Question 1

International joint ventures tend to yield a welfare increasing market-power effect and a welfare decreasing cost-reduction effect.

Accepted Answer

International joint ventures can lead to a welfare-increasing cost-reduction effect due to shared resources and expertise, while the market-power effect, which can limit competition, might be welfare-decreasing.

Question 2

Mergers differ from joint ventures in that they involve the creation of a new business firm,rather than the union of two existing companies.

Accepted Answer

The given statement is incorrect. Joint ventures involve the creation of a new business entity, whereas mergers involve the combination of two or more existing companies to form a new entity.

Question 3

Both economic theory and empirical studies support the notion that foreign direct investment is conducted in anticipation of future profits.

Accepted Answer

Economic theory suggests that foreign direct investment is made with the intention of generating profits in the future. Empirical studies also support this idea by demonstrating that companies tend to invest in countries with potential for growth and profitability.

Question 4

Joint ventures lead to national welfare gains if the newly established business yields productivity increases that would have been unavailable if each parent performed the same function separately.

Accepted Answer

Joint ventures allow for the combination of resources and expertise of the participating entities, which can lead to increased productivity and efficiency that would not have been possible if each entity worked separately. This, in turn, can lead to national welfare gains.

Question 5

If a joint venture among competing firms is able to cut costs by extracting wage concessions from domestic workers,national welfare increases.

Accepted Answer

While a joint venture may lead to cost savings for the firms involved, extracting wage concessions from domestic workers would result in a reduction in their welfare. This would not lead to an increase in national welfare as a whole.

Question 6

A joint venture leads to increases in national welfare if the cost-reduction effect is due to wage concessions and if it more than offsets the market-power effect.

Accepted Answer

The answer of A joint venture leads to increases in...

Question 7

A joint venture along two large competing companies tends to yield a market-power effect,which results in a reduction in consumer surplus,that is not offset by a corresponding gain to producers.

Accepted Answer

When two large competing companies form a joint venture, they may have increased market power, which can lead to higher prices for consumers and a reduction in consumer surplus. However, this does not always result in a corresponding gain to producers, as they may not necessarily increase their profits in the same proportion as the price increase.

Question 8

Due to transfer-pricing problems,multinational corporations must shift profits away from countries with low corporate tax rates to high tax-rate countries,thus absorbing a larger tax bite.

Accepted Answer

The statement relates to transfer pricing, which is not mentioned in the given information about the Mexican labor market. Therefore, it cannot be determined whether the statement is true or false based on the information provided.

Question 9

By establishing transplant factories in the United States,Japanese automakers were able to avoid export restrictions imposed by the Japanese government,but not import restrictions imposed by the U.S.government.

Accepted Answer

Transplant factories in the United States were subject to import restrictions imposed by the U.S. government, which limited the number of cars that could be imported into the U.S. market. This means that Japanese automakers were not able to completely avoid import restrictions by establishing transplant factories.

Question 10

The theory of multinational enterprise is totally inconsistent with the principle of comparative advantage.

Accepted Answer

The theory of multinational enterprise actually builds on the principle of comparative advantage. It suggests that firms expand their operations across borders to take advantage of differences in resources, skills, and costs in different countries, which is essentially what comparative advantage theory predicts.

Question 11

Joint ventures lead to losses in national welfare when the newly established business adds to pre-existing production capacity and fosters additional competition.

Accepted Answer

The statement is false. Joint ventures can lead to gains in national welfare if they result in increased efficiency and productivity. It is only when joint ventures lead to the creation of excess production capacity and increased competition that they may lead to losses in national welfare.

Question 12

In natural-resource oriented industries,such as oil and copper,joint ventures have often been formed by several companies since the cost of resource-extraction may be prohibitively large for a particular company.

Accepted Answer

Joint ventures are commonly formed in natural-resource oriented industries because the cost of resource-extraction can be too high for just one company to bear.

Question 13

A joint venture leads to increases in national welfare if its cost-reduction effect is due to productivity gains and if it more than offsets the market-power effect.

Accepted Answer

Productivity gains through a joint venture can lead to cost reductions, which can increase national welfare. However, if the joint venture results in increased market power, which can lead to higher prices and reduced consumer surplus, then the net effect on national welfare may be negative. Therefore, the productivity gains need to outweigh the market-power effect for the joint venture to increase national welfare.

Question 14

Foreign-owned companies in the United States operate under more strict antitrust,environmental,and other regulations than U.S.-owned companies.

Accepted Answer

There is no special treatment or difference in regulations between foreign-owned companies and U.S.-owned companies in the United States. All companies are subject to the same regulations and laws.

Question 15

There is virtually universal agreement among economists that foreign direct investment in the United States has reduced the economic welfare of the average U.S.citizen.

Accepted Answer

There is actually significant disagreement among economists about the impact of foreign direct investment on the U.S. economy and the welfare of U.S. citizens. Some argue that it creates jobs and stimulates economic growth, while others point to potential negative effects such as decreased wages and loss of domestic control over key industries. Overall, the economic impact of foreign direct investment is complex and varies depending on a range of factors.

Question 16

Developing countries,such as Mexico and India,often close their borders to foreign companies unless they are willing to take on partner companies in developing countries.

Accepted Answer

Developing countries often have policies in place that require foreign companies to partner with local companies or comply with certain regulations in order to enter the market. This is often done to protect local businesses and industries and to promote economic growth and development within the country.

Question 17

If the size of the Canadian market is large enough to permit efficient production in Canada,a U.S.firm would profit by establishing a Canadian manufacturing subsidiary or licensing rights to a Canadian firm to manufacture and sell its product in Canada.

Accepted Answer

If the Canadian market is large enough to support efficient production, it would make sense for a U.S. firm to establish a Canadian manufacturing subsidiary or license their product to a Canadian firm to take advantage of the market opportunities. This would help the U.S. firm increase its revenue by leveraging the local production capabilities and reducing costs associated with import/export tariffs and transportation.

Question 18

Critics of multinational corporations maintain that they often abandon domestic workers in order to take advantage of lower wage scales abroad.

Accepted Answer

Critics argue that multinational corporations prioritize profit over the well-being of domestic workers and seek out cheaper labor in other countries, leaving domestic workers unemployed or with lower wages and fewer benefits.

Question 19

During the 1980s and 1990s,Japanese auto firms established manufacturing facilities in the United States known as "transplants."

Accepted Answer

This statement is true. Japanese auto firms such as Toyota, Honda, and Nissan established manufacturing facilities in the United States during the 1980s and 1990s, commonly referred to as transplants.

Question 20

Multinational corporations often locate manufacturing operations abroad in order to take advantage of foreign resource endowments or wage scales.

Accepted Answer

This statement is true. Multinational corporations often seek to reduce costs by locating manufacturing operations in countries with lower labor costs or abundant natural resources. This allows them to produce goods more cheaply and increase profits.

Quiz 9: International Factor Movements and Multinational Enterprises