view that claims phenomenon of globalization was initially driven by the desire of Western economies to exploit their power through MNE's
new
view
... [Show More] that claims globalization is a long-run historical evolution since the dawn of humanity. Says it is nothing new and that it will always exist
evolutionary
view that claims globalization is swinging from one extreme to another from time to time
pendulum
investment in, controlling, and managing value-added activities in other countries
foreign direct investment
political view hostile to FDI. believes it is an instrument of imperialism and vehicle for exploitation of domestic resources by foreign capitalists and firms
radical
suggests that FDI, unrestricted by government intervention, will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services
free market
views FDI as having pros and cons and only approving FDI when its benefits outweigh costs
pragmatic nationalis
what benefits exist to a country receiving FDI?
capital inflow, technology spillovers, advanced management know-how, creates jobs
what costs exist to a country receiving FDI?
loss of sovereignty, adverse effects on competition, net outflow in the capital account
The aggregation of importing and exporting that leads to the country-level trade surplus or deficit.
balance of trade
firms with a _____ degree of resource similarity are likely to have similar competitive actions
high
a high degree of resource similarity but low market commonality = _______ intensity of rivalry
highest
little resource similarity but high market commonality = _____ intensity of rivalry
lowest
mercantilism, absolute advantage and comparative advantage belong to what theory of international trade
classical
theory of international trade that relies on more realistic product life cycles and first mover advantages
modern
under free trade, a nation gains by specializing in economic activities in which it has _____advantage
absolute
focuses on the idea that if a country does not have absolute advantage, they can still choose to specialize in the production of one good where it has ______ advantage
comparative
comparative advantage and absolute advantage stem from
factor endowments
theory that the wealth of the world is fixed and that a nation that imports more and exports less will be richer
mercantilism
stage of the product life cycle where production of a new product that commands a price premium will concentrate in the US
new
stage of the product life cycle where demand and ability to produce grow in other developed nations
maturing
stage of the product life cycle where the previously new product is commoditized and production will now move to low-cost developing nations
standardized
comparative advantage may change over time because patterns of ______ change over time
trade
theory that suggests that intervention by governments in certain industries can enhance their odds for international success
strategic trade
if a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this?
currency hedging
exchange rate risk associating with the time delay between entering a contract and settling it
transaction risk
forward transaction that protects traders and investors from exposure to fluctuations of the spot rate
hedging
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
strategic heding
amount of resources committed to entering a foreign market
scale of entry
how do institutions reduce uncertainty?
by signaling which conduct is legit and which is not
pillar of formal institution, coercive power of government
regulatory
pillar of informal institution, the mechanism through which norms influence individual and firm behavior
normative
pillar of informal institution, taken for granted values and beliefs that guide behavior
cognitive
institutions represented by laws, regulations and rules
formal
institutions represented by norms, culture and ethics
informal
the necessity of making rational decisions in the absence of complete information
bounded rationality
bounded rationality is a position in which view of global business
institution
political system that affects global business with an individuals right to freedom of expression and organization
democracy
political system that affects global business with hostility towards business, higher political risk such as nationalism
totalitarianism
political system where citizens elect representatives to govern the country on their behalf
democracy
political system where one person or party exercises absolute political control over the population
totalitarianism
law that uses comprehensive statutes and codes as a primary means to form legal judgements
civil
law that is shaped by precedents and traditions from previous judicial decisions
common
law that is based on religious teachings
theocratic
less confrontational, shorter, less specific form of law
civil
common law is ______ flexible than civil law
more
the legal right to use an economic resource and to derive income and benefits from it
property right
legal rights awarded by government authorities to investors of new products or processes who are given monopoly rights to derive income from inventions
patent
exclusive legal rights of authors and publishers to publish and disseminate their work
copyright
exclusive legal rights of firms to use specific names, brands and designs to differentiate their products
trademark
characterized by the invisible hand of market forces where the government takes a hands off approach
market
factors of production should be government owned or state owned and all supply, demand and pricing are planned by the government
command
the economic system of most countries
mixed economy
a curve that represents a consumers preferences
indifference curve
________ indifference curves are preferred to ______ ones
higher, lower
indifference curves are bowed ______
inward
the rate at which a consumer is willing to substitute one good for another
marginal rate of substitution
the limit on consumption bundles that a consumer can afford
budget constraint
a piece of analysis that shows the combination of goods the consumer can afford given their income and price of goods
budget constraint
an increase in income will shift the budget constraint ________
outward
the slope of the indifference curve equals the slope of the
budget constraint
the consumer chooses consumption of the two goods so that the marginal rate of substitution equals the
relative price
the increase in total cost that results from adding an additional unit of production
marginal cost
formula to calculate marginal cost
change in total cost / change in quantity
a firm will produce the quantity where MR = MC as long as ________
price > AVC
when price falls below the AVC, what will a firm do?
shut down temporarily
someone who has to take the market price of a product and accept it as their own price
price taker
the demand curve for a perfectly competitive firm is
horizontal
the demand curve for a monopolistic market is
downward sloping
where do firms with market power determine the quantity of product/service they will produce?
quantity where MR = MC, quantity where P = MC
where will firms with price setting capacity maximize profits?
intersection between the marginal cost curve and the marginal revenue curve
a market with only a few sellers offering similar or identical products
oligopoly
a firm is a sole seller of a product with no close substitutes
monopoly
many firms sell similar products but not identical. many firms compete for the same customers, free entry and exit
monopolistic competition
many buyers and sellers, identical products, free entry and exit, perfect information, price taker
perfectly competitive
what may rare, precious, and hard-to-duplicate resources and capabilities lead to for a firm?
sustained comparative advantage
company strategies must consider actions by rival firms is a lesson learned from what
prisoners dilemma about oligopoly
what prevents oligopolistic firms from behaving like monopolies?
antitrust laws
oligopolies are best off when producing a ______ quantity of output and charging a price ______ marginal cost
small, above
decrease in income _______ demand for normal goods
decreases
decrease in income ______ demand for inferior goods
increases
increase in income _____ demand for inferior goods
decreases
increase in income ______ demand for normal goods
increases
good in which people will purchase more of as their income increases
normal good
good in which people will purchase less of as their income increases
inferior good
coke and pepsi are examples of
substitutes
hot dogs and hot dog buns are examples of
complements
normal and inferior goods, complements and substitutes, expectations about the future and tastes and number of buyers influence the position of the
demand curve
demand that is greater than one
elastic
demand that is less than one
inelastic
how is income elasticity measured?
percentage change in quantity demanded / percentage change in income
a change in price will cause a large change in the quantity demanded
elastic
a change in price will not cause a large change in the quantity demanded
inelastic
the percentage change in price is equal to the percentage change in quantity demanded
unit-elastic
necessities have a _____ income elasticity
small
luxuries have a ______ income elasticity
large
how the quantity demanded of one good changes in response to a change in the price of another good
cross-price elasticity
substitute goods have a ______ cross elasticity
positive
complementary goods have a _____ cross elasticity
negative
price elasticity of demand equation
% change in quantity demanded / % change in price
income elasticity of demand equation
% change in quantity demanded / % change in income
cross elasticity of demand equation
% change in quantity demanded of Y / % change in price of X
tools the federal reserve has in regards to monetary control
open market operations, discount rates, reserve ratios
purchase or sale of US treasury or US government bonds in the open market
open market operations
when the fed buys bonds, what happens to the money supply and AD?
increases money supply and shifts AD to the right
when the fed sells bonds, what happens to the money supply and AD?
decreases money supply and shifts AD to the left
the interest rate on loans that the Fed makes to the bank
discount rate
reducing the discount rate does what?
increases money supply, increases AD
increasing the discount rate does what?
decreases money supply, decreases AD
ratio of money that banks are required to hold whenever an entity deposits money with them
reserve ratio
when the reserve ratio is increased, what happens to the money supply and AD
decreases, shifts to the left
when the reserve ratio is decreased, what happens to the money supply and AD
increases, shifts to the right
if the government uses fiscal policy and cuts taxes, what effect will this have on interest rates and AD?
cutting taxes will increase demand for money, increase interest rates and cause AD to shift to the right
the difference between what a buyer is willing to pay for a good or service and what they actually pay
consumer surplus
consumer surplus is measured in the area _____ the demand curve, _______ the price, _______ the quantity consumed
under DC, above price, up to quantity consumed
the benefit sellers receive from participating in a market
producer surplus
producer surplus is measured in the area ______ the supply curve, _____ the price, ______ the quantity supplied
above, below price, up to
total surplus equation
value to buyers - cost to sellers
the study of economy wide phenomena such as inflation, unemployment and economic growth
macroeconomics
the study of how households and firms make decisions and how they interact in markets
microeconomics
income must _______ expenditure in an economy
equal
the market value of all final goods and services produced within the border of a given country during a specified period of time
gross domestic product
gross domestic product measures what two things?
total amount of expenditures and total income of everyone in the economy
4 components of GDP
1. consumption
2. investment
3. government purchases
4. net exports (exports minus imports)
which payments are not counted in government expenditures?
transfer payments, social security
a tax on goods produced abroad and sold domestically
tariff
a method used to restrict international trade by taxing imported goods
tariff
the fall in total surplus that results from a tax
deadweight loss
financial environment in which exchange rates and payments for goods and services are conducted
international monetary system
what happens to a country's real exchange rate and nominal interest rate as the price level increases
exchange rates depreciate, interest rates increase
easiest method non financial companies use to handle currency fluctuations
currency diversification
strategy that minimizes the risk of unanticipated changes in future exchange rates
currency swap
a non equity arrangement for a company contemplating entry into a foreign market
licensing
What size commitment is required for a non-equity mode of entry into a foreign market?
small
two supportive pillars of an informal institution
normative and cognitive
reducing uncertainty is the key role of an institution according to which view
institution based view
the rules, enforcement mechanisms, and organizations that support market transactions are referred to as _____.
institutions
two polar types of economies
centrally planned and market
in addition to improving efficiency, why might a government intervene in a market?
to promote equality
what is the relationship between marginal cost and total cost?
marginal cost is the change in total cost divided by the change in quantity
a seller maximize profits in a perfectly competitive market by producing
the quantity where P = MC
the economic profit of a competitive firm is the difference between _______ and _______
total revenue and total cost
when average variable costs are above the price, what should a firm do?
temporarily shut down
what is the producers demand curve when the producer sells a differentiated product?
downward sloping
a competitive firms demand curve is ______ elastic than a monopoly's demand curve
more
at which point does a monopoly maximize profit?
where MC = MR
many firms and differentiated products
monopolistic competition
if the consumers budget constraint has shifted inwards, the consumer will buy ______ normal goods and ______ inferior goods
fewer normal goods and more inferior goods
if there is an increase in market demand in a perfectly competitive market, equilibrium price will ______ and equilibrium quantity will ______
they will both increase
if both demand and supply decrease, what will happen to equilibrium price and quantity?
quantity will decrease, but price can either increase or decrease [Show Less]