Globalization and Economic Concepts Quiz

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Questions and Answers

Which characteristic is true for a monopoly market structure?

There are barriers to entry into the market. (correct)

There are many sellers offering identical goods.

Goods are easily substitutable.

Price is determined by market demand.

What happens to the marginal revenue of a monopoly firm in relation to its price?

Marginal revenue is greater than its price.

Marginal revenue equals its price.

Marginal revenue is less than its price. (correct)

Marginal revenue fluctuates with demand.

Which of the following defines monopolistic competition?

A single seller controls the market.

Many sellers offer differentiated products. (correct)

High barriers to entry.

There is a lack of product differentiation.

What is likely true in an oligopoly with firms motivated by self-interest?

They may make statements that contradict collective agreements. Signup and view all the answers

Which of these statements accurately describes a key aspect of monopoly?

One seller offers a unique good without close substitutes. Signup and view all the answers

What view of globalization suggests that human civilization has always experienced some form of globalization?

The long-run historical view Signup and view all the answers

Which term describes the benefit firms gain by entering a market before their competitors?

First-mover advantage Signup and view all the answers

How is opportunity cost defined in economic terms?

The lost potential from pursuing one activity at the expense of another Signup and view all the answers

Which advantage, outlined by John Dunning, helps explain why firms opt for foreign direct investment?

Internalization advantages Signup and view all the answers

In which situation is the dodger strategy suitable when responding to multinational enterprises (MNEs)?

Low industry pressure with customized home market assets Signup and view all the answers

What does trade advantage refer to?

A benefit from differences in production factors across countries Signup and view all the answers

What representation does the business-over-culture view imply regarding globalization?

Cultural factors are irrelevant to business decisions Signup and view all the answers

What is meant by absolute advantage in economic theory?

The superior efficiency in producing a good in comparison to another country Signup and view all the answers

What are three characteristics of industries primed for collusion?

A price leader Signup and view all the answers

What is one weakness of the theory of mercantilism?

It reduces the wealth of the nation in the long run Signup and view all the answers

What is the bandwagon effect?

The simultaneous movement of investors in the same direction Signup and view all the answers

What is the effect on a country's currency exchange rate when inflation decreases?

It increases Signup and view all the answers

Which of the following is one of the primary types of foreign exchange transactions?

Spot transactions Signup and view all the answers

What must be true for prices of identical products sold in different countries to be the same?

Trade barriers must be minimal or absent Signup and view all the answers

How does a country's exchange rate relate to its economic health?

It reflects the country's overall economic performance Signup and view all the answers

Who are the primary participants in the foreign exchange market?

Central banks and large financial institutions Signup and view all the answers

What term describes making sensible decisions when lacking complete information?

Bounded rationality Signup and view all the answers

Which scenario best illustrates managers and firms making choices within institutional constraints?

A multinational relocates production to reduce labor costs. Signup and view all the answers

What is a characteristic of norms in a society?

They are established social standards. Signup and view all the answers

Which option best defines ethics in decision-making?

Personal principles guiding choices. Signup and view all the answers

Which of the following does NOT pertain to a democracy?

Government decisions made by a small elite group. Signup and view all the answers

Which factor does NOT influence bounded rationality in decision-making?

The legal framework governing companies. Signup and view all the answers

What likely motivates a multinational company to increase wages beyond the legal minimum?

A commitment to ethical labor practices. Signup and view all the answers

What does government corruption typically result in for businesses?

Increased costs of doing business. Signup and view all the answers

What is one characteristic of a market surplus?

The quantity supplied exceeds the quantity demanded. Signup and view all the answers

When demand decreases and supply stays the same, which of the following occurs?

Price decreases. Signup and view all the answers

If the demand for a good is inelastic, which statement is true?

The quantity demanded responds only slightly to changes in price. Signup and view all the answers

What is an example of goods that tend to have negative cross-price elasticities?

Complements Signup and view all the answers

In order to increase the money supply, what does the Fed do?

Buys bonds from the public. Signup and view all the answers

What happens when the Fed increases the money supply?

The aggregate-demand curve shifts to the right. Signup and view all the answers

How does the Fed lower the federal funds rate?

By buying bonds in the open market. Signup and view all the answers

What occurs when price is less than the equilibrium price?

There is a shortage of the good. Signup and view all the answers

What is the best strategy for a firm in an oligopoly if other firms do not adhere to production agreements?

Raise production regardless of others Signup and view all the answers

What is a key characteristic of an oligopoly?

It represents a prisoner's dilemma Signup and view all the answers

Which two statements correctly describe properties of indifference curves?

Higher indifference curves are preferred Signup and view all the answers

Which changes would lead to an increase in demand?

A reduction in the price of a substitute Signup and view all the answers

What is the implication of a firm deciding to stick with the agreed-to level of production?

It is adhering to a strategic agreement with other firms Signup and view all the answers

In which situation would a firm prefer raising production?

If fellow firms raise production without agreement Signup and view all the answers

Which of the following is NOT a property of indifference curves?

Indifference curves slope upward Signup and view all the answers

What effect does an expectation of lower income in the future have on the demand for a normal good?

It decreases demand because consumers buy less now Signup and view all the answers

Study Notes

Globalization

Globalization is a view that human civilization has always had some form of globalization.
One view is the long-run historical view.

Opportunity Cost

Opportunity cost is the lost potential from pursuing one activity at the expense of another activity.

OLI Advantages

One OLI advantage is internalization advantages.

Dodger Strategy

The dodger strategy is appropriate when there is low industry pressure to globalize and competitive assets are customized to home markets.

Collusion Characteristics

Industries primed for collusion include a small number of rivals, a price leader, and homogeneous products.

Mercantilism Weaknesses

Mercantilism leads to inefficient allocation of resources.
Applying mercantilism reduces national wealth in the long run.

Bandwagon Effect

The bandwagon effect is the movement of investors in the same direction at the same time.

Inflation and Exchange Rates

A decrease in inflation results in an increase in a country's exchange rate.

Foreign Exchange Transactions

Spot transactions, straddles, rooted transactions, and covered calls are primary types of foreign exchange transactions.

Foreign Exchange Market Participants

Large international banks are the primary and largest participants in the foreign exchange market.

Resource-Seeking Strategic Goal

A company searching for locations with an abundance of oil is a natural resource-seeking strategic goal.

Barriers to Entry

First-mover advantage creates barriers for other entrants.

Direct Export Advantages

Direct exports capitalize on economies of scale in the home country.

Equity Modes of Entry

Strategic alliances, greenfields, and acquisitions are examples of equity modes of entry.

Formal Institutions and Power

The regulatory pillar of formal institutions represents the coercive power of governments.

Decision-Making and Complete Information

Bounded rationality is the necessity of making sensible decisions in the absence of complete information.

Institution-Based View

Managers and firms rationally pursue their interests within institutional constraints.

Democracy Characteristics

A democracy prizes individual rights to expression and organization.
A democracy extends economic organization rights to domestic and foreign individuals and firms.
Risks in a democracy are lower compared to other political systems.

Common Law vs. Civil Law

Common law relies more on precedents compared to civil law.

Intellectual Property Protection

Trademarks are used to protect logo designs.

Market Economy Characteristics

Market economies involve government in a hands-off approach (laissez-faire)
Factors of production are privately owned.

Firm Behavior in Market Structures

Total cost (TC) = fixed costs (FC) + variable costs (VC).

Marginal Cost

Marginal cost is the increase in cost from producing an additional unit of output.

Profit Maximisation

Firms maximize profit when marginal revenue equals marginal cost.

Increasing Production Conditions

A firm should increase production when marginal revenue is greater than marginal costs.

Monopoly Barriers to Entry

Single-firm ownership of key resources, economies of scale, and government regulations are common monopoly barriers.

Monopolistic Competition Features

Many sellers, product differentiation, and free entry and exit are features of monopolistic competition.

Oligopoly Feature

Key feature of an oligopoly is the prisoner's dilemma.

Indifference Curves

Higher indifference curves are preferred to lower ones.
Indifference curves do not intersect.

Market Demand Factors

An increase in demand happens when price of a substitute rises.

Market Surplus

Surplus occurs when the quantity supplied exceeds the quantity demanded.

Demand Elasticity

Inelastic demand is when quantity demanded responds slightly to price changes..

Cross-price Elasticity

Negative cross-price elasticity is typical of complements.

Monetary Policy & Federal Reserve

The Fed purchases bonds to increase the money supply.
The Fed lowers the federal funds by purchasing bonds.

Consumer Surplus

Consumer surplus is a good indicator of economic well-being when policymakers want to satisfy buyer preferences.
Consumer surplus is the same for each consumer at a point on the demand curve.
Consumer surplus is maximized when demand and supply are at equilibrium.

Producer Surplus

Producer surplus measures the well-being of sellers.
Producer surplus is the same for each producer at a point on the supply curve.
Producer surplus is maximized when demand and supply are at equilibrium.

GDP

GDP measures the value of all final domestically produced goods and services in a given time period.

Consumption Component in GDP

A person paying for a haircut is included in the consumption component of GDP.

Import Tariffs

An import tariff on apples increases domestic government revenue.

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Description

Test your knowledge on key economic concepts including globalization, opportunity cost, and mercantilism. This quiz covers various aspects of economic theories and their implications in real-world scenarios. Dive in to explore the intricacies of collusion, inflation, and investor behavior.