COMPREHENSIVE TEST BANK FOR
INTERNATIONAL BUSINESS:
OPPORTUNITIES AND CHALLENGES IN
A FLATTENING WORLD V7.0
QUESTIONS AND ANSWERS. VERIFIED
2026/2027
1. According to Thomas Friedman, which era of globalization was characterized by the
primary involvement of individuals and small groups, driven by the digital revolution?
A. Globalization 1.0
B. Globalization 3.0
C. Globalization 2.0
D. Globalization 4.0
Answer: B
Conceptual Explanation: Globalization 3.0 (from 2000 onwards) is defined by the power
of individuals and small groups to collaborate and compete globally, facilitated by a flat-
world platform.
2. In the CAGE Distance Framework developed by Pankaj Ghemawat, which dimension refers
to the differences in consumer incomes and the cost of human resources?
A. Cultural Distance
,B. Administrative Distance
C. Economic Distance
D. Geographic Distance
Answer: C
Conceptual Explanation: Economic distance relates to differences in consumer wealth,
income levels, and the cost of production factors between countries.
3. Which economic theory suggests that a country should specialize in the production of
goods for which it has the lowest opportunity cost compared to other nations?
A. Comparative Advantage
B. Absolute Advantage
C. Mercantilism
D. Heckscher-Ohlin Theory
Answer: A
Conceptual Explanation: David Ricardo’s Comparative Advantage theory argues that
trade is beneficial even if one country is more efficient in all goods, provided it focuses on
the good where its relative efficiency is highest.
4. What is the ‘Leontief Paradox’ in the context of international trade theory?
A. The observation that services are harder to trade than physical goods.
B. The discovery that small nations trade more than large nations.
, C. The finding that the U.S. exported labor-intensive goods despite being capital-abundant.
D. The realization that tariffs actually increase domestic production efficiency.
Answer: C
Conceptual Explanation: Wassily Leontief found that U.S. exports were less capital-
intensive than U.S. imports, contradicting the Heckscher-Ohlin theory.
5. In the PESTEL analysis framework, which factor specifically examines the impact of
intellectual property laws and contract enforcement on business operations?
A. Political
B. Legal
C. Technological
D. Economic
Answer: B
Conceptual Explanation: The ‘Legal’ component of PESTEL covers consumer laws, labor
laws, and intellectual property rights (IPR).
6. A firm that expands into a foreign market to gain access to raw materials not available in
its home country is engaging in which type of FDI?
A. Horizontal FDI
B. Market-seeking FDI
C. Forward Vertical FDI
INTERNATIONAL BUSINESS:
OPPORTUNITIES AND CHALLENGES IN
A FLATTENING WORLD V7.0
QUESTIONS AND ANSWERS. VERIFIED
2026/2027
1. According to Thomas Friedman, which era of globalization was characterized by the
primary involvement of individuals and small groups, driven by the digital revolution?
A. Globalization 1.0
B. Globalization 3.0
C. Globalization 2.0
D. Globalization 4.0
Answer: B
Conceptual Explanation: Globalization 3.0 (from 2000 onwards) is defined by the power
of individuals and small groups to collaborate and compete globally, facilitated by a flat-
world platform.
2. In the CAGE Distance Framework developed by Pankaj Ghemawat, which dimension refers
to the differences in consumer incomes and the cost of human resources?
A. Cultural Distance
,B. Administrative Distance
C. Economic Distance
D. Geographic Distance
Answer: C
Conceptual Explanation: Economic distance relates to differences in consumer wealth,
income levels, and the cost of production factors between countries.
3. Which economic theory suggests that a country should specialize in the production of
goods for which it has the lowest opportunity cost compared to other nations?
A. Comparative Advantage
B. Absolute Advantage
C. Mercantilism
D. Heckscher-Ohlin Theory
Answer: A
Conceptual Explanation: David Ricardo’s Comparative Advantage theory argues that
trade is beneficial even if one country is more efficient in all goods, provided it focuses on
the good where its relative efficiency is highest.
4. What is the ‘Leontief Paradox’ in the context of international trade theory?
A. The observation that services are harder to trade than physical goods.
B. The discovery that small nations trade more than large nations.
, C. The finding that the U.S. exported labor-intensive goods despite being capital-abundant.
D. The realization that tariffs actually increase domestic production efficiency.
Answer: C
Conceptual Explanation: Wassily Leontief found that U.S. exports were less capital-
intensive than U.S. imports, contradicting the Heckscher-Ohlin theory.
5. In the PESTEL analysis framework, which factor specifically examines the impact of
intellectual property laws and contract enforcement on business operations?
A. Political
B. Legal
C. Technological
D. Economic
Answer: B
Conceptual Explanation: The ‘Legal’ component of PESTEL covers consumer laws, labor
laws, and intellectual property rights (IPR).
6. A firm that expands into a foreign market to gain access to raw materials not available in
its home country is engaging in which type of FDI?
A. Horizontal FDI
B. Market-seeking FDI
C. Forward Vertical FDI
