D311 Exam 1 – Questions & Solutions (100% Accurate)
What are the trade impacts of free trade agreements? (3) Right Ans - Trade
barriers drop for member countries: Trade creation
Trade barriers remain higher for nonmember countries (static): Trade
diversion
Market size increases (dynamic): Trade creation
1/3 of global trade is ___ trade Right Ans - intra-firm
Over ___ Foreign Direct Investment per year Right Ans - $1.3 trillion
2/3 of FDI stock now in the ___ sector, 1/3 in ___ Right Ans - services,
manufacturing
Over ___ trillion in assets of foreign affiliates Right Ans - $50
By 2030, ___ economy will be larger than that of the US and EU combined
Right Ans - Asia's
___, ____, or ___ annual sales exceed GDP of 50 least developing countries
combined Right Ans - Walmart, Exxon-Mobil, Shell's
What are the 3 motives for firms expanding internationally? Right Ans - 1.
Market motives
2. Economic motives
3. Strategic motives
How do emerging market MNE's (Multinational Entreprises) differ from
Western MNE in motives? (4) Right Ans - 1. Acquiring strategic assets to
compensate for their weaknesses
2. Seizing market opportunities
3. Institutional arbitrage
4. Seeking resources and commodities
Two types of Market Motives Right Ans - 1. Offensive motive
2. Defensive motive
,Offensive Market Motive Right Ans - Seize market opportunities in foreign
countries through trade or investment
Defensive Market Motive Right Ans - To protect and hold a firm's market
power or position in the face of threats from domestic rivalry or changes in
government policy
5 Strategic Motives for Firms Expanding Internationally Right Ans - 1.
Capitalize on distinctive resources or capabilities already developed at home
2. Establish a strong foothold in a critical foreign market
3. Be the first mover in a target foreign market
4. Benefit from vertical integration involving different countries
5. Follow the company's major customers abroad
3 Economic Motives for Firms Expanding Internationally Right Ans - 1.
Increase return through higher revenues and/or lower costs
2. Enable the company to benefit from differences in 1) cost of labor 2) natural
resources/raw materials 3) capital 4) talents (science, innovation, R&D) 5)
differences in policy treatment (tax, tariff, treaties)
3. Diversify geographic and eco-political risks
What kind of questions do international trade theories answer? Right Ans -
They help understand trade patterns and relationships. Examples: What
products should be traded? How much should be traded? With whom should
trades take place? Should government control trade?
How many international trade theories are there? Right Ans - 4 categories
(interventionist, free trade, national trade patterns, export dynamics) with 10
theories
Interventionist Theories (2) Right Ans - 1. Mercantilism
2. Neomercantilism
Free Trade Theories (2) Right Ans - 1. Theory of Absolute Advantage
2. Theory of Comparative Advantage
Theories to Explain National Trade Patterns (4) Right Ans - 1. Theory of
Country Size
2. Theory of Economic Size (how much does a country trade)
, 3. Factor Proportions Theory (what types of products does a country trade)
4. Country-Similarity Theory (with whom do countries trade)
Export Dynamic Theories (2) Right Ans - 1. Product Life Cycle (PLC)
Theory
2. Diamond of National Advantage
Theory of Production Factor Movement (1) Right Ans - Factor Mobility
Theory (capital, technology, and people)
Mercantilism (interventionist theory) Right Ans - Was popular from 1500
to 1800 that measured a country's wealth by its holding of treasure (usually
gold). The government policy was to export more than they imported,
governments would impose restrictions on most imports and they subsidized
products for export
The Concept of Balance of Trade (Mercantilism) Right Ans - To amass a
surplus (favorable balance of trade), a country must export more than it
imports and then collect gold and other forms of wealth from countries that
run a deficit (unfavorable balance of trade)
Neomercantilism (interventionist theory) Right Ans - The running of a
favorable balance of trade (run an export surplus) to achieve some social or
political objective
Who invented the theory of absolute advantage (free trade theory) Right
Ans - Invented in 1776 by Adam Smith that asserted that the wealth of a
nation consisted of its citizens access to goods and services
According to the theory of absolute advantage (free trade theory), how can a
country maximize its own economic well-being? Right Ans - By specializing
in the production of those goods and services that it can produce more
efficiently than any other nation and enhance global efficiency through
participation in unrestricted free trade
How does specializing in production, according to the theory of absolute
advantage (free trade theory), benefit an economy? (3) Right Ans - 1.
workers become more skilled by repeating the same task
What are the trade impacts of free trade agreements? (3) Right Ans - Trade
barriers drop for member countries: Trade creation
Trade barriers remain higher for nonmember countries (static): Trade
diversion
Market size increases (dynamic): Trade creation
1/3 of global trade is ___ trade Right Ans - intra-firm
Over ___ Foreign Direct Investment per year Right Ans - $1.3 trillion
2/3 of FDI stock now in the ___ sector, 1/3 in ___ Right Ans - services,
manufacturing
Over ___ trillion in assets of foreign affiliates Right Ans - $50
By 2030, ___ economy will be larger than that of the US and EU combined
Right Ans - Asia's
___, ____, or ___ annual sales exceed GDP of 50 least developing countries
combined Right Ans - Walmart, Exxon-Mobil, Shell's
What are the 3 motives for firms expanding internationally? Right Ans - 1.
Market motives
2. Economic motives
3. Strategic motives
How do emerging market MNE's (Multinational Entreprises) differ from
Western MNE in motives? (4) Right Ans - 1. Acquiring strategic assets to
compensate for their weaknesses
2. Seizing market opportunities
3. Institutional arbitrage
4. Seeking resources and commodities
Two types of Market Motives Right Ans - 1. Offensive motive
2. Defensive motive
,Offensive Market Motive Right Ans - Seize market opportunities in foreign
countries through trade or investment
Defensive Market Motive Right Ans - To protect and hold a firm's market
power or position in the face of threats from domestic rivalry or changes in
government policy
5 Strategic Motives for Firms Expanding Internationally Right Ans - 1.
Capitalize on distinctive resources or capabilities already developed at home
2. Establish a strong foothold in a critical foreign market
3. Be the first mover in a target foreign market
4. Benefit from vertical integration involving different countries
5. Follow the company's major customers abroad
3 Economic Motives for Firms Expanding Internationally Right Ans - 1.
Increase return through higher revenues and/or lower costs
2. Enable the company to benefit from differences in 1) cost of labor 2) natural
resources/raw materials 3) capital 4) talents (science, innovation, R&D) 5)
differences in policy treatment (tax, tariff, treaties)
3. Diversify geographic and eco-political risks
What kind of questions do international trade theories answer? Right Ans -
They help understand trade patterns and relationships. Examples: What
products should be traded? How much should be traded? With whom should
trades take place? Should government control trade?
How many international trade theories are there? Right Ans - 4 categories
(interventionist, free trade, national trade patterns, export dynamics) with 10
theories
Interventionist Theories (2) Right Ans - 1. Mercantilism
2. Neomercantilism
Free Trade Theories (2) Right Ans - 1. Theory of Absolute Advantage
2. Theory of Comparative Advantage
Theories to Explain National Trade Patterns (4) Right Ans - 1. Theory of
Country Size
2. Theory of Economic Size (how much does a country trade)
, 3. Factor Proportions Theory (what types of products does a country trade)
4. Country-Similarity Theory (with whom do countries trade)
Export Dynamic Theories (2) Right Ans - 1. Product Life Cycle (PLC)
Theory
2. Diamond of National Advantage
Theory of Production Factor Movement (1) Right Ans - Factor Mobility
Theory (capital, technology, and people)
Mercantilism (interventionist theory) Right Ans - Was popular from 1500
to 1800 that measured a country's wealth by its holding of treasure (usually
gold). The government policy was to export more than they imported,
governments would impose restrictions on most imports and they subsidized
products for export
The Concept of Balance of Trade (Mercantilism) Right Ans - To amass a
surplus (favorable balance of trade), a country must export more than it
imports and then collect gold and other forms of wealth from countries that
run a deficit (unfavorable balance of trade)
Neomercantilism (interventionist theory) Right Ans - The running of a
favorable balance of trade (run an export surplus) to achieve some social or
political objective
Who invented the theory of absolute advantage (free trade theory) Right
Ans - Invented in 1776 by Adam Smith that asserted that the wealth of a
nation consisted of its citizens access to goods and services
According to the theory of absolute advantage (free trade theory), how can a
country maximize its own economic well-being? Right Ans - By specializing
in the production of those goods and services that it can produce more
efficiently than any other nation and enhance global efficiency through
participation in unrestricted free trade
How does specializing in production, according to the theory of absolute
advantage (free trade theory), benefit an economy? (3) Right Ans - 1.
workers become more skilled by repeating the same task
