Global Economics for Managers
Latest Questions $ Answers
How do resources and capabilities influence the competitive dynamics of a business? - ANSWER Resource similarity and market commonality can yield a powerful framework for competitor analysis. Resource similarity - ANSWER The extent to w...
Global Economics for Managers
Latest Questions $ Answers
How do resources and capabilities influence the competitive dynamics of a
business? - ANSWER Resource similarity and market commonality can yield a
powerful framework for competitor analysis. Resource similarity - ANSWER The
extent to which a given competitor possesses strategic endowment comparable, in
terms of both type and amount, to those of the focal firm. How does resource
similarity impact competitive dynamics? - ANSWER Firms with a high degree are
likely to have similar competitive actions. (Starbuck's instant coffee & McDonald's
iced coffee) Classical theories of international trade - ANSWER Mercantilism,
Absolute advantage, and Comparative advantage Modern theory view - ANSWER
Dynamic Classical theory view - ANSWER Static Absolute advantage - ANSWER
The economic advantage one nation enjoys that is superior to other nations
Comparative advantage - ANSWER The advantage one economic activity nation
enjoys in comparison with other nations (relative, not absolute) Mercantilism -
ANSWER A theory that suggests that the wealth of the world is fixed and that a
nation that exports more and imports less will be richer. Features of the product life
cycle? - ANSWER New, Maturing, and Standardized Strategic trade - ANSWER
Intervention by governments in certain industries can enhance their odds for
international success.
How are supply and demand related to the exchange rate of a country? - ANSWER
The price of a commodity, a country's currency, is fundamentally determined by
this. Strong demand leads to price hikes; oversupply results in price drops. Which
theory came first? - ANSWER Mercantilism (although both are of the idea that
governments should actively protect domestic industries from imports and
vigorously promote exports) If a company seeks to limit foreign exchange rate
exposure in the forward direction, what is the most effective way to do this? -
ANSWER Forward transactions, an act know as currency hedging.
Views on Globalization - ANSWER New, Evolutionary, and Pendulum "New"
view on globalization - ANSWER A force sweeping through the world in recent
times. "Evolutionary" view on globalization - ANSWER A long-run historical
evolution since the dawn of human history "Pendulum" view on globalization -
ANSWER One that swings from one extreme to another from time to time Foreign
,Direct Investment - ANSWER Direct investment in, control, and management of
value-added activities in other countries Political views on FDI - ANSWER
Radical View, Free Market View, Pragmatic Nationalism Benefits to a country
receiving FDI - ANSWER Capital Inflow, Technology Spillover, Advanced
Management Know-How, Job creation Costs to a country receiving FDI -
ANSWER Loss of Sovereignty, Adverse effects on competition, Capital outflow.
Transaction risk - ANSWER The exchange rate risk associated with the time delay
between entering into a contract and settling it. Hedging - ANSWER A transaction,
such as forward transactions, that protects traders and investors from exposure to
the fluctuations of the spot rate. Currency hedging - ANSWER A way to protect
traders and investors from being exposed to the fluctuations of the spot rate
Strategic hedging - ANSWER A means of spreading out activities in different
currency zones in order to offset the currency losses in certain regions through
gains in other regions (currency diversification) First mover advantages -
ANSWER Proprietary, technological leadership, pre-emption of scarce resources,
establishment of entry barriers to late entrants, avoidance of clash with dominant
firms at home, relationships with key stakeholders, (such as governments.) Late
mover advantages - ANSWER Opportunity to free ride on first-mover investments,
Resolution of technological and market uncertainty, First mover's difficulty to
adapt to market changes.) Foreign market entries types - ANSWER Non-equity
and equity Non-equity - ANSWER Reflects relatively smaller commitments to
overseas markets. Determines firms MNE status. Equity - ANSWER indicative of
relatively larger, harder-to-reverse commitments. Determines firms MNE status.
How do institutions reduce uncertainty? - ANSWER Establish "rules of the game"
that economic players play by. A standard to follow in order to survive and
prosper. By signaling which conduct is legitimate and which is not, institutions
constrain the range of acceptable actions. Regulatory pillar - ANSWER The
coercive power of governments (laws, regs, rules) Normative pillar - ANSWER
Values, beliefs, and actions of other relevant players (norms, cultures, ethics)
Cognitive pillar - ANSWER The internalized, taken-for-granted values and beliefs
that guide behavior. (beliefs between right/wrong) Formal institution - ANSWER
One that include laws, regulations and rules Informal institution - ANSWER One
that includes norms, cultures and ethics What core propositions lie at the root of
the institution based view on global business? - ANSWER (1) managers and firms
rationally pursue their interests and make choices within institutional constraints
(bounded rationality) (2) in situations where formal constraints are unclear or fail,
informal constraints play a larger role in reducing uncertainty and providing
,constancy to managers and firms (personal relationships and connections) The
institution based view global business is grounded upon - ANSWER The dynamic
interaction between institutions and firms, and considers firm behaviors as the
outcome of such an interaction. How is global business affected by democracy? -
ANSWER An individual's right to freedom of expression and organization. For
example, starting up a firm is an act of economic expression How is global
business affected by totalitarianism? - ANSWER These countries often experience
wars, riots, protests, chaos, and breakdowns, which result in higher political risk.
Democracy - ANSWER Citizens elect representatives to govern the country on
their behalf. Totalitarianism - ANSWER One person or party exercises absolute
political control over the population. Civil law - ANSWER Law that uses
comprehensive statutes and codes as a primary means to form legal judgments.
Common law - ANSWER Law shaped by precedents and traditions from previous
judicial decisions. Theocratic law - ANSWER A legal system based on religious
teachings. How do civil, common and theocratic laws compare? - ANSWER
Relative to civil law, common law has more flexibility because judges have to
resolve specific disputes based on their interpretation of the law. Civil law has less
flexibility because judges only have the power to apply the law. Property right -
ANSWER The legal rights to use an economic resource and to derive income and
benefits from it. Can be used as collateral for starting a firm; not as common in
developing countries, therefore hindering economic growth. Intellectual property
right - ANSWER Rights associated with the ownership. They primarily include
rights associated with patents, copyrights, and trademarks. Market economy -
ANSWER One that is characterized by the "invisible hand" of market forces-all
factors of production should be privately owned. Command economy - ANSWER
One that is defined by a government taking all factors of production to be
government-owned or state-owned, and all supply, demand, and pricing are
planned by the government. Mixed economy - ANSWER One has elements of both
a market economy and a command economy. It boils down to the relative
distribution of market forces versus command forces. Indifference curve -
ANSWER A curve that shows consumption bundles that give the consumer the
same level of satisfaction (i.e. combinations of pizza and Pepsi with which the
consumer is equally satisfied.) Four properties of an indifference curve -
ANSWER (1) Higher indifference curves are preferred to lower ones. People
usually prefer to consume more goods rather than less. (2) Indifference curves are
downward sloping. The slope of an indifference curve reflects the rate at which the
consumer is willing to substitute one good for the other. (3) Indifference curves do
, not cross. (4) Indifference curves are bowed inward. The slope of an indifference
curve is the marginal rate of substitution—the rate at which the consumer is willing
to trade off one good for the other. Marginal rate of substitution. - ANSWER The
rate at which the consumer is willing to trade off one good for the other (i.e. how
much Pepsi the consumer requires to be compensated for a one-unit reduction in
pizza consumption) Budget constraint - ANSWER The consumption bundles that
the consumer can afford. How might a budget constraint be impacted by an
increase in income? - ANSWER Additional bundles could be consumed with an
increase in income. Graphical elements needed to determine a consumer's optimal
point of consumption - ANSWER Indifference curve and budget constraint. How
is a consumer's optimal point of consumption determined precisely? What is the
condition that must be met? - ANSWER The point at which this indifference curve
and the budget constraint touch (the best combination of pizza and Pepsi available
to the consumer.) The marginal rate of substitution equals the relative price of the
two goods. Marginal cost - ANSWER The increase in total cost that arises from an
extra unit of production How is marginal cost related to total cost? - ANSWER
The portion of total cost resulting from an extra unit of production. Formula to
calculate marginal cost - ANSWER Change in total cost divided by change in
quantity 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 6th unit? - ANSWER $15 Total cost is made of two types of costs,
what are they? - ANSWER Fixed and Variable. How does a firm determine to shut
down in the short-run? What rule characterizes this? - ANSWER If the revenue
that it would earn from producing is less than its variable costs of production.
P<AVC (Price is less than Avg Variable Cost) Market structure characterized as
being "price takers" - ANSWER Competitive markets Price taker - ANSWER One
who must accept the price as the market determines When a market is
characterized as being a price taker, what fundamental shape does the demand
curve for this market take? - ANSWER Horizontal line. Demand curve for a
perfectly competitive firm - ANSWER Horizontal line Demand curve for a
monopolistic market - ANSWER Downward-sloping What does "downward"
sloping with regards to a demand curve mean? - ANSWER The monopoly has to
accept a lower price if it wants to sell more output. Where do firms with market
power determine the quantity of product/service they will produce? - ANSWER A
firm chooses a quantity of output such that marginal revenue equals marginal cost.
The firm chooses quantity so that price equals marginal cost. Thus, the firm's
marginal-cost curve is its supply curve. Primary goal/objective of a firm -
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