International Trade Concepts

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Questions and Answers

What describes a trade surplus?

Exports are less than imports

Exports are equal to exports

Exports equal imports

Exports exceed imports (correct)

What is the primary purpose of licensing in business?

To grant permission to use a brand for a fee (correct)

To create a joint venture

To limit the production of goods

To directly control all brand operations

What is a characteristic of a foreign subsidiary?

It is a joint venture with local firms

It operates independently from the parent company

It is owned by the parent company in a foreign nation (correct)

It is controlled by local laws only

Which of the following is NOT a benefit of a joint venture?

Increased market competition (A) Signup and view all the answers

How does FDI typically benefit a host country?

By contributing to local capital and job creation (C) Signup and view all the answers

Which force does NOT typically affect global trade?

Internal company policies (A) Signup and view all the answers

What is an embargo?

A complete ban on specific products (D) Signup and view all the answers

What is countertrading?

Trading goods without using money (D) Signup and view all the answers

What is the primary benefit of free trade?

It allows for unrestricted exports and imports. (D) Signup and view all the answers

Which of the following describes comparative advantage?

A country should sell products it produces most efficiently. (A) Signup and view all the answers

What is a major negative aspect of importing and exporting?

Some individuals may lose their jobs. (A) Signup and view all the answers

Absolute advantage refers to a country's ability to:

Have a monopoly on a specific product. (B) Signup and view all the answers

Which effect is commonly associated with free trade agreements?

Wider market access for exporters. (D) Signup and view all the answers

What can be a consequence of forced price reductions due to free trade?

Strain on profits for local producers. (A) Signup and view all the answers

What does it mean when a country has a comparative advantage?

It produces certain goods at a lower opportunity cost. (D) Signup and view all the answers

One of the advantages of importing goods includes:

Access to products that are not produced locally. (A) Signup and view all the answers

Which is NOT a negative consequence of trade?

Increased access to international markets. (C) Signup and view all the answers

Study Notes

Importing and Exporting

Importing: Buying goods from other countries.
Exporting: Selling goods to other countries.
Free Trade: Unrestricted exchange of goods and services between countries.
Benefits of Free Trade: Increased production, lower prices, economic growth, and wider availability of goods.
Drawbacks of Free Trade: Job losses in some sectors, reduced competitiveness for some domestic companies, and pressure to lower domestic prices.

Comparative and Absolute Advantage

Comparative Advantage: A nation should specialize in producing and exporting goods it produces most efficiently, and import goods it can't produce as efficiently.
Absolute Advantage: A nation has a monopoly or produces a given product more efficiently than all other nations.

Balance of Trade (BOT) and Balance of Payments (BOP)

Balance of Trade (BOT): The difference between a country's exports and imports over a period of time.
- Trade Surplus: Exports exceed imports.
- Trade Deficit: Imports exceed exports.
Balance of Payments (BOP): The difference between a country's money received from exports and money paid for imports.

Unfair Trade Practices

Dumping: Selling goods in another country at a price lower than the cost of production.

Entering the Global Market

Licensing: Granting permission to another company to use a brand or intellectual property in exchange for payment.
Franchising: Allowing another company to operate using a brand and business model. More control is maintained by the original company compared to licensing.
Export Assistance Centers (EAC): Support for small/medium businesses to export their products directly.
Export Trading Companies (ETC): Facilitate indirect exports for businesses.
Contract Manufacturing: Hiring a factory in another country to produce goods for your own brand.
Joint Ventures: Collaboration between two or more companies for a project. Benefits include shared knowledge, resources, and risk.
Strategic Alliances: Long-term partnerships to share resources (capital, technology) and reduce certain risks for mutual benefit.
Foreign Direct Investment (FDI): Investing in a permanent business presence in foreign countries.
Foreign Subsidiary: A business that's part of a larger company (the parent company) but located in another country.
Multinational Corporations (MNCs): Corporations operating in multiple countries.
Sovereign Wealth Funds: Investments controlled by a government for investment in foreign companies.

Forces Affecting Global Trade

Cultural Forces: Language and religious differences can affect trade.
Exchange Rates: Value of one currency compared to another.
- Devaluation: A deliberate lowering of currency value.
Countertrading: Trading goods or services for goods or services rather than using money.
Legal Forces: Differences in laws and regulations across countries.
Environmental Forces: Issues, such as environmental regulations and difficulties with international shipping.
Trade Protectionism: Government restrictions on imports to benefit domestic industries.
- Tariffs: Taxes on imported goods.
- Import Quotas: Limits on the quantity of imported goods.
- Embargoes: Complete ban on import or export of certain goods.
Gatt (General Agreement on Tariffs and Trade): A predecessor to the WTO that worked reducing restrictions on imports and exports.
Common Market: A regional group of countries with free trade and common economic rules.

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Description

This quiz covers key concepts related to international trade, including importing, exporting, and the implications of free trade. You'll also learn about comparative and absolute advantages, as well as balance of trade and balance of payments. Test your understanding of these crucial economic principles.