Question 1

Minimizing Trade Barriers (Scenario)
National Appliance Corporation (NAC) needs to build a new manufacturing facility to meet the increasing demand for professional-grade appliances. NAC managers are considering building the facility in Mexico but are hesitant because of the high tariffs involved. Another possible location for the facility is India; however, the country also imposes high tariffs. Wherever NAC builds a plant, parts will need to be imported from other nations.
-Given the high trade barriers in Mexico, the management of NAC is most likely to consider ________ to be an inappropriate entry strategy.
A) exporting
B) FDI
C) joint ventures
D) licensing

Accepted Answer

Exporting is likely to be considered an inappropriate entry strategy by NAC's management due to the high tariffs involved in both Mexico and India, which would increase the cost of sending goods to these countries.

Question 2

Countries as diverse as Chile, Hungary, Turkey, and South Korea have liberalized their previously protected markets, lowering trade barriers and subjecting themselves to greater competition from abroad.

Accepted Answer

These countries have indeed undertaken economic reforms over the years to open up their markets by reducing trade barriers, which has increased their exposure to international competition. This is part of broader economic liberalization and globalization efforts.

Question 3

Tariffs and most nontariff trade barriers impact importers by making products more expensive.

Accepted Answer

Tariffs are taxes on imported goods, and nontariff barriers (such as quotas, embargoes, and standards) can also restrict imports or increase the cost of importing, both of which can lead to higher prices for importers and, ultimately, consumers.

Question 4

Which of the following terms refers to two or more geographically connected nations in pursuit of free trade relations?
A) grey market
B) trading diaspora
C) economic bloc
D) business strategic unit

Accepted Answer

An economic bloc refers to a group of countries that are geographically connected and have agreed to participate in free trade agreements to enhance economic cooperation and reduce trade barriers among them.

Question 5

Minimizing Trade Barriers (Scenario)
National Appliance Corporation (NAC) needs to build a new manufacturing facility to meet the increasing demand for professional-grade appliances. NAC managers are considering building the facility in Mexico but are hesitant because of the high tariffs involved. Another possible location for the facility is India; however, the country also imposes high tariffs. Wherever NAC builds a plant, parts will need to be imported from other nations.
-Which of the following would be most important for NAC managers to consider while taking a decision in favor of building a facility in Mexico or India?
A) Has NAC engaged in dumping in the past?
B) How would appliance parts and finished products be categorized when passing through customs?
C) Is employee empowerment culturally favored in Mexico and India?
D) What entry strategies are available in both countries that would allow NAC to minimize import barriers?

Accepted Answer

NAC managers should consider entry strategies that minimize import barriers, such as forming joint ventures or partnerships, which can help reduce the impact of high tariffs in Mexico or India.

Question 6

Firms use foreign trade zones to ________.
A) consolidate market monopolies
B) assemble foreign dutiable materials and components into finished products, which are then re-exported
C) create employment opportunities for the local people
D) meet quota demands established by the government

Accepted Answer

Foreign trade zones allow firms to import materials and components, assemble or process them, and then export the finished products without being subject to the usual customs duties. This can be particularly advantageous for companies looking to reduce costs on the import of dutiable materials for manufacturing.

Question 7

The global recession and financial crisis that began in 2008 arose largely from inadequate regulation and insufficient enforcement of current regulations in the banking and finance sectors.

Accepted Answer

The 2008 global recession and financial crisis were significantly caused by inadequate regulation and insufficient enforcement of existing regulations in the banking and finance sectors, leading to risky lending practices, the proliferation of complex financial products like mortgage-backed securities, and excessive leverage among financial institutions.

Question 8

Obtaining economic development incentives from host- or home-country governments increases the cost of trade and investment barriers.

Accepted Answer

Economic development incentives are typically designed to lower the costs associated with trade and investment, such as tax breaks, grants, or subsidies, rather than increase them.

Question 9

Which of the following entry strategies do most firms use in the absence of high tariffs?
A) FDI
B) licensing
C) joint ventures
D) exporting

Accepted Answer

Exporting is often the first strategy firms use to enter a foreign market when there are no high tariffs because it involves the least commitment of resources and allows firms to test markets without the need for significant investment in production facilities in the host country.

Question 10

A formal arrangement between two or more countries to reduce or eliminate tariffs is known as a ________.
A) quota arrangement
B) free trade agreement
C) memorandum of association
D) memorandum of understanding

Accepted Answer

A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Through reducing or eliminating tariffs, import quotas, export restraints, and other trade barriers, free trade agreements encourage countries to trade goods and services with each other.

Question 11

What is a foreign trade zone (FTZ)? In a short essay, explain how FTZs are utilized by firms.

Accepted Answer

The answer of What is a foreign trade zone (FTZ)?...

Question 12

One approach for reducing exposure to trade barriers is to have exported products classified in the appropriate harmonized product code.

Accepted Answer

Classifying exported products in the appropriate harmonized product code ensures they are correctly identified at customs, potentially reducing exposure to tariffs, duties, and other trade barriers by ensuring the products are taxed and regulated accurately according to international trade agreements.

Question 13

The General Agreement on Tariffs and Trade (GATT) and now the World Trade Organization (WTO) was organized to reduce trade barriers, because high tariffs inhibited free trade and economic growth.

Accepted Answer

The GATT was established to reduce tariffs and other trade barriers, with the aim of promoting free trade and economic growth. The WTO succeeded the GATT and continues to work towards these objectives.

Question 14

Minimizing Trade Barriers (Scenario)
National Appliance Corporation (NAC) needs to build a new manufacturing facility to meet the increasing demand for professional-grade appliances. NAC managers are considering building the facility in Mexico but are hesitant because of the high tariffs involved. Another possible location for the facility is India; however, the country also imposes high tariffs. Wherever NAC builds a plant, parts will need to be imported from other nations.
-Which of the following must NAC ensure in order to reduce exposure to trade barriers?
A) reduced production
B) strong emphasis on quality
C) accurate product classification
D) obtaining patents for inventions

Accepted Answer

Accurate product classification is essential for minimizing trade barriers because it ensures that goods are properly categorized under the correct tariff codes, potentially reducing the tariffs imposed on imported parts.

Question 15

Tariffs are taxes that will increase the price to consumers.

Accepted Answer

Tariffs are taxes imposed on imported goods, which generally lead to an increase in the cost of these goods for consumers as importers pass on the additional cost.

Question 16

A ________ is an area within a country that receives imported goods for assembly or other processing and subsequent re-export.
A) single market
B) trade bloc
C) foreign trade zone
D) common market

Accepted Answer

A foreign trade zone is specifically designated for the purpose of importing goods for assembly, storage, manufacturing, or processing, with the goods then being re-exported without the intervention of local customs authorities.

Question 17

Which of the following is a method used by some manufacturers to avoid paying high tariffs?
A) assemble products in the target market
B) produce a large number of less expensive items in the target market
C) employ highly skilled workers in the export location regardless of the cost
D) ship products to fewer international locations

Accepted Answer

Assembling products in the target market allows manufacturers to import components at lower tariff rates compared to the tariffs on finished goods, thus reducing overall costs associated with tariffs.

Question 18

Maquiladoras refer to export-assembly plants in northern Mexico along the U.S. border that produce components and typically finished products destined for the United States on a tariff-free basis.

Accepted Answer

Maquiladoras are indeed export-assembly plants located in northern Mexico, primarily along the U.S. border, where they manufacture or assemble imported components into finished products for export, often to the United States, benefiting from tariff exemptions under specific trade agreements.

Question 19

In a short essay, explain how the GATT changed international trade.

Accepted Answer

The answer of In a short essay, explain how the...

Question 20

If high tariffs are present, managers may consider other strategies, such as FDI, licensing, and joint ventures that allow the firm to operate directly in the target market, avoiding import barriers.

Accepted Answer

High tariffs can make exporting to a country expensive, so firms may consider Foreign Direct Investment (FDI), licensing, or joint ventures as alternative strategies to enter a market directly and avoid these import barriers.

Quiz 7: Government Intervention and Regional Economic Integration

Countries as diverse as Chile, Hungary, Turkey, and South Korea have liberalized their previously protected markets, lowering trade barriers and subjecting themselves to greater competition from abroad.

Tariffs and most nontariff trade barriers impact importers by making products more expensive.

Which of the following terms refers to two or more geographically connected nations in pursuit of free trade relations?

Firms use foreign trade zones to ________.

The global recession and financial crisis that began in 2008 arose largely from inadequate regulation and insufficient enforcement of current regulations in the banking and finance sectors.

Obtaining economic development incentives from host- or home-country governments increases the cost of trade and investment barriers.

Which of the following entry strategies do most firms use in the absence of high tariffs?

A formal arrangement between two or more countries to reduce or eliminate tariffs is known as a ________.