Chapter 03: The Economic, Legal, and Political Environment
TRUE/FALSE
1. A market-based economic system is based on the negotiated establishment of prices between buyers
and sellers of goods and labor.
2. In a 22-country survey published in 2006, Germany was the only country that disagreed with the
statement that the best system is ‘‘the free–market economy.’’
3. Socialism is an economic policy in which the state owns all assets of the society.
4. According to the Economic Freedom Rating, the U.S. has continued to be ranked as the freest market
in the world for a number of years.
5. The belief that the freedom to determine prices and competition without the interference of the
government or the guilds would result in the best economic outcome is called laissez-faire economics.
6. The theory of competitive advantage forms the basis of modern trade theory.
7. The institutional approach emphasizes the socio-political-cultural factors that affect decision making
and actions in subtle but profound ways.
8. The Diamond model of national competitiveness is designed for emerging economies.
9. Traditionally, it was thought that a country’s success in international business depended on its factors
of production
10. The global consumer-goods industry is dominated by Asian and Latin American firms.
11. Firms need both tough customers and competitors to push them.
12. A major flaw in the capitalist system is the idea that it is best to have one big firm, or national
champion.
13. Transition economies continue to deal with the remnants of the old central planning, statist system.
14. The world’s largest transition economy is Japan.
15. Unlike the analysis of Porter’s Diamond model, in transition economies, natural resources are not
critical.
16. Common law systems are primarily built on legal precedent established by judges as they resolve
individual cases, and those case opinions have the force of law and strongly influence future decisions.
17. Studies have shown that civil law countries have greater protection of investors than do common law
countries.
18. In China, legal precedent is only used for guidance and does not take on legal status as in common law
systems.
19. The resulting systems of jurisprudence derived from Shari’a can be viewed as quite lenient by most
Western standards, where issues of personal behavior are concerned.
20. Muslims will often, but not always, be guided by Shari’a-based law even if they do not live in a
country that is governed by that law.
21. In the ijara method, the financial institution is considered to be the buyer of the property, and the
customer pays rent to the financial institution.
22. The nationality principle holds that every country has jurisdiction over its own citizens no matter
where they are located.
23. The term copyright is defined as ,the exclusive right to control reproduction or adaptation of creative
works, such as books, movies, music, paintings, photographs, and software.
24. When a government seizes the ownership of a private asset, it is known as privatization.
25. Red hats are unique types of Chinese businesses that grew out of worker brigades.
MULTIPLE CHOICE
1. Which economic system relies on individuals in the society to determine the price of any good?
a.
Sustenance
b.
Socialism
c.
Market-based
d.
Command-based
2. Which economic system holds the belief that if assets are held by all, then all individuals will benefit?
a.
Socialism
b.
Market-based
c.
Capitalist-based
d.
Sustenance
3. The settlement of Israel was pioneered by an economic unit called a(n):
a.
chaebol.
b.
kibbutz.
c.
keiretsu.
d.
haskalah.
4. The market system in Russia is more accurately referred to as:
a.
market-led capitalism.
b.
family capitalism.
c.
oligarch capitalism.
d.
social-democratic capitalism.
5. According to the Economic Freedom Rating, which country has continued to be ranked as the freest
market in the world for a number of years?
a.
The United States
b.
Switzerland
c.
Singapore
d.
Hong Kong
6. Some countries believe that democracy and free-market economics go hand. This is referred to widely
as:
a.
the Washington consensus.
b.
the Beijing Consensus.
c.
laissez-faire economics.
d.
a mixed economy.
7. The belief that the freedom to determine prices and competition without the interference of the
government or the guilds would result in the best economic outcome is:
a.
traditional economics.
b.
command economy.
c.
laissez-faire economics.
d.
mixed economy.
8. The U.S. is very strong in high technology and would do better to emphasize this strength. This is an
example of:
a.
the economies of scale theory.
b.
the theory of comparative advantage.
c.
the theory of factor endowments.
d.
the absolute cost theory.
9. Which of the following perspectives argues that economic growth comes from the investment in
physical and human capital?
a.
Neoclassical theory
b.
Geographic and location theory
c.
The Heckscher-Ohlin theorem
d.
The institutional approach
10. The institutional approach:
a.
argues that climate conditions and access to major markets is the root of most economic
growth
b.
sees developmental economics as out of the hands of the managers.
c.
emphasizes the socio-political-cultural factors that affect decision making and actions in
subtle but profound ways.
d.
argues that economic growth comes from the investment in physical and human capital.
11. All of the following are factors of the Diamond model of national competitiveness EXCEPT:
a.
demand.
b.
related and supporting industries.
c.
factors of production.
d.
per-capita income levels.
12. Which of the following is an example of a “white good”?
a.
Washing machines
b.
Televisions
c.
Still cameras
d.
Telephones
13. Which element of the Diamond model refers to the nature of the competition in an industry?
a.
Factors of production
b.
Demand
c.
Industry strategy and structure
d.
Related and supporting industries
14. Which of the following is the world’s largest transition economy?
a.
Hong Kong
b.
China
c.
Japan
d.
Singapore
15. The ability of a firm to take the profits it makes in a country out of that country is called:
a.
repatriation of profits.
b.
privatization payoffs.
c.
expropriation.
d.
corporate governance.
16. _____ systems are primarily built on legal precedent established by judges as they resolve individual
cases; those case opinions have the force of law and strongly influence future decisions, particularly by
lower courts.
a.
Civil law
b.
Islamic law
c.
Common law
d.
Statutory law
17. Civil law:
a.
originated in medieval England and is used in the United States.
b.
is primarily built on legal precedent established by judges as they resolve individual cases.
c.
gives judges much leeway to interpret a law’s intent and provide commentary that will be
used in future legal rulings.
d.
uses statutes and comprehensive codes as the primary building blocks.
18. The resulting systems of jurisprudence derived from _____ can be viewed as quite harsh by most
Western standards, where issues of personal behavior are concerned.
a.
Shari’a
b.
Kalam
c.
civil law
d.
common law
19. Which of the following statements about Shari’a-based law is true?
a.
Banks can directly pay interest on deposits.
b.
Interest cannot be charged on loans.
c.
Muslims will always be guided by Shari’a-based law even if they do not live in a country
that is governed by that law.
d.
The resulting systems of jurisprudence derived from Shari’a can be viewed as quite lenient
by most Western standards.
20. The financial institution is considered to be the buyer of the property, and the customer pays rent to the
financial institution in the:
a.
murabaha method.
b.
takaful method.
c.
ijara method.
d.
riba method.
21. In the murabaha method:
a.
the consumer reimburses the purchase price by installments for a given number of years,
with some specific service fee calculated into each monthly payment.
b.
the financial institution is considered to be the buyer of the property, and the customer
pays rent to the financial institution.
c.
once the purchase money has been repaid, the property is transferred to the occupier.
d.
the financial institution buys a property at the price agreed upon between the occupier and
the original vendor and then immediately resells it to the occupier at a higher price.
22. Which of the following gives a country jurisdiction over behavior that adversely affects its national
security, even if that conduct occurred out of the country?
a.
The ethnicity principle
b.
The territoriality principle
c.
The protective principle
d.
The nationality principle
23. Which of the following states that countries will extend courtesies to other countries to enforce their
judgments and recognize the validity and effect of their executive, legislative, and judicial acts when
necessary?
a.
The protective principle
b.
The doctrine of comity
c.
The act of state doctrine
d.
The principle of sovereign immunity
24. A _____ is granted to a new, useful, and non-obvious invention.
a.
patent
b.
copyright
c.
trademark
d.
logo
25. Businesses that the government owns, but which they allow professional managers run are known as:
a.
township and village enterprises.
b.
expropriations.
c.
laissez-faire economics businesses.
d.
red hats.
ESSAY
1. Explain a market-based economic system.
2. What are the four factors of the Diamond model of national competitiveness? Explain at least one.
3. Explain what is meant by transitional economies.
4. Compare and contrast common law with civil law.
5. Briefly explain Shari’a law.
6. Explain the key types of concerns in intellectual property.
ANS:
7. What are township and village enterprises?
