Deck 5: International Trade: Imperfect Competition and Transnational Corporations

Question 1

An industry whose cost of producing additional units of output declines as output increases is said to exhibit:

A) decreasing returns to scale.
B) efficiency gains.
C) increasing returns to scale.
D) monopolistic competition.

Answer 1

increasing returns to scale.

Question 2

Paul Krugman showed that in the case of increasing returns to scale and imperfect competition:

A) countries can no longer gain from international trade and would be better off making everything themselves.
B) countries gain from international trade.
C) some countries increase national welfare from trade but others lose welfare from trade.
D) countries will trade but they will gain less than in the case of the standard PPF/indifference curve model with increasing costs.

Answer 2

countries gain from international trade.

Question 3

Paul Krugman showed that in the case of increasing returns to scale, there are gains from trade that are derived from:

A) higher prices and higher profits.
B) lower costs and greater variety.
C) greater variety that offsets the higher costs.
D) higher profits from diversification.

Answer 3

lower costs and greater variety.

Question 4

Increasing returns to scale can help to explain:

A) intra-industry trade.
B) comparative advantage.
C) observed trade patterns.
D) All of the above.
E) None of the above.

Question 5

The increasing-returns-to-scale model of trade:

A) shows that countries can export without having a comparative advantage.
B) cannot tell us which increasing returns industry will become the export industry.
C) shows that countries cannot gain from international trade.
D) suggests countries should not interfere with international trade.

Question 6

According to the two-country Heckscher-Ohlin model, international trade is a:

A) positive-sum game in which both players win.
B) zero-sum game in which one side wins and the other loses.
C) negative-sum game in which both sides end up worse off than if they had not played.
D) indeterminate game, in which there are sometimes winners and sometimes losers.

Question 7

A multinational enterprise (TNC) is defined as a firm that:

A) exports more than it imports.
B) sells in many markets around the globe.
C) manages productive or commercial facilities (real assets) in more than one country.
D) has foreign stockholders.
E) All of the above.

Question 8

According to the textbook, there is evidence suggesting that foreign direct investment (FDI):

A) is less likely to create a foreign exchange crisis compared to other capital flows, such as bonds and portfolio investments.
B) is less likely than other forms of international investment to transfer technology.
C) reduces international trade.
D) All of the above.
E) None of the above.

Question 9

Horizontal foreign direct investment (FDI) refers to TNC facilities in different countries that:

A) cover the identical stage in the supply chain.
B) manufacture 100 percent of a product.
C) cover different stages of the supply chain.
D) all produce completely different final products from scratch.

Question 10

All other things equal, the creation of multinational firms is most likely to occur when:

A) it is more costly to internalize transactions than to engage in arms' length transactions with other firms.
B) firm activities are subject to constant returns to scale.
C) firms' acquired reputations do not have any value in foreign markets.
D) firms operate under increasing returns to scale.

Question 11

TNCs have gained great political power via:

A) continuous and persistent lobbying.
B) constant threats of shifting jobs and investment to other political jurisdictions.
C) their effective control of, or influence on, the entertainment firms that now run most of the world's news media.
D) All of the above.
E) None of the above.

Question 12

One reason for the growth of TNCs is:

A) that some transactions are easier to carry out internally within an organization than externally between different organizations.
B) the prevalence of government restrictions on foreign investment.
C) the high risk of investing in foreign countries.
D) All of the above.

Question 13

The prominence of TNCs suggests that:

A) the orthodox models of international trade must be slightly modified.
B) we must develop new models of international trade.
C) we can continue to use orthodox models of international trade, such as the Heckscher-Ohlin model, to explain international trade.
D) none of our models can correctly explain their trade and investment behavior.

Question 14

Which of the following is considered foreign direct investment?

A) Buying a bond of a foreign company.
B) Making a loan to a foreign company.
C) Acquiring direct ownership and control of a foreign company.
D) All of the above.
E) None of the above.

Question 15

Which of the following statements about foreign direct investment are true?

A) TNC investments between developed economies are more often horizontal than in the case of TNC investments between developed and developing economies.
B) TNCs production is more likely to be horizontal the higher the transport costs and trade barriers and the lower the scale economies at the plant level.
C) Vertical investment is driven by factor cost differences.
D) All of the above.
E) None of the above.

Question 16

Which of the following statements about outsourcing is false?

A) Outsourcing has slowed the growth of foreign direct investment.
B) Outsourcing is the straightforward application of the principle of comparative advantage.
C) Outsourcing allows a firm to concentrate on its core competencies where it has the greatest profit margins.
D) All of the above.
E) None of the above.

Question 17

Which of the following influences TNCs in their decision on where to locate?

A) Trade barriers like tariffs and import quotas.
B) Taxes.
C) Government regulations.
D) All of the above.
E) None of above.

Question 18

In what way(s) may TNCs have a competitive advantage over national firms?

A) TNCs can manipulate transfer prices on goods and services traded among branches of the firm in different countries.
B) TNCs can reduce their foreign exchange risk by spreading their production and marketing operations across countries to balance expenses and revenue in each currency.
C) TNCs may be able to finance their investments at more favorable rates because they offer the purchaser of their stock and bonds a more diversified risk.
D) All of the above.
E) None of the above.

Question 19

Competitive advantage refers to:

A) a firm's ability to supply a good to foreign markets at a lower price.
B) a firm's advantage in providing its customers or potential customers with a greater value of goods or services.
C) a country's lower opportunity costs in supplying a particular product.
D) a firm's ability to be the first one to enter a new overseas market.

Question 20

In the textbook, a product's value, V, is defined as:

A) V = B/P, where B and P are benefits and price, respectively.
B) V = B + P, where B and P are benefits and price, respectively.
C) V = P/B, where P and B are price and benefits, respectively.
D) None of the above; value cannot be quantified.

Question 21

Marketing is sometimes narrowly defined as consisting of:

A) sales promotion and market research.
B) sales promotion.
C) sales promotion, advertising, and market research.
D) sales promotion, advertising, market research, and foreign investment.

Question 22

The field of marketing views marketing as:

A) exclusively promotion and sales activities.
B) all activities that enhance the perceived value of a product to customers.
C) consisting of sales activity, not the usual broad concept that also includes product development, market research, promotion, advertising, and distribution.
D) All of the above.
E) None of the above.

Question 23

Competitive advantage is influenced by:

A) the perceived value of competing foreign products.
B) a country's comparative advantage.
C) customer tastes.
D) pricing.
E) All of the above.

Question 24

Competitive advantage is not related to:

A) the perceived value of competing foreign products.
B) a country's comparative advantage.
C) customer tastes.
D) pricing.
E) None of the above; competitive advantage is related to all of the above.

Question 25

According to the examples on international marketing, in Japan mail order sales:

A) of books are restricted to selling at list prices or above.
B) are prohibited altogether.
C) can only be carried out on Sundays when stores are closed.
D) are exempted from sales taxes.

Question 26

Unilever distributes detergents, soaps, and margarine to small shop keepers in Tanzania by:

A) computer.
B) boat.
C) bicycle.
D) airplane.