AFM 131 REVIEW EXAM ACTUAL QUESTIONS WITH VERIFIED
CORRECT ANSWERS
Explain the difference between comparative and absolute advantage in global
markets.
- Comparative Advantage: a country should produce and sell products it produces most
efficiently and effectively and buy products it does not produce as effectively or
efficiently
- Absolute Advantage: a country has a monopoly on producing a product or can
produce at a cost below other countries
There are several reasons why countries trade with other countries. State one
reason.
1) No country can produce everything it needs
2) Countries can produce too much of one thing
3) Trade can lead to a mutually beneficial exchange relationship
In measuring the effectiveness of global trade, nations carefully follow which two
key indicators?
- Balance of Trade
- Balance of Payments
Strategies for reaching global markets.
- Exporting: selling goods to foreign countries
- Licensing: a foreign company produces a company's products in exchange for
,royalties
- Foreign Subsidiaries: a company owned by a foreign company
- Franchising: someone buys the rights to use a business' name and sell
products/services in a specific manner
- Joint Ventures: partnership where companies from two or more countries undertake a
major project (shared risk/reward)
- Strategic Alliance: long-term partnership between two or more companies
What do franchises have to do to ensure their products are appropriate for the
global market they serve? Give an example
Franchises must adapt their offerings to the country they are servicing. People in
different countries have different preferences
Explain how socio-cultural differences can create trade difficulties in trading in
world markets.
- Americans' ethnocentrism
- Religion can determine work behavior and attendance
- Workers' attitudes, marketing strategies, time, change, competition, natural resources,
achievement, and work are influenced by culture
In supporting free trade, Canada wants to make sure that global trade is
conducted fairly. To ensure a level playing field, countries enforce laws to
prohibit unfair practices such as dumping. How does dumping benefit foreign
firms and purchasers?
- Foreign Firms: increase sales, penetrate market
- Foreign Purchasers: lower prices
, Canada has import quotas on a number of products. Give an example of one of
those products. What is the purpose of an import quota?
- Import quotas protect companies in order to preserve jobs
- Textiles, clothes, weapons
The North American Free Trade Agreement (NAFTA) and the European Union (EU)
are both examples of a common market. What is the idea behind a common
market?
- Eliminates trade barriers that existed prior to the creation of the bloc
Six government activities that affect business
1) Crown Corporations
2) Law and regulations
3) Taxation and financial policies
4) Government expenditures
5) Purchasing policies
6) Services
What are crown corporations and how did they come into being?
- Crown corporations are companies owned by the federal/provincial governments
- Provide functions not offered by traditional corporations
- Boosts economy
What does the Competition Act do?
- Ensures the mergers of large corporations does not restrict competition
- Ensures fair competition
What are major consumer protection laws covered by the Competition Act?
CORRECT ANSWERS
Explain the difference between comparative and absolute advantage in global
markets.
- Comparative Advantage: a country should produce and sell products it produces most
efficiently and effectively and buy products it does not produce as effectively or
efficiently
- Absolute Advantage: a country has a monopoly on producing a product or can
produce at a cost below other countries
There are several reasons why countries trade with other countries. State one
reason.
1) No country can produce everything it needs
2) Countries can produce too much of one thing
3) Trade can lead to a mutually beneficial exchange relationship
In measuring the effectiveness of global trade, nations carefully follow which two
key indicators?
- Balance of Trade
- Balance of Payments
Strategies for reaching global markets.
- Exporting: selling goods to foreign countries
- Licensing: a foreign company produces a company's products in exchange for
,royalties
- Foreign Subsidiaries: a company owned by a foreign company
- Franchising: someone buys the rights to use a business' name and sell
products/services in a specific manner
- Joint Ventures: partnership where companies from two or more countries undertake a
major project (shared risk/reward)
- Strategic Alliance: long-term partnership between two or more companies
What do franchises have to do to ensure their products are appropriate for the
global market they serve? Give an example
Franchises must adapt their offerings to the country they are servicing. People in
different countries have different preferences
Explain how socio-cultural differences can create trade difficulties in trading in
world markets.
- Americans' ethnocentrism
- Religion can determine work behavior and attendance
- Workers' attitudes, marketing strategies, time, change, competition, natural resources,
achievement, and work are influenced by culture
In supporting free trade, Canada wants to make sure that global trade is
conducted fairly. To ensure a level playing field, countries enforce laws to
prohibit unfair practices such as dumping. How does dumping benefit foreign
firms and purchasers?
- Foreign Firms: increase sales, penetrate market
- Foreign Purchasers: lower prices
, Canada has import quotas on a number of products. Give an example of one of
those products. What is the purpose of an import quota?
- Import quotas protect companies in order to preserve jobs
- Textiles, clothes, weapons
The North American Free Trade Agreement (NAFTA) and the European Union (EU)
are both examples of a common market. What is the idea behind a common
market?
- Eliminates trade barriers that existed prior to the creation of the bloc
Six government activities that affect business
1) Crown Corporations
2) Law and regulations
3) Taxation and financial policies
4) Government expenditures
5) Purchasing policies
6) Services
What are crown corporations and how did they come into being?
- Crown corporations are companies owned by the federal/provincial governments
- Provide functions not offered by traditional corporations
- Boosts economy
What does the Competition Act do?
- Ensures the mergers of large corporations does not restrict competition
- Ensures fair competition
What are major consumer protection laws covered by the Competition Act?
