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Chapter 03 - Doing Business in Global Markets
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A complete ban on the import or export of a specific good is called an embargo.
139. Restrictive standards that detail exactly how a product must be sold in a country are
examples of protective tariffs.
140. Nontariff barriers can be just as detrimental to free trade as tariffs.
141. The main goal of the General Agreement on Tariffs and Trade (GATT) was to reduce
trade restrictions among world nations.
142.
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The World Trade Organization (WTO) was established to mediate trade disputes among
nations.
143. One goal of the World Trade Organization (WTO) is to increase national subsidies on
agricultural products.
144. A common market is a group of countries that have no internal tariffs among member
nations, yet have a common external tariff.
145. A major goal of the Mercosur common market consisting of several South American
countries is to develop a common currency.
146.
Chapter 03 - Doing Business in Global Markets
In 1999, the European Economic Community adopted a common currency known as the
Euro.
147. CAFTA permits the United States, Canada, and Mexico to reduce trade barriers with
one another while maintaining independent trade agreements with other countries.
148. Since the approval of the North American Free Trade Agreement (NAFTA), the value
of U.S. exports to Mexico and Canada has increased.
149. Opponents of The North American Free Trade Agreement (NAFTA) warned that it
would have serious economic consequences such as the loss of U.S. jobs.
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156. The North American Free Trade Agreement (NAFTA) requires member nations to
negotiate uniform trade agreements with nonmember nations.
Feedback: The nations participating in NAFTA have formed a free trade area rather than a
common market. Unlike common markets, free trade areas allow member nations to maintain
independent trade agreements with nonmember nations.
157. With the achievements of the General Agreement on Tariffs and Trade (GATT) and
the World Trade Organization (WTO), nearly all barriers to trade expansion are finally
removed.
Feedback: Although GATT and the WTO have certainly helped eliminate many international
trade problems and disputes, others still remain. For example, WTO did not resolve many of
the legal and regulatory problems that impede trade expansion.
158.
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The objectives of the North American Free Trade Agreement (NAFTA) include allowing
free immigration between Canada, Mexico and the U.S.
Feedback: The objectives of NAFTA were to (1) eliminate trade barriers and facilitate cross-
border movement of goods and services among the three countries; (2) promote conditions of
fair competition in this free-trade area; (3) increase investment opportunities in the three
nations; (4) provide effective protection and enforcement of intellectual property rights; (5)
establish a framework for further regional trade cooperation; and (6) improve working
conditions in North America.
159. A more recent free trade agreement between Cost Rica, the Dominican Republic, El
Salvador, Guatemala, Honduras, Nicaragua, and the U.S., is known as the Central
American Free Trade Agreement. Its strategy is to open new markets for all member
countries and to lower tariffs between participating nations.
Feedback: The Central American Free Trade Agreement (CAFTA) was passed in 2005,
between several Central American countries. Among its goals was to lower tariffs between
participating nations and to open new market opportunities for all.
160.
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On a number of issues, the strategy behind common markets is debatable, but GATT is
certain that such alliances do not prohibit individual member nations from expanding
globally.
Feedback: GATT and the WTO take issue with whether or not common markets inhibit the
global expansion of individual member nations. Member nations agree to an external tariff
directed toward all non-member nations - nations that do not belong to their trading bloc.
161. One of the rules of a common market is that all participating nations will uphold a
common tariff on goods and services that are imported from countries that are not
members of the trading bloc. Goods imported from non-member countries are more
expensive than goods coming from member countries.
Feedback: Member nations agree to an external tariff directed toward all non-member
nations. Non-member nations do not belong to their trading bloc.
162.
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If two nations have a dispute over an international patent, the World Trade Organization
may be asked to mediate and provide a decision within one year's time.
Feedback: The World Trade Organization (WTO) was established by 153 member nations to
mediate trade disputes among member nations. The goal is to provide a decision within a
year, as opposed to languishing for years as in the past.
163. The nation of New Maraguay has a small commercial airplane industry that is
struggling to keep up with the two large international commercial airplane manufacturers.
The other nations in its trading bloc have agreed on an import quota on commercial
airplanes, which limits the number of planes that any country in the trading bloc can buy
from other airplane manufacturers. This strategy is necessary to help the New Maraguay's
airplane manufacturer while it is in its infancy.
Feedback: Import quotas are designed to limit the number of a particular product that a nation
can import. This is usually a strategy enacted by a nation trying to protect a weak product or
grow an industry that is in its infancy.
164.
Chapter 03 - Doing Business in Global Markets
A small Italian grocery store in a large city sells five different kinds of feta cheese:
Bulgarian, French, Danish, Greek, and a domestic cheese from Oregon. The domestic
cheese sells for less than $2.00 per pound, while all the international cheeses are priced at
over $4.00 per pound. Clearly, there is an embargo on international food products.
Feedback: The domestic cheese is priced less than the other cheeses because importers paid a
protective tariff on the international cheeses, and the cost is passed on to the consumer. If
there were a government embargo against the international cheese, the grocery store would be
unable to legally sell any of the imported products.
165. The country of New Florentina requires that all imported beverages be contained in
clear, well-labeled recyclable glass bottles. Several beverage producers refuse to trade
with New Florentina because the cost of glass bottles cuts into their profits to the point
where it just isn't worth it. New Florentina has created a nontariff barrier.
Feedback: Nontariff barriers are not as specific or formal as tariffs. They are usually
restrictive standards that a country places on imported products. The standards help to restrict
trade with foreign companies.
166. With all its perception of opportunity, the expansion of global trade is still plagued by
terrorism, nuclear proliferation, rogue states, and other issues.
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176. Only large firms have the resources needed to successfully compete in the global
environment.
Feedback: Small businesses are often better prepared to take the leap into global markets than
large, cumbersome corporations saddled with bureaucracies.
177. As a market for U.S. exports, China represents the only major business opportunity on
the continent of Asia.
Feedback: Russia, India, Indonesia, Thailand, Singapore, and Korea are just a few of the
emerging economies of Asia that have attracted the attention of American firms.
178. China's one-party political system, its past human rights abuses, and issues related to
counterfeiting of products continue to concern some U.S. firms about doing business
there.
Feedback: While global investment and entrepreneurship in China are leading it to wealth and
economic interdependence with the rest of the world, China also has a one-party political
system, human rights issues, and problems with product piracy and counterfeiting that prevent
it from being a "free trader's dream."
179.
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In the past few decades, U.S. manufacturers shifted focus from manufacturing and
assembling products, to the design and architecture of products. Now, a new shift: the
offshore outsourcing of design and architecture is proving to be an even more serious
disruption to the U.S. economy.
Feedback: As lower-level manufacturing became more simplified, U.S. companies shifted
focus from assembling products to design and architecture. Soft goods companies like Levi-
Strauss and Nike have outsourced manufacturing for several decades. A new, second wave of
offshore outsourcing is causing more disruption to the U.S. economy due to loss of white
collar jobs, as well as manufacturing jobs.
180. Yesterday, Frank was trying to use his new laptop features, with only a negligible
amount of success. His warranty said that he had three months of free technical support,
so he promptly called the tech support number. After several minutes, he finally got
through to someone who spoke English (the same language he speaks), but the dialect was
still difficult to understand. He shook his head as he tried to listen carefully to every word
the guy at the help desk provided, and thought to himself, "There are some pros and cons
to outsourcing. I'm not certain the service is adding value for the customer."
Feedback: Although the producers of products and services find offshore outsourcing to be a
more cost efficient way to provide service to customers, the customers' perceptions of this
service does not always meet with their expectations.
181.
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Telewhiz, Inc. just contracted with a firm in the Philippines to provide customer service
for its cell phone customers. Although there were cheaper labor markets that Telewhiz
could have tapped, customers have reported that they understand English speaking
Filipino people better than English speaking people in other countries. As an outsourcing
option, it is a good compromise.
Feedback: Firms should consider how offshore outsourcing benefits the customer. If
customers can receive the same comparable service that they would receive from a domestic
call center, the move offshore is probably a good decision.
182. As you round out your final year at the university, you are trying to decide on the last
two business electives you need to take. You are leaning toward international marketing
and international financing because you recall reading that Forrester Research estimates
that more than three million jobs could move to global markets in the next ten years.
Feedback: Reputable business research such as Forrester Research predicts that many current
graduates will be working abroad in the near future due to the blue collar and white collar jobs
that are moving off shore.
183.
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You sell paint products and accessories for painters. Recently, you were in contact with
merchants from India who have taken an interest in your products and are willing to talk
more about entering into a contractual deal to purchase your goods. This opportunity may
be just the thing to get your business over its slump, because you learned from your
Introduction to Business class that very few barriers exist between U.S. and Indian
markets.
Feedback: Unfortunately, several trade barriers currently exist between U.S. and India. Indian
retailers will only buy product from Indian wholesalers. U.S. companies find it difficult to sell
directly to Indian retailers.
184. ____________ is the selling of products to another country.
A. In-trading
B. Exporting
C. Importing
D. Dumping
185.
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_____________ is buying products from another country.
A. Importing
B. Outsourcing
C. Retailing
D. Exporting
186. The largest importer in the global market today is:
A. Japan.
B. Russia.
C. Germany.
D. The United States.
187. In volume of exports, the three leading nations are:
A. U.S., Germany, and China.
B. U.S., France, and Canada.
C. China, India, and Germany.
D. England, China, and U.S.
188.
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The world market is approximately ______________.
A. 7 billion potential customers
B. 300 million potential customers
C. 200 billion potential customers
D. 30 billion potential customers
189. Which of the following continents is home to the largest percentage of the world's
population?
A. Africa
B. Europe
C. North America
D. Asia
190. A nation has a ___________ in the production of a good or service if it can produce
that good or service more effectively or efficiently than it can produce other goods.
A. supreme advantage
B. primary efficiency
C. qualified advantage
D. comparative advantage
191.
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__________ occurs when a country has a monopoly on producing a product or is able to
produce it at a cost well below that of all other countries.
A. Comparative advantage
B. Absolute advantage
C. Complete advantage
D. Dumping advantage
192. The theory of comparative advantage exists because:
A. there are too many products and services to choose from today.
B. customers are always comparing the quality of service from companies in the same
industry.
C. no nation can produce all the products its people want and need.
D. free trade agreements became the trend during the past 15 years.
193. One advantage of free trade is:
A. jobs are shifted to low-wage global markets.
B. service jobs are moved overseas.
C. advanced production operations are built in low-wage countries.
D. innovation for new products occurs which keeps firms competitively challenged.
194.
Chapter 03 - Doing Business in Global Markets
The concept of free trade means:
A. buyers and sellers contract with each other and offer some goods at no cost.
B. goods and services can be traded freely across borders without political and/or
economic barriers.
C. there is no exchange of currency for these products.
D. there is no exchange of currency, but the trading partners determine the value of the
product and perform a bartering process to exchange goods.
195. Why does it make sense to trade with other nations?
A. After producing all the product and service its people want and need, a nation can sell
the excess products to the world.
B. Some nations have lots of natural resources and technological know-how. They have an
ethical obligation to offer the rest to other nations.
C. Other nations need foreign currency.
D. A nation will produce what it can produce most efficiently and effectively and buy
from other nations what they can produce most efficiently and effectively.
Feedback: There are several reasons why countries trade with other countries. First, no
nation, not even a technologically advanced one, can produce all of the products that its
people want and need. Second, other nations would seek to trade with that country in order to
meet the needs of their own people. Third, some nations have an abundance of natural
resources but limited technological know-how, while other countries have sophisticated
technology but few natural resources. Global trade enables a nation to produce what it is most
capable of producing and to buy what it needs from others in a mutually beneficial exchange
relationship.
196.
