Deck 2: Understanding Formal Institutions: Politics, Laws, and Economics

Question 1

More than 40% of Africa s economy is reportedly informal, the highest proportion in the world.

Answer 1

True

Question 2

Managers considering working abroad should have a thorough understanding of the formal institutions before entering a country.

Answer 2

True

Question 3

Institutional transactions in countries such as China, Poland, Russia, Brazil, India and South Africa create both huge challenges and tremendous opportunities for domestic and international firms.

Answer 3

True

Question 4

Two pillars the regulatory and the normative pillar support informal institutions.

Question 5

Iran and Saudi Arabia are common law countries.

Question 6

Informal institutions include laws, regulations, and rules.

Question 7

Firms operating in democracies almost never confront political risk.

Question 8

Totalitarian countries often experience wars, riots, protests, chaos, and breakdowns, resulting in higher political risk.

Question 9

Managers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework.

Question 10

Formal and informal policies are popularly known as the rules of the game.

Question 11

An important source of transaction cost is opportunism, defined as seeking self-interest with guile.

Question 12

Common law is the oldest, the most influential and the most widely distributed around the world.

Question 13

Intellectual property rights (IPRs) include rights associated with patents, trademarks, and copyrights.

Question 14

In the IT industry in China and India, managers do not have to excel in the game of market responsiveness and innovation because the rules of the game are defined by the global heavyweights.

Question 15

The single most important source of funds for new start-ups in the United States is the mortgage of entrepreneurs houses.

Question 16

Civil law is derived from Roman law and was strengthened by Napoleon s France.

Question 17

South Africa, South Korea, Taiwan, and most Latin American countries practice communist totalitarianism.

Question 18

Democracy was pioneered by the Athenians in ancient Greece.

Question 19

The invisible hand of market forces noted by Adam Smith in the Wealth of Nations in 1776 characterizes a pure market economy.

Question 20

The economic system of most countries is a market economy.

Question 21

A pure market economy characterized by the invisible hand of market forces is noted by:

A) John Stuart Mill
B) Adam Smith
C) Aristotle
D) Amatya Zen

Question 22

The main supportive pillar(s) for informal institutions is/are:

A) Normative and cognitive
B) Regulatory (coercive)
C) Regulatory, normative, and cognitive
D) Cognitive

Question 23

Democracy is defined as a(n) ____ in which citizens elect representatives to govern the country on their behalf.

A) Economic system
B) Legal system
C) Political system
D) Emerging economy

Question 24

____ are defined as fundamental and comprehensive changes introduced to the formal and informal rules of the game that affect organizations as players.

A) Opportunities
B) Transaction costs
C) Institutional transitions
D) Costs of doing business

Question 25

The world s largest democracy is:

A) United States
B) China
C) India
D) Western Europe

Question 26

____ are exclusive legal rights of firms to use specific names, brands, and designs to differentiate their products from others.

A) Patents
B) Trademarks
C) Copyrights
D) Intellectual property rights

Question 27

The division of labor thesis was first advanced by:

A) Adam Smith
B) Douglass North
C) Max Weber
D) Francis Fukuyama

Question 28

More than 80 countries practice:

A) Common law
B) Civil law
C) Theocratic law
D) Social democracy

Question 29

Civil law is derived from:

A) Greek law
B) Roman law
C) Latin law
D) None of these answers

Question 30

A pure command economy is:

A) Characterized by the invisible hand of market forces.
B) Defined by a government taking the commanding height in the economy.
C) Characterized by a government that only performs functions the private sector cannot perform.
D) Characterized by innovation and entrepreneurial activities.

Question 31

____ had been embraced throughout Central and Eastern Europe and the former Soviet Union until the late 1980s.

A) Communist totalitarianism
B) Theocratic totalitarianism
C) Tribal totalitarianism
D) Right-wing totalitarianism

Question 32

The government taking a hands-off approach is known as:

A) Laissez faire
B) Command economy
C) Mixed economy
D) Liberal approach

Question 33

The institution-based view of global business focuses on the dynamic interaction among:

A) Institutions
B) Firms
C) Firm behaviors
D) All of these answers

Question 34

Civil law can be best described by which of the following statements?

A) It is the oldest, most influential, and most widely distributed law around the world.
B) It is English in origin and shaped by precedents and traditions from previous judicial decisions.
C) It is based on religious beliefs.
D) It has more flexibility because judges have to resolve specific disputes based on their interpretation of the law.

Question 35

Political risk is associated with political changes that may negatively impact domestic and foreign firms. Which statement about political risk is correct?

A) Political risk only exists in communist countries.
B) Firms operating in democracies never confront political risk.
C) Firms operating in democracies are subject to political risk.
D) Political risk is a myth.

Question 36

____ are defined as rights associated with the ownership of intellectual property.

A) Patents
B) Copyrights
C) Trademarks
D) Intellectual property rights

Question 37

An institutional framework is made up of:

A) Regulatory and cognitive pillars
B) Formal and informal institutions
C) The political, economic, and legal systems of countries
D) None of these answers

Question 38

Jewish and Islamic law are examples of:

A) Common law
B) Theocratic law
C) Civil law
D) Quasi-democracy

Question 39

IPRs primarily include rights associated with:

A) Copyrights
B) Patents
C) Trademarks
D) All of these answers

Question 40

____ refers to the internalized, taken-for-granted values and beliefs that guide individual and firm behavior.

A) Normative pillar
B) Regulatory pillar
C) Cognitive pillar
D) None of these answers

Question 41

Describe the differences among the three economic systems.

Question 42

Discuss totalitarianism and outline the four major types of totalitarianism.

Question 43

Compare and contrast civil law, common law, and theocratic law.

Question 44

Define the two core propositions of the institution-based view.

Question 45

Outline the differences between democracy and totalitarianism.

Question 46

Identify the basic characteristics of formal and informal institutions.