Chapter 03 – Doing Business in Global Markets
3-61
Which of the following statements best describes the theory of comparative advantage?
A. The best way for a nation to ensure full employment is to be totally self-sufficient
rather than relying on other nations to obtain goods and services.
B. Each nation should produce those goods that it can produce more efficiently and
effectively than other nations, and buy the goods it cannot produce efficiently from other
nations.
C. The nation that has the largest reserves of gold and other natural resources will enjoy a
position of comparative advantage in trade relationships.
D. A nation should produce those goods for which domestic demand is comparatively
strong, and should import those goods for which domestic demand is comparatively weak.
Feedback: The theory of comparative advantage is the guiding principle supporting free trade.
It states that each nation should produce and export the goods it produces more effectively or
efficiently than other nations and should import the goods produced more efficiently by other
nations.
197. Country A is extremely efficient in the mining of tin. However, its climate and terrain
makes it difficult to produce corn. According to the theory of comparative advantage,
Country A should:
A. produce both tin and corn in order to remain self-sufficient.
B. watch the global market to see which product is bringing the highest price.
C. import the resources needed to produce corn.
D. concentrate its production on tin and buy corn from an efficient producer.
Feedback: The theory of comparative advantage contends that a nation should produce and
export those goods that it produces efficiently and effectively, and import those goods that
other countries produce more efficiently and effectively.
198.
Chapter 03 – Doing Business in Global Markets
The theory of _______________ states that a nation should produce and sell goods to
other countries that it produces most efficiently, and buy goods from other nations that
they produce more efficiently.
A. comparative advantage
B. absolute advantage
C. mercantilism
D. bilateral advantage
Feedback: Comparative advantage is the guiding principle behind international trade. The
theory of comparative advantage states that a country should produce and sell to other
countries those products that it produces most effectively and efficiently. Countries should
buy from other countries those products it cannot produce as effectively or efficiently.
199. Free trade between nations generally results in:
A. industrialized nations gaining at the expense of developing nations.
B. an increase of jobs in developed nations.
C. mutually beneficial exchange relationships.
D. higher prices for imported goods.
Feedback: Free trade eliminates excessive tariffs and restrictive standards between trading
nations. The result is the efficient production of goods and mutually beneficial exchange.
However, it is well documented that free trade agreements between developed and less
developed nations usually result in a loss of jobs for the developed nations.
3-63
200. A free trade agreement is likely to result in:
A. an increase in imported goods and services.
B. an absolute advantage.
C. less competition.
D. productivity increases in all product categories, for all participating nations.
Feedback: With the reduction of tariffs and nontariff barriers, all participating nations are
likely to increase their imports.
201. Peru and Bolivia account for almost 97% of the production of Quinoa seed
(pronounced Keen-wa), and most of it is sold to the U.S., Japan, and other wealthy
nations. According to Duane Johnson, a former Colorado State agronomist who helped
introduce the product into the U.S. several years ago, “This food is about the most perfect
you can find for human diets.” Although there are other areas where the seed will grow
(including higher elevations in Colorado), the majority of the Quinoa sold in the U.S. is
imported from Peru and Bolivia. These two nations have a(n) ________________ in the
production of Quinoa.
A. absolute advantage
B. comprehensive advantage
C. comparative advantage
D. tertiary advantage
Feedback: Neither Peru nor Bolivia has an absolute advantage in the production of Quinoa
because both produce a significant amount of the popular seed. A comparative advantage
definitely exists because both countries sell most of the production of this seed to wealthier
nations such as the United States and import items that they do not produce as efficiently.
202.
Chapter 03 – Doing Business in Global Markets
Carrie, a United States resident says that her home computer was made in Japan. Carrie
purchased a(n):
A. imported item.
B. exported item.
C. protected good.
D. generic good.
Feedback: Importing is buying products made in another country.
203. Household Appliances, Inc. has a manufacturing plant near Chicago. The company
specializes in compact washers and dryers for countries where consumers have less living
space. Household Appliances participates in the global market through:
A. importing.
B. dumping.
C. exporting.
D. balancing trade.
Feedback: Exporting is selling products to another country.
3-67
208. First Engineering, a large U.S. based mechanical engineering firm, is considering
entering the global market. Upon careful analysis of the global market, they will find that
global trade:
A. Opportunities are diminishing.
B. Is dominated by emerging, developing countries.
C. Is big business today and is expected to be more important in the future.
D. Is likely to be severely restricted in the future by nontariff trade barriers.
Feedback: Data clearly indicate that global trade is big business today. Most U.S. companies
cite global expansion as a link to future growth.
209. After finishing college, Nathan joined his uncle’s company in Miami, FL, a(n)
_______ of bauxite, copper, and other minerals from the Chile. Everyday, he brokers
trades with mines in Chile to buy and transport these minerals into the U.S.
A. exporter
B. quota manager
C. importer
D. domestic trader
Feedback: Imports are products and services coming into the country.
210.
Chapter 03 – Doing Business in Global Markets
3-68
Fred Bergsten of the Institute for International Economics estimates that every $1 billion
of U.S. exports:
A. replaces 250 service sector jobs with 25 manufacturing jobs in the U.S.
B. causes lost revenues for the U.S. federal government.
C. results in reduced profits for U.S. businesses.
D. generates over 7,000 jobs in the U.S.
211. A favorable balance of trade occurs when the value of:
A. imports equal the value of exports.
B. the cash inflows equal the value of the cash outflows.
C. the value of imports is less than the value of exports.
D. the value of the dollar is greater than the value of the Euro.
212. An unfavorable balance of trade occurs when the value of:
A. Imports equal the value of exports.
B. Imports exceed the value of exports.
C. Cash inflows are equal to the value of cash outflows.
D. Exports exceed the value of imports.
213.
Chapter 03 – Doing Business in Global Markets
3-69
The _____________ is the total value of a nation’s exports compared to its imports
measured over a specific period of time.
A. balance of payments
B. balance of trade surplus
C. balance of trade deficit
D. balance of trade
214. The __________ is the difference between money flowing into a country from
exports, and money leaving the country for imports, plus money flows coming from other
factors such as tourism, foreign aid, military expenditures, and foreign investment.
A. balance of payments
B. balance of trade surplus
C. balance of cash flows
D. balance of trade
215. Which of the following is included when calculating a country’s balance of payments?
A. Foreign aid
B. Domestic unemployment
C. Domestic inflation rates
D. Foreign inflation rates
216.
Chapter 03 – Doing Business in Global Markets
3-70
Which of the following is considered when calculating a country’s balance of payments?
A. military expenditures
B. state unemployment
C. domestic inflation rates
D. foreign inflation rates
217. Since 1975, the U.S. has had a(n) ____________.
A. export surplus
B. import surplus
C. trade surplus
D. trade deficit
218. __________ is the practice of selling a product in foreign countries for a lower price
than the good is sold in the producing country.
A. Deflating
B. Countertrading
C. Inflating
D. Dumping
219.
Chapter 03 – Doing Business in Global Markets
3-71
When Anheuser-Busch/In Bev sells Budweiser beer made in St. Louis, MO., to Germany,
the sales of its product would be classified as a U.S. ____________.
A. countertrade arrangement
B. export
C. import
D. foreign aid shipment
220. Even though the U.S. exports a large ___________ of goods and services, it exports a
much lower __________ of its products than many other countries do.
A. percentage; amount
B. amount; percentage
C. amount; value
D. percentage; percentage
221. An important principle for firms desiring to export is:
A. sell to countries with high standards of living.
B. keep in mind that American methods are probably always best.
C. find a need in the global market and fill it.
D. if your product sells well in the U.S. it will sell well globally.
Feedback: Getting started in global markets is often a matter of observing an unfulfilled need
and researching how best to meet that need.
222.
Chapter 03 – Doing Business in Global Markets
3-72
As a business strategy, the strategy behind “dumping” is to ____________.
A. gain a foothold in a new market
B. better utilize e-commerce opportunities
C. avoid trade protectionist laws
D. achieve eligibility for foreign aid
Feedback: Dumping is sometimes used to unload surplus products in foreign markets or gain
a foothold in a new market by offering products for lower prices than domestic competitors
do.
223. The value of goods imported into France exceeds the value of French exports. This
indicates that France:
A. Has an exchange rate decrease.
B. Utilizes high tariffs.
C. Has a budget deficit.
D. Has a trade deficit.
Feedback: The balance of trade is the relationship of a country’s exports to its imports. A
trade deficit occurs when the value of a country’s imports exceeds the value of their exports.
224.
Chapter 03 – Doing Business in Global Markets
3-73
The Spotlight on Small Business box titled “A Small Business with a Big Vision” is
about:
A. Making certain that entrepreneurial ventures in developing nations continue to seek a
negative earnings financial position so that they can be designated a charity.
B. Sharing revenues with workers in other nations.
C. Creating value for workers and people in developing nations, while working toward a
market-driven business model.
D. Promoting reading by selling eyeglasses to people in developing nations.
Feedback: The business started by Jordan Kassalow sold reading glasses to workers in
developing nations. These glasses were sold at a deep discount, leading to the need for the
business to rely on charitable donations in order to be sustainable. The company added to its
business model when it opened a higher end prescription eyeglass store in Ecuador. The store
managed to make a profit, which followed the original strategy of Kassalow, to be a self-
sustaining, market-driven business.
225. Current trade data indicates that the nation of Bogusland exports more to other nations
than it imports. Bogusland has:
A. an unfavorable balance of trade.
B. a trade surplus.
C. a trade deficit.
D. a low balance of trade.
Feedback: A favorable balance of trade, or trade surplus, occurs when the value of the
country’s exports exceeds that of its imports.
226.
Chapter 03 – Doing Business in Global Markets
3-74
Japanese automobile producers sold more of their Japanese production overseas than they
sold in Japan. Their business strategy emphasizes:
A. importing.
B. licensing.
C. dumping.
D. exporting.
Feedback: Exporting is selling products to another country.
227. Monique’s Unique Tile Boutique offers decorative tile from around the world. The
owner regularly travels overseas to locate the best and most unusual tile that foreign
producers have to offer. Monique participates in _____________.
A. importing
B. licensing
C. dumping
D. exporting
Feedback: Importing is buying products from other countries.
228.
Chapter 03 – Doing Business in Global Markets
3-75
Last year, the nation of Tigerland imported goods totaling $500 million and exported
products totaling $386 million. Tigerland experienced a(n):
A. unfavorable balance of trade.
B. favorable balance of trade.
C. trade surplus.
D. benefit from membership in a free trade zone.
Feedback: An unfavorable balance of trade occurs when a country’s imports exceed its
exports.
229. Last year, the nation of Kwansai reported that it had a favorable balance of trade even
though it imported $11 billion worth of goods. This indicates that Kwansai:
A. exported $11 billion worth of goods.
B. exported more than $11 billion worth of goods.
C. overpriced the value of its exports.
D. exported less than $11 billion worth of goods.
Feedback: A favorable balance of trade means exports exceed imports. If Kwansai had a
favorable balance of trade and imported $11 billion worth of goods, it exported more than $11
billion worth of goods.
230.
Chapter 03 – Doing Business in Global Markets
3-76
Reviewing the recent experience of the United States in global markets reveals that the
U.S has:
A. a merchandise trade surplus with the rest of the world.
B. a large trade deficit with China.
C. avoided becoming a debtor nation.
D. attracted very little foreign direct investment.
Feedback: Recently, the U.S. ran its highest trade deficit with China.
231. The nation of Redland reported that its imports for the previous year were $4 billion
greater than its exports. During the same period, Redland reported a favorable balance of
payments. This information suggests:
A. Redland has made an error in their reporting. The nation must have had a balance of
payments deficit since more money flowed out of Redland for imports than flowed into
the country for its exports.
B. Redland’s gold reserves have increased in value.
C. money inflows from tourism, foreign aid, foreign investment and other sources more
than offset Redland’s trade deficit.
D. Redland devalued their currency to obtain a more favorable exchange rate.
Feedback: The balance of payments is the difference between money flows into and out of a
country from all sources (not just exports and imports). Inflows from other sources (such as
tourism or foreign investment) can sometimes offset a balance of trade deficit and result in a
favorable balance of payments.
232.
Chapter 03 – Doing Business in Global Markets
The president of Auto Parts of America Corporation recently testified before Congress,
urging them to limit the flow of imported automobile parts into the United States. He
contended that these imports were priced lower than foreign producers were charging for
them in their own countries. He believes foreign producers are:
A. dumping.
B. exercising trade deficits.
C. promoting free trade.
D. exhibiting ethnocentricity.
Feedback: Dumping is the practice of selling products in foreign countries for less than you
charge for the same products in your own country.
233. Nikkei Auto Parts testified before Congress defending the company against an
accusation that it was dumping auto parts on the U.S. market. In her testimony, the
president claimed _________________. Using traditional guidelines, Congress
determined that Nikkei was not dumping.
A. Nikkei includes 10% overhead costs and an 8 percent profit margin in the price of all
the parts they export to the U.S.
B. Japan runs a trade deficit with the U.S. in auto parts.
C. Nikkei is a staunch supporter of free trade.
D. Nikkei sells more auto parts in Europe than it does in the U.S.
Feedback: Dumping is the practice of selling products in foreign countries for less than you
charge for the same products in your own country. U.S. laws against dumping are specific and
require foreign firms to price their products to include 10 percent overhead costs plus an 8
percent profit margin. Since Nikkei priced its parts using this formula it was not practicing
dumping.
