Global Economics for Managers latest Q&A

Global Economics for Managers Latest Questions $ Answers How do resources and capabilities influence the competitive dynamics of a business? - ANSWER Resource similarity and market commonality can yield a powerful framework for competitor analysis. Resource similarity - ANSWER The extent to which a given competitor possesses strategic endowment comparable, in terms of both type and amount, to those of the focal firm. How does resource similarity impact competitive dynamics? - ANSWER Firms with a high degree are likely to have similar competitive actions. (Starbuck's instant coffee & McDonald's iced coffee) Classical theories of international trade - ANSWER Mercantilism, Absolute advantage, and Comparative advantage Modern theory view - ANSWER Dynamic Classical theory view - ANSWER Static Absolute advantage - ANSWER The economic advantage one nation enjoys that is superior to other nations Comparative advantage - ANSWER The advantage one economic activity nation enjoys in comparison with other nations (relative, not absolute) Mercantilism - ANSWER A theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer. Features of the product life cycle? - ANSWER New, Maturing, and Standardized Strategic trade - ANSWER Intervention by governments in certain industries can enhance their odds for international success. How are supply and demand related to the exchange rate of a country? - ANSWER The price of a commodity, a country's currency, is fundamentally determined by this. Strong demand leads to price hikes; oversupply results in price drops. Which theory came first? - ANSWER Mercantilism (although both are of the idea that governments should actively protect domestic industries from imports and vigorously promote exports) If a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this? - ANSWER Forward transactions, an act know as currency hedging. Views on Globalization - ANSWER New, Evolutionary, and Pendulum "New" view on globalization - ANSWER A force sweeping through the world in recent times. "Evolutionary" view on globalization - ANSWER A long-run historical evolution since the dawn of human history "Pendulum" view on globalization - ANSWER One that swings from one extreme to another from time to time Foreign Direct Investment - ANSWER Direct investment in, control, and management of value-added activities in other countries Political views on FDI - ANSWER Radical View, Free Market View, Pragmatic Nationalism Benefits to a country receiving FDI - ANSWER Capital Inflow, Technology Spillover, Advanced Management Know-How, Job creation Costs to a country receiving FDI - ANSWER Loss of Sovereignty, Adverse effects on competition, Capital outflow. Transaction risk - ANSWER The exchange rate risk associated with the time delay between entering into a contract and settling it. Hedging - ANSWER A transaction, such as forward transactions, that protects traders and investors from exposure to the fluctuations of the spot rate. Currency hedging - ANSWER A way to protect traders and investors from being exposed to the fluctuations of the spot rate Strategic hedging - ANSWER A means of spreading out activities in different currency zones in order to offset the currency losses in certain regions through gains in other regions (currency diversification) First mover advantages - ANSWER Proprietary, technological leadership, pre-emption of scarce resources, establishment of entry barriers to late entrants, avoidance of clash with dominant firms at home, relationships with key stakeholders, (such as governments.) Late mover advantages - ANSWER Opportunity to free ride on first-mover investments, Resolution of technological and market uncertainty, First mover's difficulty to adapt to market changes.) Foreign market entries types - ANSWER Non-equity and equity Non-equity - ANSWER Reflects relatively smaller commitments to overseas markets. Determines firms MNE status. Equity - ANSWER indicative of relatively larger, harder-to-reverse commitments. Determines firms MNE status. How do institutions reduce uncertainty? - ANSWER Establish "rules of the game" that economic players play by. A standard to follow in order to survive and prosper. By signaling which conduct is legitimate and which is not, institutions constrain the range of acceptable actions. Regulatory pillar - ANSWER The coercive power of governments (laws, regs, rules) Normative pillar - ANSWER Values, beliefs, and actions of other relevant players (norms, cultures, ethics) Cognitive pillar - ANSWER The internalized, taken-for-granted values and beliefs that guide behavior. (beliefs between right/wrong) Formal institution - ANSWER One that include laws, regulations and rules Informal institution - ANSWER One that includes norms, cultures and ethics What core propositions lie at the root of the institution based view on global business? - ANSWER (1) managers and firms rationally pursue their interests and make choices within institutional constraints (bounded rationality) (2) in situations where formal constraints are unclear or fail, informal constraints play a larger role in reducing uncertainty and providing constancy to managers and firms (personal relationships and connections) The institution based view global business is grounded upon - ANSWER The dynamic interaction between institutions and firms, and considers firm behaviors as the outcome of such an interaction. How is global business affected by democracy? - ANSWER An individual's right to freedom of expression and organization. For example, starting up a firm is an act of economic expression How is global business affected by totalitarianism? - ANSWER These countries often experience wars, riots, protests, chaos, and breakdowns, which result in higher political risk. Democracy - ANSWER Citizens elect representatives to govern the country on their behalf. Totalitarianism - ANSWER One person or party exercises absolute political control over the population. Civil law - ANSWER Law that uses comprehensive statutes and codes as a primary means to form legal judgments. Common law - ANSWER Law shaped by precedents and traditions from previous judicial decisions. Theocratic law - ANSWER A legal system based on religious teachings. How do civil, common and theocratic laws compare? - ANSWER Relative to civil law, common law has more flexibility because judges have to resolve specific disputes based on their interpretation of the law. Civil law has less flexibility because judges only have the power to apply the law. Property right - ANSWER The legal rights to use an economic resource and to derive income and benefits from it. Can be used as collateral for starting a firm; not as common in developing countries, therefore hindering economic growth. Intellectual property right - ANSWER Rights associated with the ownership. They primarily include rights associated with patents, copyrights, and trademarks. Market economy - ANSWER One that is characterized by the "invisible hand" of market forces-all factors of production should be privately owned. Command economy - ANSWER One that is defined by a government taking all factors of production to be government-owned or state-owned, and all supply, demand, and pricing are planned by the government. Mixed economy - ANSWER One has elements of both a market economy and a command economy. It boils down to the relative distribution of market forces versus command forces. Indifference curve - ANSWER A curve that shows consumption bundles that give the consumer the same level of satisfaction (i.e. combinations of pizza and Pepsi with which the consumer is equally satisfied.) Four properties of an indifference curve - ANSWER (1) Higher indifference curves are preferred to lower ones. People usually prefer to consume more goods rather than less. (2) Indifference curves are downward sloping. The slope of an indifference curve reflects the rate at which the consumer is willing to substitute one good for the other. (3) Indifference curves do not cross. (4) Indifference curves are bowed inward. The slope of an indifference curve is the marginal rate of substitution—the rate at which the consumer is willing to trade off one good for the other. Marginal rate of substitution. - ANSWER The rate at which the consumer is willing to trade off one good for the other (i.e. how much Pepsi the consumer requires to be compensated for a one-unit reduction in pizza consumption) Budget constraint - ANSWER The consumption bundles that the consumer can afford. How might a budget constraint be impacted by an increase in income? - ANSWER Additional bundles could be consumed with an increase in income. Graphical elements needed to determine a consumer's optimal point of consumption - ANSWER Indifference curve and budget constraint. How is a consumer's optimal point of consumption determined precisely? What is the condition that must be met? - ANSWER The point at which this indifference curve and the budget constraint touch (the best combination of pizza and Pepsi available to the consumer.) The marginal rate of substitution equals the relative price of the two goods. Marginal cost - ANSWER The increase in total cost that arises from an extra unit of production How is marginal cost related to total cost? - ANSWER The portion of total cost resulting from an extra unit of production. Formula to calculate marginal cost - ANSWER Change in total cost divided by change in quantity If Dave's company has a total cost of $100 when quantity output is 5, and a total cost of $115 when quantity output is 6, what is the marginal cost of producing the 6th unit? - ANSWER $15 Total cost is made of two types of costs, what are they? - ANSWER Fixed and Variable. How does a firm determine to shut down in the short-run? What rule characterizes this? - ANSWER If the revenue that it would earn from producing is less than its variable costs of production. PAVC (Price is less than Avg Variable Cost) Market structure characterized as being "price takers" - ANSWER Competitive markets Price taker - ANSWER One who must accept the price as the market determines When a market is characterized as being a price taker, what fundamental shape does the demand curve for this market take? - ANSWER Horizontal line. Demand curve for a perfectly competitive firm - ANSWER Horizontal line Demand curve for a monopolistic market - ANSWER Downward-sloping What does "downward" sloping with regards to a demand curve mean? - ANSWER The monopoly has to accept a lower price if it wants to sell more output. Where do firms with market power determine the quantity of product/service they will produce? - ANSWER A firm chooses a quantity of output such that marginal revenue equals marginal cost. The firm chooses quantity so that price equals marginal cost. Thus, the firm's marginal-cost curve is its supply curve. Primary goal/objective of a firm - ANSWER Maximize profit. If the firm has price setting capacity, how will they use information about marginal costs and marginal revenues in order to accomplish their primary objective? - ANSWER The monopolist's profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve. Describe the basic distinctions between the market models with respect to: number of market participants, type of product being marketed, ease of entry/exit into the market and the prevalence of advertising/marketing - ANSWER Monopoly and Oligopoly have one to few firms, with limited products (cable TV), entry is difficult, and advertising is a natural feature. Monopolistic competition/perfect competition have many firms, mono comp has differentiated products (novels/movies) and perfect comp has identical products, entry is easy, and spend very little on advertising. Fundamental truth realized when studying the behavior of an oligopolistic firm within the context/model called "prisoner's dilemma" - ANSWER Self-interest makes it difficult for the oligopolists to maintain the cooperative outcome. Relentless logic of self-interest drives the participants toward the non-cooperative outcome, which is worse for both parties. How might an oligopolistic firm behave like a monopoly? What forces may prevent this? - ANSWER Forming a cartel and acting like a monopolist, but self-interest drives them towards competition. Federal Reserve's monetary control - ANSWER FOMC - Federal Open Market Committee and the open market operation, the purchase and sale of U.S. government bonds. Open market operations - ANSWER The purchase and sale of U.S. government bonds. When the Fed buys bonds, what impact does this have on the money supply and aggregate demand? - ANSWER After the purchase, these dollars are in the hands of the public. Thus, an open-market purchase of bonds by the Fed increases the money supply. When the Fed sells bonds, what impact does this have on the money supply and aggregate demand? - ANSWER After the sale, the dollars the Fed receives for the bonds are out of the hands of the public. Thus, an open-market sale of bonds by the Fed decreases the money supply. Discount rate - ANSWER The interest rate banks pay when borrowing from the Federal Reserve. When the Fed reduces the discount rate, what impact will this have on the money supply and the aggregate demand? - ANSWER A lower discount rate encourages banks to borrow from the Fed, increasing the quantity of reserves and the money supply. When the Fed increases the discount rate, what impact will this have on the money supply and the aggregate demand? - ANSWER Higher discount rate discourages banks from borrowing reserves from the Fed, reducing the quantity of reserves in the banking system, which in turn reduces the money supply. Reserve ratio - ANSWER The fraction of total deposits that a bank holds as reserves. What would the Fed need to do with the reserve ratio in order to increase the money supply and aggregate demand in the economy? - ANSWER Decrease the reserve requirements; therefore lowering the reserve ratio. What would the Fed need to do with the reserve ratio in order to decrease the money supply and aggregate demand in the economy? - ANSWER Increase the reserve requirements; therefore raising the reserve ratio. If the Fed uses monetary policy in a way that increases money supply, what effect will this have on interest rates and aggregate demand (consider them separately)? - ANSWER Interest rates lower and aggregate demand expands. If the government uses fiscal policy to increase government spending what impact will this have on interest rates and aggregate demand? - ANSWER Raises interest rates and an increase in aggregate demand. If the government uses fiscal policy and cuts taxes, what effect will this have on interest rates and aggregate demand? - ANSWER Raises interest rates and an increase in aggregate demand. Explain the effect an income change might have on shifting the demand curve? - ANSWER Lower income=less to spend in total=lower demand. Higher income=more to spend in total=raise demand. Normal good - ANSWER A good for which an increase in income leads to an increase in demand Inferior good - ANSWER a good for which an increase in income leads to a decrease in demand (car vs bus ride) Explain how the price of related goods is related to changes in the demand curve? - ANSWER When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes (yogurt for ice cream). When a fall in the price of one good raises the demand for another good, the two goods are called complements (hot fudge and ice cream). If Luke and I are the only sellers of paper in a given market, and Luke drops his prices for paper, how will this impact the demand for my paper? Which way will the demand curve shift? - ANSWER As Luke drops his price, your demand will decrease. Your demand curve will shift to the left. What other factors might influence the position of the demand curve? - ANSWER Price of the good itself, income, price of related goods, tastes, expectations, and number of buyers. Numerical value that determines whether or not a product/service is considered price elastic versus inelastic - ANSWER 1 - greater than or less than Income elasticity - ANSWER A measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income. Price elasticity of demand - ANSWER A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price Elastic - ANSWER Quantity moves proportionately more than the price (Price increase results in drastically lower demand). Inelastic - ANSWER Quantity moves proportionately less than the price (Price increase results in slightly lower demand) Unit elastic - ANSWER Percentage change in quantity equals the percentage change in price. Results from income elasticity - ANSWER (1) Necessities, such as food and clothing, tend to have small income elasticities. (2) Luxuries, such as caviar and diamonds, tend to have large income elasticities. Cross-price elasticity - ANSWER A measure of how much the quantity demanded of one good responds to a change in the price of another good. Computed as the percentage change in quantity demanded of the first good divided by the percentage change in price of the second good. Substitutes=positive cross-price elasticity; complements=negative cross-price elasticity. 3 types of elasticity, their equations, purpose and outcomes - ANSWER (1) Price elasticity of demand - % chg in Q D / % chg in P (2) Income elasticity - % chg in Q D / % chg in income (3) Cross-price elasticity - % chg in Q D Good 1/% chg in Good #2 P In the net, how are price (P) and quantity (Q) changed by a simultaneous increase in demand and supply? - ANSWER Price increases and quantity is ambiguous. (Dependent upon how large of a shift in supply/demand) In the net, how are price (P) and quantity (Q) changed by a simultaneous increase in demand and decrease in supply? - ANSWER Price increases and quantity is ambiguous. (Dependent upon how large of a shift in supply/demand) In the net, how are price (P) and quantity (Q) changed by a simultaneous decrease in demand and supply? - ANSWER Price is ambiguous, quantity decreases. In the net, how are price (P) and quantity (Q) changed by a simultaneous decrease in demand and increase in supply? - ANSWER Price decreases, quantity ambiguous. Tariff. - ANSWER Tax on goods produced abroad and sold domestically(tax on imported goods). A method used to restrict international trade. Dead weight loss. - ANSWER The fall in total surplus that results from a market distortion, such as a tax (new equilibrium price that is settled for the transaction will be higher and therefore some burden of this will be passed on to the consumer) How are tariff's and dead weight loss related? Explain. - ANSWER A tariff causes a deadweight loss because a tariff is a type of tax. Like most taxes, it distorts incentives and pushes the allocation of scarce resources away from the optimum. (Oversupply and under demand) Two primary categories of trade barriers - ANSWER Tariffs and Non-Tariff If an import tariff is imposed on coconuts that are imported into the U.S., how will this impact the price of coconuts for U.S. consumers? - ANSWER Increase the price. Why might a government be interested in imposing an import tariff on a good? What benefit would the government derive primarily? - ANSWER The tariff will reduce the amount of importans, increase the amount of exports. The primary benefit is that it raises revenue for the government. How would imposing an import tariff on cigars impact the domestic production of cigars? - ANSWER Quantity increases for exporting at world price. If an import tariff on coconuts was removed in the U.S., how would this impact the demand for coconuts by U.S. consumers? - ANSWER The demand would increase. What would happen to the overall domestic demand for a good if an import tariff were imposed on that good? - ANSWER It would increase. How does a tariff generally impact the following entities: consumers, producers, government? Compare the effects between the entities - ANSWER Domestic sellers are better off, and domestic buyers are worse off. In addition, the government raises revenue. Consumer surplus - ANSWER The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it Who receives consumer surplus? - ANSWER The buyer. In relation to the demand curve and price, how is consumer surplus measured? - ANSWER The area below the demand curve and above the price measures the consumer surplus in a market. Producer surplus - ANSWER The amount a seller is paid for a good minus the seller's cost of providing it Who receives producer surplus? - ANSWER The seller. In relation to the demand curve and price, how is producer surplus measured? - ANSWER The area below the price and above the supply curve measures the producer surplus in a market. How is total surplus determined? - ANSWER The total value to buyers of the goods, as measured by their willingness to pay, minus the total cost to sellers of providing those goods. In what ways might government or policy makers make use of surplus measures? - ANSWER To measure the economic well being of a society, in terms of efficiency and equality. (i.e. maximizing total surplus received (efficiency) and distributing economic prosperity (equality) uniformly among the members of society Macroeconomics - ANSWER The study of economy-wide phenomena, including inflation, unemployment, and economic growth. Microeconomics - ANSWER The study of how households and firms make decisions and how they interact in markets. Why must income equal expenditure in an economy as a whole? - ANSWER An economy's income is the same as its expenditure because every transaction has two parties: a buyer and a seller. Gross domestic product (GDP) - ANSWER The market value of all final goods and services produced within a country in a given period of time. Four components of GDP - ANSWER (1) Consumption (2) Investment (3) Govt purchases (4) Net exports Why are transfer payments such as social security not counted in government expenditures? - ANSWER Because they are not made in exchange for a currently produced good or service. Transfer payments alter household income, but they do not reflect the economy's production. Real GDP - ANSWER The production of goods and services valued at constant prices, ie. $1 Nominal GDP - ANSWER The production of goods and services valued at current prices, i.e. $1 in 2013, $2 in 2014, etc... Reason to measure GDP in real terms - ANSWER Because (answer) GDP is not affected by changes in prices, changes in (answer) GDP reflect only changes in the amounts being produced. Effects of Gender Inequality on the Economy How does gender inequality affect labor market participation? ANSWER: Gender inequality often limits women's access to employment opportunities. Many women face barriers such as cultural norms, lack of education, and limited access to financial resources. This results in a lower labor force participation rate for women compared to men, which reduces overall productivity and economic growth. Additionally, women are often confined to lower-paying, informal jobs, which exacerbates income inequality and limits their contribution to the formal economy. What is the impact of gender inequality on entrepreneurship? ANSWER: Gender inequality hampers women’s ability to engage in entrepreneurial activities. Women often face challenges such as limited access to credit, lack of property ownership rights, and inadequate support systems. These barriers restrict their ability to start and grow businesses, which in turn stifles innovation and economic diversification. Addressing these inequalities can unlock the potential of women entrepreneurs and contribute significantly to economic development. How does gender inequality influence education outcomes and economic growth? ANSWER: Gender inequality in education limits women’s access to quality education and skill development. This creates a gap in human capital, reducing the potential workforce’s productivity. In the long run, unequal access to education perpetuates cycles of poverty and inequality, hindering economic growth. Countries that prioritize gender equality in education tend to experience higher GDP growth rates and better social outcomes. What role does policy play in addressing gender inequality? ANSWER: Policy plays a crucial role in addressing gender inequality. Effective policies include enforcing gender-based anti-discrimination laws, providing equal access to education and healthcare, and promoting women's participation in decision-making processes. Initiatives such as affirmative action and gender quotas in leadership positions can also help bridge the gap. Strengthening these policies can create a more inclusive and equitable society, boosting economic performance. How does gender inequality affect household income and poverty levels? ANSWER: Gender inequality often results in unequal income distribution within households. Women, who are typically paid less than men for the same work, contribute less to household income. This disparity exacerbates poverty, especially in single-income households headed by women. Addressing wage gaps and empowering women economically can significantly reduce poverty levels and improve living standards. Can addressing gender inequality improve economic competitiveness? ANSWER: Yes, addressing gender inequality can enhance economic competitiveness. Gender-inclusive policies lead to a more diverse and skilled workforce, fostering innovation and improving productivity. Countries that prioritize gender equality often attract more foreign investment and achieve sustainable economic growth, making them more competitive on a global scale. Impacts of Gen Z on Tax Policy How is Gen Z influencing tax policy? ANSWER: Gen Z's growing economic influence is shaping tax policy. As digital natives, they prefer online transactions and gig economy jobs, prompting the government to adapt tax policies to include digital platforms and informal sectors. Additionally, their focus on social and environmental issues pushes policymakers to consider green taxes and incentives for sustainable practices. What challenges does Gen Z present to traditional tax collection methods? ANSWER: Gen Z's preference for digital and informal work poses challenges for traditional tax collection. Many Gen Z workers operate outside formal employment structures, making it difficult to track and tax their income. Governments must invest in digital infrastructure and innovative tax collection methods, such as taxing e-commerce and digital transactions, to address this challenge. How can governments leverage Gen Z's preferences to enhance tax compliance? ANSWER: Governments can enhance tax compliance by aligning tax policies with Gen Z's values and preferences. Simplifying tax processes through digital platforms and promoting transparency in tax expenditure can build trust and encourage compliance. Additionally, educating Gen Z about the importance of taxes in national development can foster a culture of voluntary compliance. What role does technology play in adapting tax policies for Gen Z? ANSWER: Technology is pivotal in adapting tax policies for Gen Z. Digital tools enable efficient tax collection from online platforms and gig economy workers. Blockchain technology can enhance transparency and reduce fraud, while mobile apps make tax filing more accessible. Embracing these technologies ensures that tax systems remain relevant and effective. Impact of the Deteriorating Power of a Man in the Economy What factors contribute to the declining economic power of men? ANSWER: Factors such as changing gender roles, increased access to education for women, and shifts in labor market demands contribute to the declining economic power of men. Traditional male-dominated industries are shrinking, while sectors that prioritize soft skills and collaboration—where women often excel—are expanding. This transition highlights the need for men to adapt by acquiring new skills and embracing gender equality. How does the rising economic power of women affect household dynamics? ANSWER: The rising economic power of women is transforming household dynamics. Women’s increased financial independence allows for more equitable decision-making and resource allocation within households. While this shift can lead to improved family well-being, it may also create tensions in traditional households where gender roles are deeply ingrained. What are the economic benefits of empowering women? ANSWER: Empowering women leads to numerous economic benefits, including increased productivity, higher household incomes, and reduced poverty rates. Women reinvest a significant portion of their earnings into their families and communities, creating a multiplier effect that drives economic growth. Gender equality also fosters innovation and diversity, enhancing global competitiveness. How can men adapt to changing gender power dynamics in the economy? ANSWER: Men can adapt by embracing gender equality and acquiring skills relevant to emerging industries. Supporting policies that promote work-life balance and equal opportunities for both genders can create a more inclusive economy. Additionally, challenging traditional norms and engaging in open dialogues about gender roles can foster understanding and collaboration. What is the role of education in addressing shifts in gender power dynamics? ANSWER: Education plays a crucial role in addressing shifts in gender power dynamics. By promoting gender-sensitive curricula and encouraging both boys and girls to pursue diverse career paths, education can break stereotypes and prepare individuals for a changing economy. Lifelong learning opportunities enable men and women to acquire skills needed in emerging sectors, ensuring they remain competitive in the labor market. General Questions on Gender and Economics What is gender mainstreaming, and why is it important for economic policy? ANSWER: Gender mainstreaming is the process of integrating gender perspectives into all stages of policy development and implementation. It ensures that policies address the needs and priorities of both men and women, promoting equality and inclusivity. In economic policy, gender mainstreaming helps identify and address barriers to participation, fostering a more equitable and efficient economy