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International Business Ch. 3

The purchasing power parity for different countries is adjusted (up or down) depending upon whether the cost of living is lower or higher than in the United States.
TRUE
Although countries such as China and India are currently relatively poor, their economies are already large in absolute terms and growing more rapidly than those of many advanced nations.
TRUE
In Amartya Sen’s view, development is solely an economic process, and not a political process.
FALSE
The Gross national income (GNI) per capita comes much closer to Amartya Sen’s conception of how development should be measured than narrow economic measures such as Human Development Index (HDI).
FALSE
Economists who argue that innovation and entrepreneurial activity are the engines of long-run economic growth, define innovation broadly to include not just new products but also new processes, new organizations, new management practices, and new strategies.
TRUE
If a country’s economy is to sustain long-run economic growth, the business environment must be conducive to the consistent production of product and process innovations and to entrepreneurial activity.
TRUE
Entrepreneurial individuals have fewer economic incentives to develop valuable new innovations in market economies than in planned economies.
FALSE
Strong legal protection of property rights is a requirement for a business environment to be conducive to innovation, entrepreneurial activity, and hence economic growth.
TRUE
The Peruvian development economist Hernando de Soto has argued that much of the developing world will fail to reap the benefits of capitalism until they relax the property rights offered by their legal systems.
FALSE
Five of the fastest growing economies of the past 30 years—China, South Korea, Taiwan, Singapore, and Hong Kong—had one thing in common at the start of their economic growth: democratic governments.
FALSE
Totalitarian states that limit human freedom are highly conducive to progress in terms of innovation, entrepreneurship, and economic growth.
FALSE
A strong belief that economic progress leads to adoption of a totalitarian regime underlies the fairly permissive attitude that many Western governments have adopted toward human rights violations in China.
FALSE
According to the influential economist Jeffrey Sachs, tropical regions have a more extensive division of labor than temperate regions.
FALSE
During the late 1980s and early 1990s, totalitarian governments collapsed and were replaced by democratically elected governments.
TRUE
According to Freedom House, all democracies are free countries in terms of political and civil liberties.
FALSE
New information and communication technologies have increased a state’s ability to control access to uncensored information.
FALSE
Many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations.
TRUE
The late Influential political scientist Samuel Huntington predicted that the universalization of Western liberal democracy will be the final form of human government.
FALSE
Author Francis Fukuyama envisioned a world split into different civilizations, each of which has its own value systems and ideology.
FALSE
In Samuel Huntington’s thesis, global terrorism is a product of the tension between civilizations and the clash of value systems and ideology.
TRUE
When a nation shifts away from a market-based economy, the state-owned businesses are sold to private investors.
FALSE
In general, command and mixed economies failed to deliver the kind of sustained economic performance that was achieved by countries adopting market-based systems.
TRUE
Economic freedom does not necessarily equate with political freedom.
TRUE
The shift toward deregulation has been easier for former command economies than for mixed economies.
FALSE
In China, state-owned companies still dominate the banking, energy, telecom, health care, and technology sectors.
TRUE
If newly privatized firms are protected from foreign competition by barriers to international trade and foreign direct investment, they continue to act like state monopolies.
TRUE
A well-functioning market economy does not require laws to protect private property rights and mechanisms for contract enforcement.
FALSE
Without a legal system that protects property rights, and without the machinery to enforce that system, the incentive to engage in economic activity can be reduced substantially by private and public entities.
TRUE
In most eastern European nations, the title to urban and agricultural property is often uncertain because of incomplete and inaccurate records, multiple pledges on the same property, and unsettled claims resulting from demands for restitution from owners in the pre-Communist era.
TRUE
Although free markets and democracy can still be found around the world, the tide has been running in favor of command economies and totalitarian dictatorships.
FALSE
By identifying and investing early in a potential future economic star, international firms build brand loyalty and gain experience in that country’s business practices.
TRUE
A country’s economic system and property rights regime do not influence the attractiveness of the country as a market or investment site.
FALSE
In both China and India, the shift toward a command-based economic system has produced large gains despite weak property rights and endemic corruption.
FALSE
It is more costly to do business in relatively primitive or undeveloped economies because of the lack of infrastructure and supporting businesses.
TRUE
Social unrest and disorder are less likely to be found in countries that contain more than one ethnic nationality.
FALSE
In the context of political economy, the past three decades have seen a general move toward:
adoption of legal systems that better enforce property rights.
One common measure of economic development is a country’s:
gross national income.
_____ is regarded as a yardstick for the economic activity of a country; it measures the total annual income received by residents of a country.
Gross national income
Which of the following statements is true about gross national income (GNI)?
Economist Amartya Sen has argued that development should be assessed less by material output measures such as GNI per capita.
To account for differences in the _____, one can adjust GNI per capita by purchasing power.
cost of living
Which of the following statements is true of purchasing power parity (PPP)?
The PPP data gives a static picture of economic development.
In 2010, the PPP per capita of China was $7,640 and the PPP per capita of the United States was $47,360. This means that the:
cost of living was lower in China.
As a result of _____, large amounts of economic activity in India are unrecorded and the official GDP figures of the country fail to tell the entire story of the economy.
active bartering
Black economy is most likely to be prevalent when:
people engage in barter agreements to avoid paying taxes.
The _____ is based on three measures: life expectancy at birth, educational attainment, and average incomes based on PPP estimates.
Human Development Index
The Human Development Index comes close to Amartya Sen’s conception of how development should be measured although _____, suggested by Sen in his thesis, is not included in the index.
political freedom
Which of the following is an indicator of low human development in a country?
A score of 0.3 on the HDI scale
_____ is broadly defined as the development of new products, processes, organizations, management practices, and strategies.
Innovation
_____ first commercialize innovative new products and processes, and help provide much of the dynamism in an economy.
Entrepreneurs
Which of the following best exemplifies an entrepreneur?
Javier purchased an invention of his friend to start a company that processes plastic bags into synthetic cloth.
Which of the following statements is true about innovations and entrepreneurship?
Innovations in production and business processes lead to an increase in the productivity of labor and capital.
Which of the following creates an unfavorable environment for innovations and entrepreneurship?
State monopoly in production
Which of the following creates an environment that is conducive to product and process innovations and to entrepreneurial activity?
Privatization
Due to strong legal protection of property rights, businesses and individuals will:
invest more in innovations.
People in the West tend to associate a(n) _____ with a free market system, strong property rights protection, and economic progress.
representative democracy
Only a totalitarian regime that is committed to _____ is capable of promoting economic growth.
a market system and strong protection of property rights
The influential Peruvian development economist Hernando de Soto has argued that much of the developing world will fail to reap the benefits of capitalism:
until property rights are better defined and protected.
_____ is most likely to be the consequence of economic progress.
Adoption of democracy
The belief that geography can influence economic policy, and hence economic growth rates, goes back to:
Adam Smith.
The influential economist Jeffrey Sachs argues that throughout history, _____ , with their long engagements in international trade, have been the most supportive of market institutions.
coastal states
The work by Jeffrey Sachs suggests that investments in _____ help explain why some countries in Southeast Asia have been able to overcome the disadvantages associated with their tropical geography and grow far more rapidly than tropical nations in Africa and Latin America.
education
In the context of political economy, one notable development of the past 20 years has been the spread of:
democracy
During the late 1980s and early 1990s, many of the world’s nation-states moved away from:
totalitarian governments.
In the context of the changing political economy since the late 1980s, which of the following statements is true?
Most of the world’s nation-states are providing greater political and civil liberties to their citizens.
“Not all democracies are free, as some still restrict certain political and civil liberties.” Which of the following countries best fits this argument?
Russia
The collapse of _____ in eastern Europe was precipitated by the growing gulf between the vibrant and wealthy economies of the West and the stagnant economies of the East.
communism
How have new information and communication technologies, including the Internet, affected the political economy in general?
They have reduced a state’s ability to control access to uncensored information.
Economic advances in many countries have led to the:
emergence of increasingly prosperous middle and working classes.
According to the author Francis Fukuyama, the world is most likely witnessing the end of:
mankind’s ideological evolution.
According to _____, the collapse of communism will result in the new world order that will dominated by a universal civilization characterized by democratic regimes and free market capitalism.
Francis Fukuyama
Which of the following statements is true about the late influential political scientist Samuel Huntington’s vision of the new world?
Samuel Huntington theorized that modernization in non-Western societies can result in a retreat toward the traditional.
In Samuel Huntington’s thesis, global terrorism is a product of the:
clash of value systems and ideology between civilizations.
Which of the following is most likely to prove detrimental to democracy and international business?
Emergence of different civilizations, each of which has its own value systems and ideology
In the context of global economy, which of the following has been widely accepted since the late 1980s?
Deregulation of economies to promote greater competition
Which of the following statements is true about the changing economic system since the 1980s?
There has been a shift away from a mixed economy.
The government of Great Lanthania is planning to adopt a market-based economic system. To be able to do so, the government of this country should:
adopt privatization.
Which of the following is most likely to be implemented by a country as a part of deregulation?
Removal of price controls
The United Nation of Zorwaya has strict restrictions on direct investment by foreign enterprises, and it opposes the establishment and operation of private enterprises. The highest authority in the country enforces tight control over prices and production output. According to this information, the United Nation of Zorwaya most likely opposes _____.
deregulation
Which of the following is most likely to indicate that the nation of Erbia has adopted deregulation?
The retail sector in Erbia has been opened for foreign direct investment.
Which of the following steps is most likely to be involved in the deregulation of an economy?
Privatizing the state-owned enterprises
Which of the following best supports the economic transformation from a centrally planned command economy to a market-based economy?
Transferring the ownership of state property into the hands of private individuals
The _____ movement started in Great Britain in the early 1980s when then Prime Minister Margaret Thatcher started to sell state-owned assets such as the British telephone company.
privatization
How does privatization help stimulate gains in economic efficiency?
It provides incentives to new private owners to search for increases in productivity and to enter new markets.
Which of the following is most likely to guarantee the success of privatization?
Deregulating and opening of the economy
The government of Greenland Republic protects its newly privatized firms from foreign competition by imposing stringent barriers to international trade and foreign direct investment. As a result of this, the newly privatized firms will:
continue acting like state monopolies.
Which of the following statements is true about privatization?
When newly privatized firms are extensively protected from foreign competition, they have little incentive to restructure their operations to become more efficient.
In the Republic of Lantharia, the state-owned telephone company enjoys a monopoly. The government of Lantharia Republic wants to maximize the operating efficiency this company by privatizing it. Which of the following is most likely to help the government in being successful in this endeavor?
Spliting the company into independent units to compete with each other
A well-functioning market economy is most likely to lack:
state intervention in pricing and production.
The absence of a legal system that protects property rights and the lack of machinery to enforce that system in a market economy usually results in:
the lack of incentives to engage in economic activity.
Which of the following is an implication of the global changes in political and economic systems for international business?
The ideological conflict between collectivism and individualism is less in evidence today.
Which of the following is most likely to be an implication of the global financial crisis of 2008-2009, and the recession that followed?
Retrenchment from free markets and democracy
Many commentators have blamed the problems that led to global financial crisis of 2008-2009, and the recession that followed on:
a lack of regulation.
Which of the following statements is true about the global changes in political and economic systems?
Many of the undeveloped and impoverished national markets of eastern Europe, Latin America, Africa, and Asia are potentially enormous for international business.
The _____ of the Cold War era has vanished.
bipolar world
The United Nation of Amberia, a Western European country, fought on the winning side of the Cold War. Which of the following was most likely being propagated by the country by participating in the Cold War?
Free markets
Countries with _____ are more likely to attain high and sustained economic growth rates and are thus a more attractive location for international business.
democratic regimes
Although China and India are very large markets when measured by number of consumers, their _____ makes them a relatively small market when measured in economic terms.
limited purchasing power
_____ are primarily the advantages that accrue to early entrants into a market.
First-mover advantages
In economic terms, the long-run monetary benefits of doing business in a country are most likely to be a function of the:
present wealth (purchasing power) of consumers of the country.
Capricorn Creative Inc., a U.S. based advertising firm, was the first in the advertising industry to identify the growth potential of Brazil and to make huge investments in it’s economy. As a result, the firm was able to build brand loyalty and gain experience in that country’s business practices. In the language of business strategy, Capricorn Creative has typically benefited from:
a first-mover advantage.
Which of the following best exemplifies a first-mover advantage?
Venus Inc. has more than 50 percent market share in the telecom industry, because no other company had invested in this industry before Venus Inc.
Handicaps experienced by an organization because of entering into a market after several other companies who have already established their brands in the market, are referred to as _____.
late-mover disadvantages.
Which of the following is most likely to be an advantage that first-movers tend to have relative to last-movers?
Greater brand loyalty
When Galaxy Ventures, a real estate company, entered the low cost housing business, the market was already saturated with other players. Thus, the company was forced to exit the market due to lack of customer loyalty and substantial dividends. Which of the following is a term used to described the situation faced by the company?
Last-mover disadvantages
Both China and India have achieved high growth rates despite relatively weak property rights regimes and high levels of corruption, because of:
the shift toward a market-based economic system.
Which of the following statements is most likely to be true about the economic prospects of a country?
The economic system and property rights regime are reasonably good predictors of economic prospects of a country.
The cost of doing business is most likely to be the lowest in:
open democratic societies.
Star Volans Inc. is planning on expanding its business globally. In terms of the costs involved in conducting business in a country, it will be most economical for the company if it chooses a country:
where politicians are held accountable by the electorate.
In the context of cost, which of the following can be considered as the most attractive market or investment site?
A country that has a well-developed body of business contract law
A company has business interests in a country where the President-elect wants the country to adopt socialism and protectionism. Consequently, the company will be concerned about the _____ risks of continuing to do business in that country.
political
When social unrest and disorder in a country causes drastic changes in its business environment that adversely affect the profit and other goals of a business enterprise, the business enterprise is said to be facing a(n) _____ risk.
political
Which of the following factors in a country is most likely to cause a political risk for an international business?
The presence of more than one ethnic nationality
Lamboria Republic is facing a high rate of inflation, and the government debt in the country is also high. As a result, the country’s business environment is beginning to deteriorate, and the profits of the business enterprises are hurt. According to this information, Lamboria Republic is facing a(n) _____ risk.
economic
Which of the following statements is most likely to be true about the risks of doing business in a country?
One visible indicator of economic risk is the level of business and government debt in the country.
The government of Ugania had been extending huge amounts of loans to the business enterprises in the country. However, the borrowers failed to generate the profits necessary to repay their debts. As a result, national banks in Ugania had a lot of nonperforming assets on their books, and the Uganian currency was devalued. In this context, the business enterprises in Ugania are most likely to face a(n) _____ risk.
economic
A(n) _____ risk can be defined as the likelihood that a trading partner will opportunistically break a contract or expropriate property rights.
legal
If a company from a highly developed nation hesitates to enter into a joint venture with a company from a developing nation due to inadequate protection of intellectual property rights, it is trying to avoid a(n) ____ risk.
legal
The risks of doing business are most likely to be the highest in a country that:
faces frequent changes in government and government policy.
Generally, the costs and risks associated with doing business in a foreign country are typically lower in:
economically advanced countries.
Which of the following is most likely to be true about the overall attractiveness of a country as a potential market or investment site for an international business?
The costs and risks associated with doing business in a foreign country tend to be greater in politically unstable nations.
The government of Nerumbia wants to open the country’s economy to international business, and increase its overall attractiveness as a potential market or investment site. Which of the following will facilitate this decision of the Nerumbian government?
Investing in infrastructure and in the required supporting businesses

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