Chapter 7 - test bank for international business PDF

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International Business: The New Realities, 4e (Cavusgil) Chapter 7 Government Intervention and Regional Economic Integration 1) ________ is at odds with free trade, the unrestricted flow of products, services, and capital across national borders. A) Lower-cost import B) Trade openness C) FDI D) Factors of production Answer: B Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 2) Which of the following situations is an example of country risk? A) Fiesta Corp. is an automobile manufacturer based in the U.S. The company's negotiation attempts with China to open a manufacturing factory in Beijing failed owing to cultural differences. B) Frostees Inc. is a food and beverages company based in the U.S. Its attempt to set up an outlet in Thailand failed primarily owing to a misinterpretation of the memorandum of understanding by a potential business partner in Thailand. C) Alpha Corp., a rice manufacturer based in Pakistan, suffered losses when the U.S. Department of Commerce decided to impose tariffs on the import of paddy rice to avoid competition for the domestic industry. D) Tamiaz LLC is a U.S. based manufacturer of clothing with outlets in China, Vietnam, and India. The company incurred a loss due to delayed payments from India owing to fluctuations in the currency exchange rates. Answer: C Diff: 2: Moderate Skill: Application Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 3) ________ are checkpoints at the ports of entry in each country where government officials inspect imported products and levy tariffs. A) Nontariff trade barriers B) Customs C) Quotas D) Subsidies Answer: B Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking

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4) A government policy that impedes trade through means other than explicit tariffs is known as a(n) ________. A) investment incentive B) subsidy C) maquiladora D) nontariff trade barrier Answer: D Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 5) Which of the following refers to an often-used form of nontariff trade barrier? A) premium B) subsidy C) quota D) grant Answer: C Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 6) A quantitative restriction on specific imports for a set period of time is referred to as ________. A) tariff B) quota C) investment barrier D) country risk Answer: B Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking

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7) Which of the following is an example of nontariff trade barrier? A) Gayle Inc. is a U.S.-based retailer that imports cosmetic products manufactured in Thailand. These products pass through U.S. customs and are subject to a 5 percent import duty. B) The U.S. imports chocolates manufactured in Belgium that cost $65 a box with taxes. C) The U.S. Department of Commerce announced that white sugar imports will be limited to 7,500 million tons. D) Spices imported from India to the U.S. for sale in the domestic market are subject to a 10 percent import duty. Answer: C Diff: 2: Moderate Skill: Application Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 8) Protectionist policies may also lead to ________. A) price inflation B) increased choices for buyers C) easy availability of products D) high incentive to improve quality Answer: A Diff: 2: Moderate Skill: Application Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 9) Governments impose offensive barriers to ________. A) protect domestic industries B) promote national security C) increase employment D) safeguard the interests of special interest groups Answer: C Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 10) Governments impose defensive barriers to ________. A) generate tax revenues B) increase employment C) pursue strategic policy objectives D) promote national security Answer: D Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 3 Copyright © 2017 Pearson Education, Inc.

11) Blocking imports ________. A) increases the availability of raw materials B) increases the availability of products sold in the home market C) reduces the availability of products sold in the home market D) decreases the cost of products sold in the home market Answer: C Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 12) Which of the following is true with regard to protectionism? A) It increases the availability of raw materials for domestic industries. B) It decreases the cost of products sold in the home market. C) It increases the availability of products sold in the home market. D) It can trigger retaliation from foreign governments, which reduces sales prospects for exports. Answer: D Diff: 2: Moderate Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 13) Which of the following statements is true about protection of an infant industry? A) Governments can impose temporary trade barriers on foreign imports to ensure that young firms gain a large share of the domestic market. B) Such protection is easy to remove. C) Protected companies become more efficient and produce products with lower prices. D) Protecting infant industries rarely allows countries to develop a modern industrial sector. Answer: A Diff: 2: Moderate Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 14) ________ refers to a government measure intended to manage or prevent the export of certain products or trade with certain countries. A) Quota B) Export control C) Customs D) Subsidy Answer: B Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking

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15) Governments impose export controls for the purpose of ________. A) improving available opportunities for domestic sales B) boosting derived demand in the domestic market C) preventing the export of certain products to certain countries D) boosting derived demand in foreign markets Answer: C Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 16) Which of the following is an example of an offensive rationale for government intervention? A) The government of Erbia imposes trade restrictions on the export of plutonium to certain countries. B) The government of Berylia imposes a trade barrier to curtail the import of low-priced products from manufacturers in the developed economies. C) The government of Argonia imposes investment barriers to safeguard special interest groups. D) The government of Rhodia requires foreign companies to enter its huge markets through joint ventures with local firms. Answer: D Diff: 2: Moderate Skill: Application Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 17) The Chinese government's policy of requiring foreign firms to enter the Chinese market via joint ventures is intended to ________. A) limit the amount of FDI B) create jobs for Chinese workers C) protect China's national security D) stimulate foreign investment Answer: B Diff: 1: Easy Skill: Application Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 18) Governments intervene in international trade and investments in order to protect the interests of foreign investment firms. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking

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19) A nontariff trade barrier is a government policy, regulation, or procedure that impedes trade through means other than explicit tariffs. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 20) Governments impose offensive barriers to safeguard industries, workers, and special interest groups and to promote national security. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 21) Governments impose defensive barriers to pursue strategic or public policy objectives, such as increasing employment or generating tax revenues. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 22) Governments often impose trade barriers to restrict imports of products or services seen to threaten national assets. Answer: TRUE Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 23) Nations with economies based on agriculture and textile manufacturing generate more economic revenue than do nations with many high-tech industries. Answer: FALSE Diff: 1: Easy Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking

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24) In a short essay, describe two methods of government intervention and explain the four major defensive motives for government intervention. Answer: Government intervention is often motivated by protectionism. Protectionism refers to national economic policies designed to restrict free trade and protect domestic industries from foreign competition. Protectionism is typically manifested by tariffs, nontariff barriers such as quotas, and arbitrary administrative rules designed to discourage imports. A tariff is a tax imposed by government on imported products, effectively increasing cost of acquisition for the customer. A nontariff trade barrier is a government policy, regulation, or procedure that impedes trade through means other than explicit tariffs. Four major defensive motives are particularly relevant: protection of the nation's economy, protection of an infant industry, national security, and national culture and identity. 1. PROTECTION OF THE NATIONAL ECONOMY : Proponents argue that firms in advanced economies cannot compete with those in developing countries that employ low-cost labor. Protectionists demand trade barriers to curtail the import of low-priced products. The action is intended to protect jobs and ensure higher wages for workers in advanced economies. 2. PROTECTION OF AN INFANT INDUSTRY: In an emerging industry, companies are often inexperienced and lack the latest technologies and know-how. They also may lack the large size typical of competitors in established industries abroad. A very young industry may need temporary protection from foreign competitors. A government may impose temporary trade barriers on foreign imports to ensure that young firms gain a large share of the domestic market. 3. NATIONAL SECURITY: Countries impose trade restrictions on products viewed as critical to national defense and security. These include military technology and computers that help maintain domestic production in security-related products. 4. NATIONAL CULTURE AND IDENTITY: Governments may impose trade barriers to restrict imports of products or services seen to threaten such national assets. In the United States, authorities opposed Japanese investors' purchase of the Seattle Mariners baseball team because it is viewed as part of the national heritage. France does not allow significant foreign ownership of its TV stations because of concerns about foreign influence on French culture. Diff: 2: Moderate Skill: Synthesis Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking; Environments and Reflective Thinking 25) In a short essay, describe the negative effects to the economy when a government intervenes in international trade. Answer: Critics counter that protectionism is at odds with the theory of comparative advantage, according to which nations should engage in more international trade, not less. Trade barriers interfere with country-specific specialization of labor. When countries specialize in the products that they can produce best and then trade for the rest, they perform better in the long run, delivering superior living standards to their citizens. Critics also charge that blocking imports reduces the availability and increases the cost of products sold in the home market. Industries cannot access all the input products they need. Finally, protection can trigger retaliation, whereby foreign governments impose their own trade barriers, reducing sales prospects for exporters. Diff: 2: Moderate Skill: Concept Objective: 7-1: Understand the nature of government intervention AACSB: Analytical Thinking 7 Copyright © 2017 Pearson Education, Inc.

26) The United Nations estimated that trade barriers alone cost developing countries ________ in lost trading opportunities with developed countries every year. A) $100 billion B) $200 billion C) less than $100 billion D) more than $500 billion Answer: D Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 27) Typically, administrative and bureaucratic procedures ________. A) speed up the investment activities of firms B) hinder the activities of importers C) boost investment activities D) harm late importers Answer: B Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 28) ________ refer to rules that limit the ability of foreign firms to invest in certain industries or acquire local firms. A) Quotas B) Regulations and technical standards C) FDI and ownership restrictions D) Administrative and bureaucratic procedures Answer: C Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking

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29) In Cadmia, foreign-owned automobile manufacturing companies must be managed by a Cadmian national and most board members must be Cadmian citizens. This exemplifies ________. A) FDI and ownership restrictions B) administrative and bureaucratic procedures C) Regulations and technical standards D) Anti-dumping duty Answer: A Diff: 2: Moderate Skill: Application Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 30) Products are classified under about 8,000 different unique codes in the ________ schedule, a standardized system used worldwide. A) harmonized tariff B) protective tariff C) revenue tariff D) specific tariff Answer: A Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 31) Tariffs that are ad valorem are ________. A) based on the weight or size of the imported product B) assessed as a percentage of the imported product's value C) intended to provide a steady flow of income for the government D) charged regardless of the imported product's value Answer: B Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 32) Under the ________, Canada, Mexico, and the United States have eliminated nearly all tariffs on product imports from each other. A) APEC B) FTAAP C) GATT D) NAFTA Answer: D Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 9 Copyright © 2017 Pearson Education, Inc.

33) ________ represent a major driver of market globalization. A) Continued reductions B) Export controls C) Import controls D) Prohibitive tariffs Answer: A Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 34) Nontariff trade barriers have increased in popularity partly because they ________. A) generate profits for foreign firms B) are easier to conceal from the WTO C) restrict trade by imposing direct tax D) have been fairly successful in eliminating smuggling along international borders Answer: B Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 35) An import license refers to a(n) ________. A) tax charged on an imported product whose price is below usual prices in the local market B) list of complex procedures imposed on importers that hinder trade and investment C) complicated system of establishing quotas D) government authorization granted to a firm for importing a product Answer: D Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 36) The so-called ________ specifies that a certain proportion of products and supplies, or of intermediate goods used in local manufacturing, must be produced within the bloc. A) safe harbor B) local content requirement C) rules of origin requirement D) ad valorem tariff Answer: C Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking

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37) Restrictions on the outflow of hard currency from a country or on the inflow of foreign currencies is called ________. A) antidumping duty B) currency appreciation C) currency control D) currency depreciation Answer: C Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 38) Governments sometimes retaliate against subsidies by imposing ________, tariffs on products imported into a country to offset subsidies given to producers or exporters in the exporting country. A) local content requirements B) investment incentives C) countervailing duties D) antidumping duties Answer: C Diff: 1: Easy Skill: Application Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 39) Which of the following may allow a manufacturer to practice dumping? A) countervailing duties B) subsidies C) currency control D) import license Answer: B Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 40) ________ are transfer payments or tax concessions made directly to foreign firms to entice them to invest in the country. A) Investment incentives B) Antidumping duties C) Countervailing duties D) Quotas Answer: A Diff: 1: Easy Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking 11 Copyright © 2017 Pearson Education, Inc.

41) Governments support domestic industries by ________. A) incentivize dumping B) increase the costs of production of domestic industries C) alienate domestic industries D) adopting procurement policies that restrict purchases to home-country suppliers Answer: D Diff: 2: Moderate Skill: Concept Objective: 7-2: Know the instruments of government intervention AACSB: Analytical Thinking Cotton Quota (Scenario) Cotton growers in the nation of Zanzi export nearly 700,000 bales of cotton every year. Zanzi is the home country for a fabric manufacturing facility that exports high-quality cotton fabric around the world. The government imposed a quota of 1 million bales of cotton that can be imported into Zanzi every year. The local fabric manufacturer is lobbying the government to remove the quota on cotton. 42) Which of the following questions would be most important for government officials to evaluate when considering the controversy over the cotton quota? A) What would be the short-term effect of additional agricultural quotas? B) What other nations utilize agricultural quotas and what are the effects? C) Does the government of Zanzi impose heavy duties on dumping? D) What will be the long-term effect of the cotton quota on the Zanzi economy? Answer: D Diff: 3: Hard ...