Views of globalization (Chp 1.4)
1. It's a new phenomenom, starting in the late 20th century.
2. It's a long term part of human history.
3. Neither
... [Show More] recent nor one directional, it's a pendulum that swings back and forth.
Strategic goal = Natural resource—seeking
Location specific advantage = Possession of natural resources and related transport and communication infrastructure
Strategic goal = Market-seeking
Location specific advantage = Abundance of strong market demand and customers willing to pay
Strategic goal = Efficiency-seeking
Location specific advantage = Economies of scale and abundance of low-cost factors
Strategic goal = Innovation-seeking
Location specific advantage = Abundance of innovative individuals, firms, and universities
Name first mover advantages: (Chp 10.3)
1. Proprietary, technological leadership
2. Pre-emption of scarce resources
3. Establishment of entry barriers for late entrants
4. Avoidance of clash with dominant firms at home
5. Relationships with key stakeholders such as governments
Name late mover advantages: (Chp 10.3)
1. Opportunity to free ride on first-mover investments
2. Resolution of technological and market uncertainty
3. First mover's difficulty to adapt to market changes
Name strategic goals supported by location specific advantages (Chp 10.2)
1. Natural resources
2. Market
3. Efficiency
4. Innovation
Proposition (1) underpinning an institution based view of global business.
Managers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework
Proposition (2) underpinning an institution based view of global business.
While formal and informal institutions combine to govern firm behavior, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy to managers and firms
Market economy
An economy that is characterized by the "invisible hand" of market forces.
Command economy
An economy that is characterized by government ownership and control of factors of production.
Mixed economy
An economy that has elements of both a market economy and a command economy.
Property rights
The legal rights to use an economic property (resource) and to derive income and benefits from it.
Purpose of property rights
The formal protection of property rights helps to facilitate economic growth.
Civil Law
A legal tradition that uses comprehensive statutes and codes as a primary means to form legal judgments.
Common Law
A legal tradition that is shaped by precedents and traditions from previous judicial decisions.
Theocratic Law
A legal system based on religious teachings.
Democracy
Right to freedom of expression and organization.
Totalitarianism
One person or party exercises absolute control.
How do institutions reduce uncertainty? (Chp 2-2)
By signaling which conduct is legitimate and which is not they constrain the range of acceptable actions.
Comprehensive model of foreign market entries
1. How to enter depends on the scale of entry: large-scale versus small-scale entries.
2. First focuses on the equity (ownership) issue.
3. Second step focuses on making the actual selection, such as exports, contractual agreements, joint ventures and wholly owned subsidiaries.
Political realities governing international trade.
The net impact of various tariffs and nontariff barriers is that the whole nation is worse off while certain special interest groups (such as certain industries, firms, and regions) benefit.
Economic arguments against free trade:
1. protectionism
2. infant industries
Political arguments against free trade:
1. national security
2. consumer protection
3. foreign policy
4. environmental and social responsibility
Radical view
Hostile to foreign direct investment (FD)
Pragmatic nationalism
Only approves foreign direct investment (FDI) FDI when its benefits outweigh its costs.
Free Market View
Suggests that foreign direct investment (FDI) unrestricted by government intervention is the best.
Benefits of FDI to home countries
1. Repatriated earnings from profits from FDI.
2. Increased exports of components and services to host countries.
3. Learning via FDI from operations abroad.
Costs of FDI to home countries
1. Capital outflow
2. Job loss
Benefits of FDI to host countries
1. Capitol inflow
2. Technology
3. Management
4. Job creation
Costs of FDI to host countries
1. loss of sovereignty
2. adverse effects on competition
3. capital outflow
Resources influencing competitive dynamics:
1. Value
2. Rarity
3. Imitability
4. Organization
5. Resource similarity
What are the optimal choices for consumers given income and prices?
The point on her budget constraint that lies on the highest indifference curve.
The marginal-cost curve always crosses the average-total-cost curve at __________________.
the minimum of average total cost
When MC < ATC:
average total cost is falling
When MC > ATC:
average total cost is rising
If MR > MC:
firm should increase output
If MC > MR:
firm should decrease output
If MR = MC:
profit-maximizing level of output
Competitive demand curve
horizontal demand curve
Monopolist demand curve
downward sloping demand curve
A monopoly maximizes profit by choosing the quantity at which marginal revenue ____________.
equals marginal cost
A monopoly determines price to charge by
using demand curve to find the price that will induce consumers to buy the quantity at which MR=MC
Monopoly
one firm ( eg, cable tv)
Oligopoly
few firms (eg, cigarettes)
Monopolistic competition
many firms, differentiated products (movies)
Perfect competition
many firms, identical products (milk)
How does the prisoner's dilemma apply to oligopoly?
Each oligopolist has an incentive to cheat. Just as self-interest drives the prisoners in the prisoners' dilemma to confess, self-interest makes it difficult for the oligopolists to maintain the cooperative outcome with low production, high prices, and monopoly profits.
Federal Reserve's tools of monetary control
Open market operations, the discount rate, term auction facility, reserve requirements
Open market operations:
-Purchase and sale of U.S. government bonds by the Fed
-To increase the money supply
•The Fed buys U.S. government bonds
-To reduce the money supply
•The Fed sells U.S. government bonds
-Used more often
The discount rate:
-Interest rate on the loans that the Fed makes to banks
-Higher discount rate
•Reduce the money supply
-Smaller discount rate
•Increase the money supply
Term auction facility:
-The Fed sets a quantity of funds it wants to lend to banks
-Eligible banks bid to borrow those funds
-Loans go to the highest eligible bidders
•Acceptable collateral
•Pay the highest interest rate
Reserve requirements:
-Regulations on minimum amount of reserves
•That banks must hold against deposits
-An increase in reserve requirement
•Decrease the money supply
-A decrease in reserve requirement
•Increase the money supply
-Used rarely -disrupt business of banking
Policymakers can influence aggregate demand with monetary policy.
1. An increase in the money supply reduces the equilibrium interest rate for any given price level. Because a lower interest rate stimulates investment spending, the aggregate-demand curve shifts to the right.
2. A decrease in the money supply raises the equilibrium interest rate for any given price level and shifts the aggregate-demand curve to the left.
Policymakers can influence aggregate demand with fiscal policy.
1. An increase in government purchases or a cut in taxes shifts the aggregate-demand curve to the right.
2. A decrease in government purchases or an increase in taxes shifts the aggregate-demand curve to the left.
Shift in demand curve = decrease in demand
Demand curve shifts left.
Any change that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve to the left.
Shift in demand curve = increase in demand
Demand curve shifts right.
Any change that raises the quantity that buyers wish to purchase at any given price shifts the demand curve to the right.
Variable that can shift the demand curve:
-Income
-Prices of related goods
-Tastes
-Expectations
-Number of buyers
Effects of a tariff
A tariff reduces the quantity of imports and moves a market closer to the equilibrium that would exist without trade.
Effects of a tariff
-Price rises by the amount of the tariff
-Domestic quantity demanded decreases
-Domestic quantity supplied increases
-Reduces the quantity of imports
--Domestic sellers are better off
-Domestic buyers are worse off
Consumer surplus
- Amount a buyer is willing to pay for a good, minus amount the buyer actually pays for it
-Measures the benefit buyers receive from participating in a market
-Closely related to the demand curve
Producer surplus
- Amount a seller is paid for a good minus the seller's cost of providing it.
- Closely related to the supply curve.
- A higher price raised producer surplus.
Total surplus
Consumer surplus + Producer surplus
Total surplus
Value to buyers - Cost to sellers
Components of GDP
Consumption, Investment, Government purchase, Net exports
For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price , marginal revenue , and marginal cost ?
MR = MC and P > MR [Show Less]