C211 Study Guide questions

C211 Study Guide questions 4.9 (11 reviews) Students also studied Terms in this set (126) Western Governors UniversityC 214 Save WGU C211 - Global Economics for M...136 terms jasonmcnearPreview

C211 OA

178 terms dosa54Preview WGU C214 Concepts Only Multi Cho...Teacher 222 terms Lydia_Smith75 P Preview WGU C 222 term ctca What is Foreign Direct Investment?is direct investment in, control, and management of value-added activities in other countries.What different political views exist on FDI?Radical, Free Market, and Pragramatic Nationalism What benefits exist to a country receiving FDI? Capital inflow, Technology, management, job creation What costs exist to a country receiving FDI?Loss of sovereignty, adverse effects on competition, and capital outflow How do resources and capabilities influence the competitive dynamics of a business?Value, rarity, imitibility, and organization (VRIO) Globalization new viewA new force sweeping through the world in recent times Evolutionary globalization viewlong-run historical evolution since the dawn of human history "Pendulum" view on globalizationOne that swings from one extreme to another from time to time What is resource similarity and how does this impact competitive dynamics?The degree to which two firms with similar resources are likely to have

competitive actions. ie: market commonality

Give a description of the classical theory of international trade.The major theories typically studied consist of mercantilism, absolute advantage, and comparative advantage How would the modern theory compare to the classical theory?the major theories typically studied consist of product life cycle, strategic trade, and national competitive advantage.

Absolute advantageinvolves being more efficient than anyone else in the production of any good or service comparative advantageis the relative (not absolute) advantage in one absolute activity that one nation enjoys in comparison with other nations MercantilismClassical trade theory that viewed international trade as a zero-sum game What are the critical features of the product life cycle? An economic theory that accounts for changes in the patterns of trade over time How would you describe strategic trade?A theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success How are supply and demand related to the exchange rate of a country?Exchange rates rise and fall based on the underlying economic conditions that prompt traders, investors and others to want more of a particular currency.Which theory came first, mercantilism or modern-day protectionism?

Mercantilism: As protectionism is the idea that governments should protect

domestic industries from imports & vigorously promote exports If a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this?This can be accomplished by hedging Explain the concept of "hedging" as it relates to reducing various types of risk.Strategies or Tools used =Hedging Risk associated with =Transaction risks They use hedging to minimize transaction risks What is transaction risk?The Risk that a company will incur losses due to an adverse change in the relevant foreign exchange rate Strategic hedgingspreading out actives in a number of different currency zones to offset any currency losses in one region through gains in another region.currency hedgingA transaction that protects traders and investors from exposure to the fluctuations of the spot rate.What advantages exist with first mover?1-They gain advantage through proprietary technology 2-They make pre-emptive investments 3-They erect significant entry barriers for late entrants, such as high switching cost due to locality 4- They may build relationships with key stake holders (customers & governments) What advantages exist with late mover?1-Late movers can free-ride on first movers pioneering investments 2-First movers face technological & market uncertainties 3-First movers may be locked into a given set of fixed assets Consider the model of foreign market entries. How is scale-of-entry related/relevant?

• First mover advantages and large scale are linked
• Small scale entry means learning at low risk
• Entry in small or large potential market may require the same level of initial

resources

How do institutions reduce uncertainty?by constraining the range of acceptable actions Regulatory pillarThe coercive power of governments.Normative pillarThe mechanism through which norms influence individual and firm behavior.Cognitive pillarThe internalized (or taken-forgranted) values and beliefs that guide individual and firm behavior.formal institutionsInstitutions represented by laws, regulations, and rules.informal institutionsInstitutions with unwritten and unofficial rules On what is the institution based view of global business grounded?Success/failure of global firms caused by differing "rules of the game" How is global business affected by democracy? Anyone can start a business, they usually have more businesses come into the country How is global business affected by totalitarianism? Not as good for business, these countries often experience higher political risks.DemocracyA political system in which citizens elect representatives to govern the country on their behalf.TotalitarianismA political system in which the government has total control over the lives of individual citizens.Civil LawA legal tradition that uses comprehensive statutes and codes as a primary means to form legal judgments.Common LawA legal tradition that is shaped by precedents and traditions from previous judicial decisions.Theocratic Lawlegal system based on religious teachings What is a property right?The legal rights to use an economic property (resource) and to derive income and benefits from it.What is an intellectual property right?Rights associated with the ownership of intellectual property.command economyAn economy that is characterized by government ownership and control of factors of production.mixed economyAn economy that has elements of both a market economy and a command economy.What is an indifference curve?a curve that shows consumption bundles that give the consumer the same level of satisfaction

What are the four properties of an indifference curve? Downward sloping Preferred to lower ones It cannot intersect the Convex is bowed inward Explain marginal rate of substitution.the rate at which a consumer is willing to trade one good for another What is a budget constraint?the limit on the consumption bundles that a consumer can afford How might a budget constraint be impacted by an increase in income?With higher income, a consumer can afford more of both goods. The increase in income shifts the budget constraint OUTWARD.What two graphical elements are needed in order to determine a consumer's optimal point of consumption?Budget Constraint- (The limit on the consumption bundles that a consumer can afford) & Indifference curve How is a consumer's optimal point of consumption determined precisely?Where the budget contraction touches the indifference curve How is marginal cost derived?the increase in total cost that arises from an extra unit of production How is marginal cost related to total cost?The portion of total cost resulting from an extra unit of production.What is the specific formula to calculate marginal cost? MC= ^TC/^Q If Dave's company has a total cost of $100 when quantity output is 5, and a total cost of $115 when quantity output is 6, what is the marginal cost of producing the 6th unit?Fixed cost - costs that do not vary with the quantity of output produced Variable Cost - costs that vary with the quantity produced Total Cost (see below) Variable Cost - Fixed Cost + Variable Cost total costthe market value of the inputs a firm uses in production variable costscosts that vary with the quantity of output produced How does a firm determine to shut down in the short- run?What rule characterizes this?If total revenue is less than the total variable cost of production.That is, a firm that shuts down temporarily still has to pay its fixed costs, whereas a firm that exits the market does not have to pay any costs at all, fixed or variable.What is a price taker? Which of the market structures are characterized as being "price takers"?A large number of competitive firms sells homogenous products therefore are price takers.Perfect and Pure Competition When a market is characterized as being a price taker, what fundamental shape does the demand curve for this market take?Horizontal line How is the demand curve for a perfectly competitive firm distinct from the demand curve for a monopolistic market?demand curve for perfectly competitive firm is a price taker so its a straight horizontal line while demand for a monopolist is not a price taker and is the same as the market demand curve