement
b. Decrease the discount window rate
c. Buy government treasury bonds

125
Q

An increase in government expenditure or reduction in taxes can increase money demand pushing up the tax rate and decreasing aggregate demand

A

The crowding out effect

126
Q

The initial spending by the government or tax cuts creates more money through increased consumption spending as it works through the economy. This leaves a larger total effect on aggregate demand than the initial change.

A

expenditure multiplier effect

127
Q

If government spending increases, using the multiplier effect, is the effect on aggregate demand (AD) larger or smaller than the increase in government spending?

A

Larger total effect on aggregate demand than the increase in government spending

128
Q

If the government uses fiscal policy to decrease government spending, what impact will this have on aggregate demand?

A

Aggregate demand will be left smaller than before (the crowding out effect)

129
Q

What is the law of demand?

A

As price increases Quantity Demanded falls

130
Q

How does the law of demand shape the market demand curve?

A

Demand curves are always downward sloping

131
Q

a. Change in Quantity Demanded- A movement ALONG the Demand Curve

b. Change in Demand- A SHIFT of the ENTIRE Demand Curve

c. Change in Quantity Supplied- A movement ALONG the Supply Curve

d. Change in Supply- A SHIFT of the ENTIRE Supply Curve

A

What are the factors that shift the demand curve?

132
Q

a. Shows the relationship between the Quantity Supplied and the Price

b. It represents the Marginal Cost of production to the firm

c. It is the minimum price the firm can accept

d. Which is why it is sometimes called the Willingness to Accept Curve

A

Supply curve

133
Q

a. Law of supply: As price increases the Quantity Supplied increases

b. The supply curve is always upward sloping

A

Factors that shift the supply curve

134
Q

the percentage change in the quantity demanded of a good or service divided by the percentage change in the price.

A

Price elasticity of demand

135
Q

one where a change in price leads to a significant shift in demand and where substitutes are available for an item

A

Good elasticity

136
Q

demand for a good or service is static even when its price changes without any acceptable goods

A

Good inelasticity

137
Q

the corresponding change in the demand of a product in response to the change in a consumer’s income

A

Income elasticity

138
Q

The willingness of the consumers to pay for an item minus the actual payment that they make.

A

Consumer surplus

139
Q

The price that a producer receives minus the cost of producing that item.

A

Producer surplus

140
Q

the sum of consumer surplus and producer surplus

A

Total surplus

141
Q

The market efficiency, which maximizes the consumer and producer surplus is also tells us what?

A

The equilibrium of supply and demand

142
Q

Is defined as market value of all final goods and services produced within a country in a given period of time (year).

A

Gross domestic product (GDP)

143
Q

four components of GDP

A

Consumption, investment spending,
Government purchases, net export

144
Q

The spending by household on goods and services, except for new housing.

A

Consumption

145
Q

The purchase of goods that we will use in the future to produce more goods and services. Including new house purchases.

A

Investment spending

146
Q

the spending on goods and services by local, state and federal governments.

A

Government spending

147
Q

exports minus imports, defined as foreign purchases of domestically produced goods

A

Net export

148
Q

why national income must be equal to national expenditure in the economy as a whole?

A

each transaction has two side; both income and expenditure

149
Q

Why are transfer payments such as social security not counted in the government expenditures portion of GDP?

A

They are not made in exchange for currently produced goods and services

150
Q

GDP does not include access to health care, quality of environment, education, and leisure time; which means what?

A

It’s not always a good measure of wellbeing

151
Q

Why do countries choose to trade?

A

To benefit both countries

152
Q

If the country chooses to export the good, who are the winners and losers?

A

Consumers losers as consumer surplus decreases and producers are the winners as producer surplus increases

153
Q

If the country chooses to import the good, who are the winners and losers?

A

Consumers are the winners as consumer surplus increases and producer surplus decreases

154
Q

A reduction in total surplus; a loss to society

A

Deadweight

155
Q

five arguments against free trade

A

Job argument, national security, infant industry, unfair competition, protection as a bargaining chip

156
Q

Free trade destroys domestic jobs

A

Job argument

157
Q

We will be dependent on foreign countries

A

National security

158
Q

The idea that government restricts trade to allow new industries to get on their feet

A

Infant industry

159
Q

The idea that other countries do not play but the same rules

A

Unfair competition

160
Q

e. Protection as a barging chip

A

Retaliating

Global Economics for Managers (1 decks)

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