Study Guide Questions For The Final Assessment

Study Guide Questions The following questions are developed as a study aid for the C211 COS. They cover important concepts in each competency. The questions are not comprehensive but are only designed to serve as an indicator of your preparedness to take the C211 assessment. After reading the material for each competency, use these questions to reinforce your understanding and review further as necessary. Competency 1 COMPETENCY: Globalization (Peng Chapters 1, 5, 6, 11) 1- Explain the New, Evolutionary, and Pendulum views of Globalization. How do these differ from one another? New globalization is a new force sweeping through the world in recent times. Pendulum globalization is a pendulum that wings from one exreme to anorthr from time to time. Evolutionary globalization is a long historical evolution since the dawn of human history. 2- What is Foreign Direct Investment? A foreign direct investment (FDI) is a purchase of an interest in a company by a company or an investor located outside its borders. Generally, the term is used to describe a business decision to acquire a substantial stake in a foreign business or to buy it outright in order to expand its operations to a new region. 3- What different political views exist on FDI? FDI is investing, controlling, and managing value-added activities in other countries. 3. What different political views exist on FDI? ... They have more capital inflow, technology, management job creation. 4- What benefits exist to a country receiving FDI? Elaborate. They have more capital inflow, technology, management job creation. 5- What costs exist to a country receiving FDI? Elaborate. They have loss of sovereignty competition, and capital outflow, possible job loss. 6- How do resources and capabilities influence the competitive dynamics of a business? The firm's resources and capabilities together form its distinctive competencies. These competencies enable innovation, efficiency, quality, and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage. 7- What is resource similarity and how does this impact competitive dynamics? Resource similarity is the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms of both type and amount. COMPETENCY: International Trade and Foreign Exchange Market (Peng Chapters 5, 7, 10) 1- Give a description of the classical theory of international trade. The classical theory of trade is based on the labour cost theory of value. This theory states that goods are exchanged against one another according to the relative amounts of labour embodied in them. Goods which have equal prices embody equal amounts of labour. Adam Smith gives the following well-known illustration. 2- How would the modern theory compare to the classical theory? How would the modern theory compare to the classical theory? The classical theory tries to demonstrate the gains from international trade, while the; modern theory concentrates on the basis of trade. The classical theory does not provide the cause of differences in comparative advantage. 3- Compare absolute advantage to comparative advantage. What differences exist? Absolute advantage refers to the ability to produce more or better goods and services than somebody else. Comparative advantage refers to the ability to produce goods and services at a lower opportunity cost, not necessarily at a greater volume or quality. 4- What is mercantilism and why is this an important term? Mercantilism is an economic practice by which governments used their economies to augment state power at the expense of other countries. Governments sought to ensure that exports exceeded imports and to accumulate wealth in the form of bullion (mostly gold and silver). 5- What are the critical features of the product life cycle? There are four stages in a product's life cycle—introduction, growth, maturity, and decline. The concept of product life cycle helps inform business decisionmaking, from pricing and promotion to expansion or cost-cutting. Newer, more successful products push older ones out of the market. 6- How would you describe strategic trade? Strategic trade policy is defined as trade policy that conditions or alters a strategic relationship between firms, implying that strategic trade policy focuses primarily on trade policy in the presence of oligopoly. 7- How are supply and demand related to the exchange rate of a country? The economics of supply and demand dictate that when demand is high, prices rise and the currency appreciates in value. In contrast, if a country imports more than it exports, there is relatively less demand for its currency, so prices should decline. In the case of currency, it depreciates or loses value. 8- Which theory came first, mercantilism or modern-day protectionism? Mercantilism came first then modern-day protectionism due to FDI. 9- If a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this? If a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this? a transaction, such as forward transactions, that protects traders and investors from exposure to the fluctuations of the spot rate. 10- What is transaction risk? Transaction risk refers to the adverse effect that foreign exchange rate fluctuations can have on a completed transaction prior to settlement. It is the exchange rate, or currency risk associated specifically with the time delay between entering into a trade or contract and then settling it. 11- Explain the concept of “hedging” as it relates to reducing various types of risk. Hedging is a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset. The reduction in risk provided by hedging also typically results in a reduction in potential profits. Hedging strategies typically involve derivatives, such as options and futures contracts. 12- What is the difference between currency hedging and strategic hedging? Currency hedging offsets any currency losses in one region through gains in other regions, while strategic hedging focuses on one region 13- What advantages exist with first mover? The advantages of first movers include time to develop economies of scale— cost-efficient ways of producing or delivering a product. The disadvantages of first movers include the risk of products being copied or improved upon by the competition. Amazon and eBay are examples of companies that enjoy first-mover status 14- What advantages exist with late mover? The late-mover advantage means that followers can learn from pioneers' mistakes, see whether there is a market worth entering and judge consumers' tastes. 15- Consider the model of foreign market entries. How is scale-of-entry related/relevant? Scale of entry – amount of resources committed to entering a foreign market. Scale of entry – amount of resources committed to entering a foreign market. Expanded sales • Control over distribution • Distance from customers • Trade barriers, time cost, etc Competency 2 COMPETENCY: Political and Economic Forces (Peng Chapter 2) 1- How do institutions reduce uncertainty? What do Institutions do? - Reduce uncertainty through signaling what conduct is legitimate and what is not. - Reduce potential for opportunistic behavior by establishing rules of the game. - This way, institutions reduce transaction costs 2- Discuss and compare the three pillars (regulatory, normative, and cognitive) Regulatory: The coercive power of governments exercised through laws, regulations, and rules. Normative: The mechanisms through which norms influence individual and firm behavior. (think of social expectations) Cognitive: The internalized, taken-for-granted values and beliefs that guide individual and firm behavior. (think of personal values and beliefs of what is right and wrong) 3- Compare formal and informal institutions. The formal institutions capture rules and government structures, while the informal institutions focus on ideology and culture. ... Informal institutions can include norms such as corruption, political ideology, and culture. 4- On what is the institution based view of global business grounded? What core propositions lie at the root of this view? Managers and firms make the best decisions in the absence of complete information; bounded reality. 5- How is global business affected by democracy? Anyone can start a business, they usually have more businesses come into the country 6- How is global business affected by totalitarianism? Not as good for business, these countries often experience higher political risks. 7- What are the differences between democracy and totalitarianism? Democracy is a form of government in which all the citizens have an equal say in matters concerning their lives. On the other hand totalitarianism is a political system wherein a single person bestowed with all powers recognizes no limit to his powers. 891011- Explain the core features of civil, common and theocratic law? How do they compare? What is a property right? In what way are property rights essential? What is an intellectual property right? Contrast the market, command, and mixed economy types. Competency 3 COMPETENCY: Consumer Behavior (Mankiw Chapter 21) 1- What is an indifference curve? 2- What are the four properties of an indifference curve? 3- Explain marginal rate of substitution. 4- What is a budget constraint? 5- How might a budget constraint be impacted by an increase in income? 6- What two graphical elements are needed in order to determine a consumer’s optimal point of consumption? 7- How is a consumer’s optimal point of consumption determined precisely? What is the condition that must be met? COMPETENCY: Firm Behavior under Different Market Structures (Mankiw Chapters 13-17) 1- How is marginal cost derived? 2- How is marginal cost related to total cost? 3- What is the specific formula to calculate marginal cost? 4- If Dave’s company has a total cost of $100 when quantity output is 5, and a total cost of $115 when quantity output is 6, what is the marginal cost of producing the 6 th unit? 5- Total cost is made of two types of costs, what are they? 6- How does a firm determine to shut down in the short-run? What rule characterizes this? 7- What is a price taker? Which of the market structures are characterized as being “price takers”? 8- When a market is characterized as being a price taker, what fundamental shape does the demand curve for this market take? 9- How is the demand curve for a perfectly competitive firm distinct from the demand curve for a monopolistic market? 10- What does “downward sloping” with regards to a demand curve mean? 11- Where do firms with market power determine the quantity of product/service they will produce? 12- What is the primary goal/objective of the firm? 13- If the firm has price setting capacity, how will they use information about marginal costs and marginal revenues in order to accomplish their primary objective? 14- Describe the basic distinctions between the market models with respect to: number of market participants, type of product being marketed, ease of entry/exit into the market, and the prevalence of advertising/marketing. 15- What fundamental truth is realized when studying the behavior of an oligopolistic firm within the context/model called “prisoner’s dilemma”? 16- How might an oligopolistic firm behave like a monopoly? What forces may prevent this? Competency 4 COMPETENCY: Macroeconomic Principles (Mankiw Chapters 29 & 34) 1- What tools does the Federal Reserve have with regards to monetary control? 2- What are open market operations? 3- When the Fed buys bonds, what impact does this have on the money supply and aggregate demand? 4- When the Fed sells bonds, what impact does this have on the money supply and aggregate demand? 5- What is a discount rate? 6- When the Fed reduces the discount rate, what impact will this have on the money supply and the aggregate demand? 7- When the Fed increases the discount rate, what impact will this have on the money supply and the aggregate demand? 8- What is a reserve ratio? 9- What would the Fed need to do with the reserve ratio in order to increase the money supply and aggregate demand in the economy? 10- What would the Fed need to do with the reserve ratio in order to decrease the money supply and aggregate demand in the economy? 11- If the Fed uses monetary policy in a way that increases money supply, what effect will this have on interest rates and aggregate demand (consider them separately)? 12- If the government uses fiscal policy to increase government spending what impact will this have on interest rates and aggregate demand? 13- If the government uses fiscal policy and cuts taxes, what effect will this have on interest rates and aggregate demand? COMPETENCY: Microeconomic Principles (Mankiw Chapters 4 & 5) 1- Explain the effect an income change might have on shifting the demand curve? 2- What is the difference between a normal good and an inferior good? Explain. 3- Explain how the price of related goods is related to changes in the demand curve? 4- If Luke and I are the only sellers of paper in a given market, and Luke drops his prices for paper, how will this impact the demand for my paper? Which way will the demand curve shift? 5- What other factors might influence the position of the demand curve? 6- What numerical value determines whether or not a product/service is considered price elastic versus inelastic? 7- What is income elasticity and how is it measured? 8- What is price elasticity of demand? Explain the distinctions between elastic, inelastic, and unitelastic. 9- What two results stem from income elasticity? Why is this important to an economist? 10- What is cross-price elasticity? How is this defined and what result comes from this measure of elasticity? 11- Can you summarize the 3 types of elasticity, their equations, purpose and outcomes? 12- In the net, how are price (P) and quantity (Q) changed by a simultaneous increase in demand and supply? 13- In the net, how are price (P) and quantity (Q) changed by a simultaneous increase in demand and decrease in supply? 14- In the net, how are price (P) and quantity (Q) changed by a simultaneous decrease in demand and supply? 15- In the net, how are price (P) and quantity (Q) changed by a simultaneous decrease in demand and increase in supply? Competency 5 COMPETENCY: International Trade (Mankiw Chapter 9) 1- Explain the concept of a tariff. 2- Explain dead weight loss. 3- How are tariff’s and dead weight loss related? Explain. 4- What are the two primary categories of trade barriers that exist? 5- If an import tariff is imposed on coconuts that are imported into the U.S., how will this impact the price of coconuts for U.S. consumers? 6- Why might a government be interested in imposed an import tariff on a good? What benefit would the government derive primarily? 7- How would imposing an import tariff on cigars impact the domestic production of cigars? 8- If an import tariff on coconuts was removed in the U.S., how would this impact the demand for coconuts by U.S. consumers? 9- What would happen to the overall domestic demand for a good if an import tariff were imposed on that good? 10- How does a tariff generally impact the following entities: consumers, producers, government? Compare the effects between the entities. COMPETENCY: Measuring Economic Performance (Mankiw Chapters 7 & 23) 1- What is consumer surplus? 2- Who receives consumer surplus? 3- In relation to the demand curve and price, how is consumer surplus measured? 4- What is producer surplus? 5- Who receives producer surplus? 6- In relation to the supply curve and price, how is producer surplus measured? 7- How is total surplus determined? 8- In what ways might government or policy makers make use of surplus measures? 9- What is the difference between macroeconomics and microeconomics? 10- Why must income equal expenditure in an economy as a whole? 11- Define gross domestic product (GDP). What does it measure? 12- Describe the four components of GDP and explain how they affect aggregate demand. 13- Why are transfer payments such as social security not counted in government expenditures? 14- What is the difference between real and nominal GDP? Why do we need to measure GDP in real terms?