Deck 17: Global Business

Question 1

Small countries might produce more of a particular good than their domestic citizens can consume

A)if they are willing to take a loss on the goods produced.
B)if there are increasing returns to scale and export of the surplus is possible.
C)when arbitrage is possible.
D)if they are producing seasonal products.

Answer 1

if there are increasing returns to scale and export of the surplus is possible.

Question 2

Which of the following is likely to increase the exchange rate of Yen to euros (¥/€)?

A)a decrease in investment opportunities in the U.S.
B)a decrease in investment opportunities in the eurozone
C)an increase in demand for European goods in Japan
D)an increase in investment opportunities in the eurozone

Answer 2

a decrease in investment opportunities in the eurozone

Question 3

If a currency such as the US$ is traded in a competitive market, a(n)________ in demand for the US$ ________ the price of the US$ in terms of another currency such as the Japanese Yen (¥).

A)increase; lowers
B)increase; raises
C)decrease; raises
D)change; lowers

Answer 3

increase; raises

Question 4

Which of the following is likely to increase the exchange rate of Yen to euros (¥/€)?

A)an increase in investment opportunities in the U.S.
B)a decrease in investment opportunities in the eurozone
C)an increase in demand for European goods in Japan
D)a decrease in demand for European goods in Japan

Question 5

If the U.S. can produce pizza for $5 each and barrels of beer for $25 each, and Germany can produce pizza for $7 each and barrels of beer for $21 each, then the U.S.

A)a comparative advantage in the production of beer.
B)an absolute advantage in the production of beer.
C)a comparative advantage in the production of pizza.
D)a comparative advantage in the production of beer and pizza.

Question 6

According to the mini-case on the Barbie Doll, Mattel is successful because

A)it has been selling Barbie dolls for a long time.
B)the Barbie doll is the top import into the U.S.
C)international trade allows them to produce a wide variety of doll types at many price points.
D)there are low fixed costs for product design.

Question 7

If the U.S. can produce pizza for $5 each and barrels of beer for $25 each, and Germany can produce pizza for $7 each and barrels of beer for $21 each, then

A)each country will produce both pizza and beer.
B)the U.S. will produce beer and trade with Germany for pizza.
C)the U.S. will produce pizza and trade with Germany for beer.
D)All of the above.

Question 8

Which of the following is likely to decrease the exchange rate of Yen to euros (¥/€)?

A)a decrease in investment opportunities in the U.S.
B)an increase in investment opportunities in the Japan
C)a decrease in demand for European goods in Japan
D)an increase in investment opportunities in the eurozone

Question 9

The U.S. can produce pizza for $7.50 each and barrels of beer for $37.50 each, and Germany can produce pizza for €5 each and barrels of beer for €15 each (€ is the symbol for the euro, the currency Germany uses). If the exchange rate is 1.50 $/€ then

A)the U.S. has a comparative advantage in the production of beer.
B)neither country has a comparative advantage in the production of beer.
C)the U.S. has a comparative advantage in the production of pizza.
D)the U.S. has a comparative advantage in the production of beer and pizza.

Question 10

If the U.S. can produce pizza for $5 each and barrels of beer for $25 each, and Germany can produce pizza for $7 each and barrels of beer for $21 each, then Germany has

A)a comparative advantage in the production of beer.
B)an absolute advantage in the production of beer.
C)a comparative advantage in the production of pizza.
D)a comparative advantage in the production of beer and pizza.

Question 11

The ability to produce a good at a lower opportunity cost than someone else is called

A)competitive production.
B)comparative advantage.
C)selective advantage.
D)absolute advantage.

Question 12

An automobile company has two factories, one in Vietnam and one in Australia each with the same number of workers. The Vietnamese factory can produce either 150 engines or 100 transmissions per day. The Australian factory can produce either 100 engines or 75 transmissions per day.

A)The Vietnamese factory has an comparative advantage producing both engines and transmissions.
B)The Australian factory has an absolute advantage in the production of transmissions.
C)The Vietnamese factory has a comparative advantage in the production of transmissions.
D)The Australian factory has a comparative advantage in the production of transmissions.

Question 13

According to the principal of comparative advantage a country

A)that produces goods at the lowest absolute cost will export those goods.
B)will import goods it can produce at the lowest relative cost.
C)will export goods it can produce at the lowest relative cost.
D)will only import those goods that it cannot produce for itself.

Question 14

An exchange rate is

A)the price of one currency in terms of another.
B)the monetary value of goods and services exchanged for imports.
C)the amount of gold a currency will buy.
D)All of the above.

Question 15

If the Mexican peso (MXN)to Brazilian real (BRL)exchange rate goes from 5.9 MXN/BRL to 5.2 MXN/BRL

A)Brazilians decrease their demand for Mexican goods.
B)Brazilians increase their demand for Mexican goods.
C)Mexicans decrease their demand for Brazilian goods.
D)Not enough information to determine what happens.

Question 16

If the Mexican peso (MXN)to Brazilian real (BRL)exchange rate goes from 5.9 MXN/BRL to 7.2 MXN/BRL

A)Brazilians decrease their demand for Mexican goods.
B)Brazilians increase their demand for Mexican goods.
C)Mexicans increase their demand for Brazilian goods.
D)Not enough information to determine what happens.

Question 17

An automobile company has two factories, one in Vietnam and one in Australia each with the same number of workers. The Vietnamese factory can produce either 150 engines or 100 transmissions per day. The Australian factory can produce either 100 engines or 75 transmissions per day.

A)The Australian factory has an comparative advantage producing both engines and transmissions.
B)The Australian factory has an absolute advantage in the production of transmissions.
C)The Vietnamese factory has a comparative advantage in the production of engines.
D)The Australian factory has a comparative advantage in the production of engines.

Question 18

An automobile company has two factories, one in Vietnam and one in Australia each with the same number of workers. The Vietnamese factory can produce either 150 engines or 100 transmissions per day. The Australian factory can produce either 100 engines or 75 transmission per day.

A)The Vietnamese factory has an absolute advantage producing both engines and transmissions.
B)The Australian factory has an absolute advantage in the production of transmissions.
C)The Vietnamese factory has a comparative advantage in the production of transmissions.
D)Which factory has an advantage is irrelevant since the theory of comparative advantage only applies to countries, not companies.

Question 19

Which of the following is likely to decrease the exchange rate of Yen to euros (¥/€)?

A)an increase in investment opportunities in the U.S.
B)a decrease in investment opportunities in the eurozone
C)a decrease in demand for European goods in Japan
D)an increase in investment opportunities in the eurozone

Question 20

If there are increasing returns to scale, then it makes sense to consolidate operations into one production facility

A)if production above domestic demand can be exported.
B)only if the consolidation creates an absolute advantage versus other trading partners.
C)if the government subsidizes production.
D)Never, because then you lose the possibility of comparative advantage gains between the production facilities.

Question 21

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 10 rand/US$, then

A)there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop.
B)there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in the U.S. will drop.
C)there is no arbitrage opportunity.
D)Unable to determine, since France is in the eurozone and we would need exchange rates in euro terms.

Question 22

A ban on imports, a tariff, or a quota raise the price to domestic consumers. This means that consumers will buy less of the product at a higher price. The loss associated with this is called

A)production associated loss.
B)barrier associated loss.
C)deadweight loss.
D)trade loss.

Question 23

Your U.S.-based company is selling parts to a company in Bangladesh. If you require payment in US$

A)the Bangladeshi company bears the exchange rate risk.
B)your company bears the exchange rate risk.
C)the companies share in the exchange rate risk.
D)there is no exchange rate risk.

Question 24

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 20 rand/US$, then

A)there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop.
B)there is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will drop.
C)here is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will rise.
D)there is no arbitrage opportunity.

Question 25

Compared to free trade, a ban on imports of a good

A)increases the domestic price of the good.
B)decreases consumer surplus.
C)results in a deadweight loss.
D)All of the above.

Question 26

Your U.S.-based company is selling parts to a company in Chile and the company will pay you US$10,000 in 3 months. The current exchange rate is 490 pesos/US$. If the exchange rate at the time of payment is 510 pesos/US$

A)you earn additional profit.
B)the Chilean company will end up paying more for the goods.
C)the Chilean company will end up paying less for the goods.
D)you earn less profit.

Question 27

Your U.S.-based company is doing business internationally. One way to mitigate exchange rate risk is to

A)require payment in US$.
B)use a forward contract.
C)use a futures contract.
D)All of the above.

Question 28

The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Currently 10 units are imported. The Consumption distortion loss is equal to

A)c+e.
B)c.
C)c+g+i.
D)a + c + d + e.

Question 29

Your U.S.-based company is selling parts to a company in Chile and the company will pay you 9.8 million pesos in 3 months. The current exchange rate is 490 pesos/US$. If the exchange rate at the time of payment is 510 pesos/US$

A)you earn additional profit.
B)the Chilean company will end up paying more for the goods.
C)the Chilean company will end up paying less for the goods.
D)you earn less profit.

Question 30

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 5 rand/US$, then

A)there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop.
B)there is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will drop.
C)here is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will rise.
D)there is no arbitrage opportunity.

Question 31

The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. If imported rice is banned, the loss in social welfare is

A)a + b + c + d + e.
B)a.
C)c + e.
D)i.

Question 32

Your U.S.-based company is selling parts to a company in Bangladesh. If the Bangladeshi company purchases a futures contract

A)the Bangladeshi company bears the exchange rate risk.
B)your company bears the exchange rate risk.
C)the companies share in the exchange rate risk.
D)there is no exchange rate risk.

Question 33

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are transaction costs of US$50, and the exchange rate is 20 rand/US$, then

A)there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop.
B)there is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will drop.
C)here is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will rise.
D)there is no arbitrage opportunity.

Question 34

A ban on imports, a tariff, or a quota raise the price to domestic consumers creates a deadweight loss. This loss is composed of

A)production associated loss and inefficiency loss.
B)productive consumption loss and protection loss.
C)consumption distortion loss and production distortion loss.
D)consumer misperception loss and taxation loss.

Question 35

The larger the U.S. imposed per unit import tariff on a good imported and that is also produced in the U.S.

A)the smaller the U.S consumer surplus.
B)the larger the U.S. producer surplus.
C)government revenue may be larger or smaller.
D)All of the above.

Question 36

International price discrimination for a good is possible if

A)goods are sold through the gray market.
B)the price difference between two countries is greater than the transaction costs in arbitrage.
C)the price difference between two countries is less than the transaction costs in arbitrage.
D)None of the above.

Question 37

Which of the following can reduce the number of cars imported?

A)a tariff
B)a quota
C)a ban
D)All of the above.

Question 38

The imposition of a quota on an imported good

A)shifts the demand curve down for the good.
B)shifts the supply curve up for the good.
C)Both A and B.
D)Not enough information to determine.

Question 39

The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Currently 10 units are imported. The loss from shifting production from foreign to domestic producers equals

A)c + e.
B)i.
C)e.
D)a + c + d + e.

Question 40

Levying a tariff on an imported good

A)shifts the demand curve down for the good.
B)shifts the supply curve up for the good.
C)Both A and B.
D)Not enough information to determine.

Question 41

A firm engaging in rent seeking activity

A)is breaking the law.
B)is willing to spend up to the gain in producer surplus.
C)is irrational.
D)increases societal gain.

Question 42

A trade policy that allows a country to gain at the expense of other countries is called

A)countervailing duty policy.
B)a beggar-thy-neighbor policy.
C)an antitrust policy.
D)a dumping policy.

Question 43

Creating market power through the use of tariffs or quotas can

A)drive price to the monopoly level.
B)increase the world price of the good that is targeted.
C)increase government revenue.
D)All of the above.

Question 44

The North American Free Trade Agreement is an example of

A)a beggar-thy-neighbor trade policy.
B)a preferential trade arrangement.
C)a multinational quota system.
D)a general agreement on tariffs and trade.

Question 45

Rent seeking in the form of lobbying for an increase in import tariffs by domestic producers

A)increases consumer surplus.
B)increases total welfare.
C)increases the deadweight loss.
D)None of the above.

Question 46

If a foreign producer sells a good in a country at a lower price than in its home market, this is called

A)a countervailing duty.
B)a tariff offset.
C)dumping.
D)a reverse tariff.

Question 47

The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Suppose a free market exists. If a $1 per unit tariff is imposed on imported rice, the quantity of imported rice will decrease by

A)10 units.
B)20 units.
C)30 units.
D)40 units.

Question 48

A country uses strategic trade policy to

A)increase profits that accrue to domestic producers.
B)affect the exchange rate of its currency.
C)impose countervailing duties.
D)allow dumping of imports to increase consumer surplus.

Question 49

The cost of lobbying for an import quota in a perfectly competitive market

A)increases the welfare loss of the quota.
B)decreases the deadweight loss of the quota.
C)shifts the supply curve of the good to the left.
D)increases the consumer surplus.

Question 50

The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Suppose a free market exists. The smallest tariff necessary to completely eliminate imported rice is

A)$1 per unit.
B)$2 per unit.
C)$3 per unit.
D)$4 per unit.

Question 51

The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. If a $1 tariff is imposed on imported rice, the loss in social welfare is

A)b + c + d + e.
B)a.
C)i.
D)a + c + d + e.

Question 52

The United States and many other countries often impose trade sanctions on other countries. These sanctions

A)decrease producer and consumer surplus in both the sanctioned and sanctioning countries.
B)tend to increase total welfare.
C)tend to decrease the deadweight loss.
D)tend to decrease consumer and producer surplus only in the sanctioned country.

Question 53

The welfare loss from an import quota is greater than that of an equivalent tariff because

A)tariff revenues can be used to society's benefit.
B)the loss in consumer surplus is not as large.
C)domestic producers gain more from a quota than from a tariff.
D)tariff revenues represent an additional deadweight loss.

Question 54

A pollution haven is

A)a place where people actually like pollution and view it as a positive externality.
B)a location with weak environmental rules that attracts manufacturing companies due to decreased costs.
C)a place that has very low worker wages.
D)unattractive for multinational investment because of the ambient pollution.

Question 55

A country that is a member of the World Trade Organization

A)can use tariffs and quotas to limit trade.
B)can establish preferential trading arrangements with other countries.
C)is allowed to eliminate all of its tariffs and quotas.
D)All of the above.

Question 56

The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Suppose a free market exists. An import quota of 30 units would

A)cause consumer surplus to fall by "e."
B)cause social welfare to fall by $30.
C)increase producer surplus by "d."
D)have no effect.

Question 57

One of the major effects of trade liberalization has been

A)the liberal use of tariffs and quotas.
B)an increase in the use of beggar-thy-neighbor trade policies.
C)the globalization of supply chains.
D)an increase in the world price for most goods.

Question 58

The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. A $1 per unit tariff has the same effect on producer and consumer surplus as a quota of

A)10 units.
B)20 units.
C)30 units.
D)40 units.

Question 59

Tariffs and quotas create a loss in social welfare because

A)producer surplus declines.
B)revenues from tariffs are misspent.
C)consumer surplus declines.
D)All of the above.

Question 60

A trade policy that protects domestic producers from certain actions taken by foreign governments or firms is

A)illegal under WTO rules.
B)called a contingent protection policy.
C)considered a beggar-thy-neighbor policy.
D)intended to protect domestic consumers.

Question 61

The transfer price between subsidiaries that maximizes profit for the parent company

A)is the marginal cost of the producing subsidiary.
B)is the monopoly price of the producing subsidiary.
C)cannot be determined in the absence of non-production cost considerations such as taxes.
D)is the price that minimizes the purchasing subsidiary's marginal cost.

Question 62

Outsourcing generally results from

A)unpatriotic behavior.
B)comparative advantage.
C)tax evasion.
D)rent seeking.

Question 63

If an Albanian company hires a U.S.-based law firm, it is

A)insourcing, from a U.S.-perspective.
B)using domestic outsourcing.
C)changing into a multinational enterprise.
D)vertically integrating.

Question 64

The price used to sell goods or services between subsidiaries in a company is

A)the tax avoidance price.
B)set at the marginal cost of the producing subsidiary.
C)determined by the minimum of the average cost curve.
D)a transfer price.

Question 65

When deciding where to produce, a key decision criterion for a multinational enterprise

A)is the nationality of its founders.
B)hinges on the ownership of its various subsidiaries.
C)is the tax laws of the various countries is it considering.
D)is the location of its headquarters.

Question 66

The manager of a U.S. office building hires a local company owned by a recent Canadian immigrant to handle landscape maintenance. This is a form of

A)domestic outsourcing.
B)vertical integration.
C)international outsourcing.
D)insourcing.

Question 67

A U.S.-based multinational has two subsidiaries, one in Lithuania where the tax rate is 15%, and one in Ireland where the tax rate is 2%. The tax rate in the U.S. is 35%. If the Lithuanian-based subsidiary is transferring a good to the Irish subsidiary and the goal is to avoid taxes, it will

A)sell it to the U.S. parent at a transfer price equal to marginal cost, which will then sell it to the Irish subsidiary at monopoly level pricing.
B)set the transfer price to the Irish subsidiary at the monopoly level.
C)set the transfer price to the Irish subsidiary at marginal cost.
D)Unable to determine with the information given.

Question 68

A firm becomes a multinational enterprise when

A)it lists its stock on a stock exchange other than the one in its home country.
B)it undertakes foreign direct investment.
C)it undertakes foreign portfolio investment.
D)Any of the above.

Question 69

When a country opens up to free trade

A)winners and losers are created.
B)comparative advantage dictates that the country focus on production of some goods and services at the expense of others.
C)the gains outweigh the losses.
D)All of the above.

Question 70

A firm that buys goods that it would normally produce internally from an international company is using

A)transfer pricing.
B)insourcing.
C)international outsourcing.
D)domestic outsourcing.

Question 71

Acquisition of an existing solar cell production plant would be considered

A)a greenfield investment.
B)foreign direct investment.
C)anti-competitive under antitrust law.
D)Both A and B.

Question 72

A multinational enterprise is defined as a company that

A)controls production assets in more than one country.
B)has board members from a variety of countries.
C)exists primarily to avoid taxes.
D)has stock that is publicly traded in many countries.