1. What is deadweight cost?
A. A tariff levied on imports that are selling below costs in order to unfairly drive domestic firms out of business
B. A net loss that occurs in an economy as a result of tariffs Correct
C. The lost potential from pursuing one activity at the expense of another activity, given the alternatives
D. A government payment to a domestic firm
Explanation
Deadweight cost, also known as deadweight loss, is a net loss of economic efficiency that occurs when the equilibrium for a good or service is not Pareto optimal. Tariffs create inefficiency by distorting market prices and reducing trade volume, leading to a loss of consumer and producer surplus that is not captured by any other party. The first option describes an anti-dumping tariff. The third option describes opportunity cost. The fourth option describes a subsidy.
2. What is the definition of globalization?
A. The close integration of countries and peoples of the world Correct
B. The achievement of a one-world market for goods and services
C. The spread of regulatory influence to a greater pool of subjects
D. The development of custom products for each segment of a population
Explanation
Globalization is broadly defined as the process of interaction and integration among people, companies, and governments worldwide. It involves the increasing interconnectedness of national economies and the growing interdependence of countries through cross-border trade, investment, technology, and flows of information and culture. The other options are specific outcomes or aspects of globalization but are not its core definition.
3. What does the term resource mobility describe?
A. An economic condition in which a nation exports more than it imports
B. The assumption that a resource removed from one industry can be moved to another Correct
C. The idea that market forces should determine how much to trade with little or no government intervention
D. The idea that governments should actively defend domestic industries from imports and vigorously promote the export of resources
Explanation
Resource mobility is a key assumption in many economic models, particularly those related to international trade. It refers to the ease with which factors of production (like labor and capital) can be reallocated from one industry to another within an economy. This concept is central to theories like the Heckscher-Ohlin model. The first option describes a trade surplus. The third describes free trade. The fourth describes mercantilism.
4. What are costs to home countries of foreign direct investment? Choose two.
A. Reduced standard of living
B. Capital outflow Correct
C. Loss of sovereignty
D. Job loss
E. Loss of intellectual property Correct
F. Cultural disintegration
Explanation
Foreign Direct Investment (FDI) can lead to capital outflow from the home country as firms invest financial resources abroad. This can potentially reduce domestic investment. FDI can also result in the loss of intellectual property if proprietary technology or knowledge is transferred to foreign operations and not adequately protected. Reduced standard of living and job loss are more commonly cited as costs to *host* countries. Loss of sovereignty and cultural disintegration are broader concerns not directly tied to the economic definition of FDI costs.
5. In which situation is the contender strategy appropriate for responding to MNEs?
A. There is low industry pressure to globalize, and competitive assets are transferable abroad.
B. There is high industry pressure to globalize, and competitive assets are customized to home markets.
C. There is low industry pressure to globalize, and competitive assets are customized to home markets.
D. There is high industry pressure to globalize, and competitive assets are transferable abroad. Correct
Explanation
The contender strategy is used by domestic firms facing high pressure to globalize from multinational enterprises (MNEs). This strategy involves leveraging transferable competitive assets (those that can be applied effectively in foreign markets) to compete with MNEs on a global scale. The other scenarios describe different strategies: extender (low pressure, transferable assets), defender (low pressure, customized assets), and dodger (high pressure, customized assets).