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A) the incentive to engage in economic activity can be increased substantially.
B) private-sector entrepreneurs can expropriate the profits generated by the efforts of
private and public entities.
C) mechanisms for contract enforcement fall to private and corporate lawyers.
D) private and public entities can expropriate the profits generated by the efforts of
private-sector entrepreneurs.
53) Which of the following is an example of deregulation?
A) a country that implements a simplified income tax filing system
B) a country that takes over a leading private bank to prevent it from filing for
bankruptcy
C) a country that provides agricultural subsidies to farmers
D) a country that encourages competition and attracts foreign direct investment
54) Which of the following is a characteristic of a command economy?
A) promotion of foreign direct investment
B) allowing prices to be set by the interplay between demand and supply
C) limited international trade
D) restricted state-ownership of means of production
55) The finance minister of a country considers several large, state-owned iron manufacturing
units to be inefficient and a source of corruption. To generate resources for public expenditure
and promote economic growth, the government decides to auction an entire iron manufacturing
plant to sell it to a strategic investor. This process exemplifies
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A) nationalization.
B) industrialization.
C) liberalization.
D) privatization.
56) Studies of privatization in central Europe have shown that the process often fails to
deliver predicted benefits if the newly privatized firms
A) stop receiving subsidies from the government.
B) are completely owned by private individuals.
C) are sheltered from foreign competition.
D) are allowed to restructure their operations.
57) The sale of state assets through an auction is most likely to lead to
A) trade certification.
B) privatization.
C) nationalization.
D) market regulation.
58) For privatization to work, it must also be accompanied by
A) an increase in trade barriers and tariffs.
B) an increase in government subsidies.
C) stronger barriers to foreign competition.
D) a general deregulation of the economy.
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59) Which of the following factors is likely to make a country a more attractive location for
international business?
A) totalitarian regimes
B) planned economies
C) government ownership of production methods
D) market-based economic policies
60) The benefits of doing business in a country are a function of which of the following?
A) the size and purchasing power of the market
B) its past wealth
C) its past growth
D) its future plans for infrastructure development
61) Sony was a pioneer in the portable music market segment. The Sony Walkman was an
innovative product that created a new category altogether and made Sony a technological leader.
This gave the company an edge over other consumer electronics brands that introduced portable
music players for a very long time. In this example, Sony had the
A) vertical integration advantage.
B) purchasing power parity advantage.
C) free-rider advantage.
D) first-mover advantage.
62) Google launched Google Plus to gain a foothold in the social media market. However,
given that there are numerous social networking platforms and Facebook is already a leader in
social media, Google Plus found it challenging to generate brand loyalty and establish itself in
the market. This was because of
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A) incumbent disadvantage.
B) disintermediation disadvantage.
C) late-mover disadvantage.
D) horizontal integration disadvantage.
63) The costs of doing business in a country tend to be greater if
A) political payoffs are not required to gain market access.
B) supporting infrastructure is sponsored by government.
C) local laws set strict standards with regard to environmental pollution.
D) there are limits or caps on damage awards.
64) _____ are the advantages gained by early entrants into a market.
A) Early-investor advantages
B) First-mover advantages
C) First-to-market advantages
D) Late-mover advantages
65) Countries with _____ economies in which property rights are protected tend to achieve
greater economic growth rates than other economies where property rights are poorly protected.
A) mixed
B) market
C) free market
D) command
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66) It may be more costly to do business in relatively primitive or undeveloped economies
because of
A) international trade restrictions.
B) the lack of governmental support.
C) difficulty obtaining workers.
D) the lack of infrastructure and supporting businesses as well as the middle class.
67) One visible indicator of _____ tends to be a country’s inflation rate.
A) economic mismanagement by Central Bank
B) high GNI
C) political risks
D) low HDI
68) The overall attractiveness of a country as a potential market or investment site for an
international business depends on
A) if the country has a high gross national income.
B) balancing the benefits, costs, and risks associated with doing business in that country.
C) whether the company can be the first mover in the market.
D) whether the government can be greased.
69) The likelihood that a trading partner will opportunistically break a contract or expropriate
property rights is called a(n)
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A) economic risk.
B) legal risk.
C) cultural risk.
D) political risk.
70) Economic growth appears to be a function of a country’s capacity for growth and its
A) previous economic success.
B) political environment.
C) free market system.
D) mixed economy.
71) _____ are the handicaps that late entrants to a market might suffer.
A) Government regulations
B) Late-mover disadvantages
C) Black economy
D) Purchasing power disparity
72) Which of the following is a first-mover advantage?
A) International firms may gain experience in that country’s business practices.
B) An international firm can reap the rewards of growth in a new market without
incurring the risks.
C) A firm may have the opportunity to be the first to introduce generic brands to a
market.
D) A firm can gauge how well their product will do in the market without taking the risk
of investing there.
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73) GDP allows a more direct comparison of living standards in different countries than other
measures.
⊚ true
⊚ false
74) In Sen’s view, development is an economic process that should be assessed primarily by
material output measures such as GNI per capita.
⊚ true
⊚ false
75) GDP is one of the measures used by the Human Development Index (HDI) to measure
the quality of human life in different nations.
⊚ true
⊚ false
76) Political freedom is one of the measures used by the Human Development Index (HDI) to
measure the quality of human life in different nations.
⊚ true
⊚ false
77) If a country’s economy is to sustain long-term economic growth, the business
environment must be conducive to investment, R&D, innovations and entrepreneurial activity.
⊚ true
⊚ false
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78) The state of Illinois was having budget difficulties, so it hired several private
management consultancy firms to manage some state-owned enterprises.This is an example of
privatization.
⊚ true
⊚ false
79) Peruvian development economist Hernando de Soto has argued that the chronic inability
of property owners to establish legal title to the property they own is a key problem for
innovation and entrepreneurial activity in developing nations.
⊚ true
⊚ false
80) Totalitarian states promote human freedom and human development, which facilitates
economic progress.
⊚ true
⊚ false
81) Since the late 1980s, there has been a strong move away from a more free market
economic model and toward more centrally planned and mixed economies.
⊚ true
⊚ false
82) Many totalitarian regimes were able to deliver economic progress to the vast bulk of their
populations, which curbed the spread of democracy during the late 1980s.
⊚ true
⊚ false
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83) New information and communication technologies have enabled the spread of democratic
ideals.
⊚ true
⊚ false
84) Transformation from centrally planned command economies to market-based economies
can be attributed to the economic failure of command and mixed economies compared to market-
based systems.
⊚ true
⊚ false
85) In a command economy, the prices are determined by the free interplay of demand and
supply.
⊚ true
⊚ false
86) In mixed economies, in certain sectors the state sets prices, owns businesses, limits
private enterprise, restricts investment by foreigners, and restricts international trade.
⊚ true
⊚ false
87) For privatization to work, it must also be accompanied by a more general deregulation
and opening of the economy.
⊚ true
⊚ false
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88) To improve airport security following a major terrorist attack, the government of a
country takes over the airport security industries. This is an example of privatization.
⊚ true
⊚ false
89) A country with a well-functioning market economy does not need laws protecting private
property rights and providing mechanisms for contract enforcement.
⊚ true
⊚ false
90) When communism collapsed, many of the communist countries lacked the legal structure
required to protect property rights because all the property was earlier held by the state.
⊚ true
⊚ false
91) A market with a large number of consumers with low living standards will have a
relatively large market when measured in economic terms.
⊚ true
⊚ false
92) The long-run monetary benefits of doing business in a country are a function of the size
of the market, the present wealth of consumers in that market, and the likely future wealth of
consumers.
⊚ true
⊚ false
93) A country’s economic system, rule of law, and property rights regime are reasonably
good predictors of economic prospects.
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⊚ true
⊚ false
94) Economic risks are independent of political risk.
⊚ true
⊚ false
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Answer Key
Test name: chapter 3
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