1. What is the difference between an absolute advantage and a comparative advantage?
2. What does it mean for a country to have an absolute advantage? Compare that to having a comparative advantage.
3. What is a national balance of trade? What does someone mean when he or she says that the balance of trade is
favorable? Unfavorable?
4. What might be inferred if a nation has a continual deficit in its balance of payments?
5. Why is balance of payments a much broader concept than balance of trade?
6. Define tariff. What effect does a tariff have on the price of a product in the country imposing the tariff? Why
would a tariff be used?
7. What is dumping? Why do domestic manufacturers obtain antidumping duty through the government?
8. What are nontariff barriers? How do nontariff barriers restrict international trade?
9. What is an embargo? When might it be used?
10. Mention some of the most frequently cited reasons for restricting trade.
11. How do trade restrictions typically affect consumers?
12. What is the General Agreement on Tariffs and Trade (GATT)? What is its primary objective?
13. How was the World Trade Organization (WTO) created? Why was it established?
14. What is an economic community? Describe major international economic communities.
15. What are some advantages of licensing as a method of entering international business?
16. What is a strategic alliance? What is its major advantage?
17. Describe trading companies. What is an important function of trading companies?
18. What are some of the major sources of export assistance from the federal government?
19. What are multilateral development banks? What is their purpose? Who supports these banks?
20. What does the International Monetary Fund (IMF) do for nations with an unfavorable balance of trade?
Landing Service
Landing Service is a lawn furniture company that has been around for many years. It is known for its ability to
produce furniture more efficiently than any other company in the nation. In truth, no other companies in any other
nation come close. Landing Service has shipped many of its products internationally. In fact, 80 percent of its
profits come from international sales. However, the Italian government has imposed a tax on imported furniture
items to protect local companies. The Brazilian government, on the other hand, has imposed taxes on Landing
Service products due to the government wanting a piece of the pie.
Landing Service initially thought that these taxes were unfair because it was being singled out. However, after
Landing Service contacted the organization that had the power to mediate this situation, the furniture company
realized that the taxation it was subjected to was legal and that there was nothing it could do about it.
21. Refer to Landing Service. Because the company is known for its ability to produce lawn furniture more efficiently
than any other company in the world, the company must have a(n) advantage.
a. total
b. relative
c. comparative
d. proportional
e. absolute
22. Refer to Landing Service. What type of tax has the Italian government imposed on the company?
a. Export duty
b. Embargo
c. Revenue tariff d.
Protective tariff e.
Nontariff barrier
23. Refer to Landing Service. What type of tax has the Brazilian government imposed on the company?
a. Import duty
b. Embargo
c. Revenue tariff d.
Protective tariff e.
Nontariff barrier
24. Refer to Landing Service. The Landing Service does mostly
a. mediating.
b. domestic sales.
c. importing.
d. exporting.
e. currency devaluation.
25. Refer to Landing Service. Landing Service must have contacted which of these organizations to mediate regarding
unfair treatment by foreign governments?
a. COPPA
b. GATT
c. WTO
d. EU
e. OPEC
Lynn Bernerd, Inc.
Lynn Bernerd, Inc., manufactures and sells reclining furniture. The company currently operates in the United States
but wishes to expand overseas. The company managers have been contemplating the best way to enter the foreign
market. At first, the management felt it would be in the company‘s best interest to let a foreign company use its
product and brand in exchange for a royalty. The managers recognized, however, that before the company decided
on its foreign strategy it needed to think through all the steps required to enter an international market. As such, the
managers believed they needed to consult with some type of agency to help their firm compete more effectively in
the global marketplace.
After all the research was completed, the senior managers realized that they wanted to export their product. The
managers decided that the transport carrier would notify them when the merchandise was shipped. This would
avoid any confusion about lost shipments and ensure better communication with the receiving parties.
26. Refer to Lynn Bernerd, Inc. Initially, the managers believed that
foreign market.
a. exporting
b. creating a joint venture
c. licensing
d. establishing a strategic alliance
e. a merger
would be the best option for entering the
27. Refer to Lynn Bernerd, Inc. Which of the following options is not one of the steps needed for entering an
international market?
a. Contact local government to see if taxes on trade can be waived.
b. Establish an overseas distribution network.
c. Set export prices and payment terms, methods, and techniques.
d. Identify key foreign markets for the product.
e. Identify exportable products.
28. Refer to Lynn Bernerd, Inc. Which agency should the managers at Lynn Bernerd, Inc. seek assistance from?
a. GATT
b. Trade Information Center
c. World Trade Association
d. U.S. Export Assistance Centers
e. U.S. and Foreign Commercial Services
29. Refer to Lynn Bernerd, Inc. When the transport carriers notify the exporter that the product has been shipped, they
use a
a. bill of lading.
b. receipt.
c. letter of credit.
d. draft.
e. shipping verification.
30. Refer to Lynn Bernerd, Inc. Which of the following alternatives could have worked as a link between the managers
at Lynn Bernerd, Inc. and the buyer from a different country?
a. International barter
b. Counter trade
c. Trading company
d. Comparative trader
e. Foreign-exchange control
31. How has international trade changed since the end of World War II?
a. Trade across national borders has decreased since its peak during the early to mid-1900s.
b. International trade has increased steadily since this period of time.
c. The amount of international trading has remained relatively stable since this time.
d. International trade has become completely unrestricted.
e. International trading has become much more heavily regulated and restricted by all countries.
32. Which of the following scenarios would not be considered international business?
a. A Chinese manufacturer sells toys to a large toy retailer in the United States.
b. Intel sells its processors to a computer manufacturer in Korea.
c. A large jewelry store in England purchases its diamonds from DeBeers in South Africa.
d. A bearing manufacturer in South Carolina sells its parts to a Toyota plant in Kentucky. e.
French companies purchase crude oil from Saudi Arabia.
33. The land of Narnack has very infertile soil but a large supply of oil. What action should Narnack take? Narnack
should
a. specialize in the production of crude oil and trade this for grain and other food products.
b. grow food anyway because its people will need it for survival.
c. focus on attracting tourists to its country and thus purchase the needed supplies of food.
d. specialize in the production of food products such as cereals and bread.
e. import oil to satisfy the country’s need for gasoline.
34. Although it lacks sources of timber and oil, Chablis has a plentiful supply of grapes for its many wineries. Which
statement about Chablis is true?
a. It has a comparative advantage in wine production.
b. It has a comparative advantage in timber and oil production.
c. It has an absolute advantage in the production of wine.
d. It has an absolute advantage in timber and oil production.
e. It has no comparative or absolute advantages.
35. If Japan were regarded as the best electronics manufacturer in the world, what would be true?
a. Japan would have a comparative advantage in electronics manufacturing.
b. Japan would have a positive balance of trade.
c. The United States would have a comparative advantage in electronics.
d. Japan would have an absolute advantage in electronics production.
e. Japan would have a trade deficit with the United States.
36. is the ability to produce a specific product more efficiently than any other product.
a. Absolute advantage
b. Specialization
c. Relative advantage
d. Dominant advantage
e. Comparative advantage
37. A new country is formed in central Africa. It has no absolute advantage in crude oil, diamonds, or wool. However,
it does manufacture high-quality bows and arrows for specialized safari adventures. Which of the following
statement is true?
a. The new country should try to produce its own crude oil, diamonds, and wool.
b. The new country has a comparative advantage in the production of bows and arrows.
c. The new country has an unqualified advantage in the production of bows and arrows.
d. The new country has a determined advantage in the production of arrows.
e. The new country is engaged in dumping bows and arrows.
38. Because Saudi Arabia and Australia have , Saudi Arabia can specialize in the production of crude oil and
petroleum products, and Australia can specialize in the production of wool.
a. a company advantage
b. an absolute advantage
c. a comparative advantage
d. an effective manufacturing system
e. very low labor costs
39. By definition, every country has a(n) advantage in some product.
a. relative
b. absolute
c. comparative
d. superior
e. inferior
40. Because it controls the world’s diamond deposits, the DeBeers Consolidated Mines, Ltd., has a(n)
a. absolute advantage.
b. comparative advantage.
c. advantage based on efficient production.
d. trade deficit.
e. lot of diamonds.
41. Purchasing products or materials in other nations and bringing them into one’s own country is
a. trading.
b. balancing.
c. exporting.
d. importing.
e. dumping.
42. The United Kingdom sells industrial supplies and materials to many nations around the world. The United Kingdom
thus engages in
a. dumping.
b. tariffing.
c. importing.
d. exporting.
e. deficit trading.
43. Selling and shipping raw materials or products to other nations is called
a. exporting.
b. alien trading.
c. importing.
d. tariffing.
e. deficit trading.
44. Buyers that purchase dresses in Europe or calculators in Taiwan and have them shipped back to the United States
for resale are engaging in
a. exporting.
b. shipping.
c. importing.
d. expelling.
e. dumping.
45. General Motors and Ford products produced in the United States are found around the world. The United States is
these automobiles.
a. tariffing
b. importing
c. exporting
d. releasing
e. dumping
46. Nordstrom sells designer suits made in Italy in its stores in the United States. Nordstrom is suits.
a. exporting
b. importing
c. trading
d. dumping
e. taxing