C211 Global Economics Study Guide with
Correct Solutions Guaranteed Pass
Contrast between civil law, common law, and theocratic law? - Answer -• Civil law: uses
comprehensive statues and codes as a primary means to form legal judgements (over 80 countries
practice civil law)
o Less flexible than common - judges power only to apply the law; it is less confrontational; usually
shorter/ less specific
• Common law: shaped by precedents and traditions from previous judicial decisions.
o has more flexibility; judges have to resolve specific disputes based on their interpretation of the law.
o More confrontational than civil; tends to be long/detailed
• Theocratic
o Based on religious teachings: ex. Jewish law and Islamic Law
How are total cost and marginal cost are related? (Chap 13) - Answer -• From a firm's total cost,
two related measures of cost are derived. Average total cost: total cost divided by quantity of output.
Marginal: the amount by which total cost rises if output increase by 1 unit.
How do demand curves shift in response to economic events? (chap 4) - Answer -Any change that
raises the quantity that buyers wish to purchase at any given price shifts the demand curve right.
Changes that lower the quantity shifts curve left.
• Income: lower income - lower demand (normal good); other things being equal, increase in income
leads to decrease in demand (inferior good) Ex: bus vs. car
• Price of related goods: substitutes - when price of one reduces demand for another good;
complements - when a fall in price of one good raises demand for another good
• Tastes: when you like it you buy more
• Expectations: Higher expectations can affect your demand (expect higher income buy more, expect
less income, buy less)
• # of buyers: Increase in buyers - increase in quantity demand - increase market demand
How do efforts to achieve location specific advantages support strategic goals (where to enter)? (Chap
10) - Answer -Where to enter depends on certain foreign countries' location-specific advantages
and firms' strategic goals, such as seeking: 1. Natural resources: possession of natural resources and
related transport and communication infrastructure (ex: oil in the Middle East, Russia, Venezuela), 2.
Market: Abundance of strong market demand and customers willing to pay (ex: GM in China), 3.
Efficiency: Economies of scale and abundance of low-cost factors (ex: Manufacturing in China) & 4.
Innovation: Abundance of innovative individuals, firms, and universities (ex: IT in Silicon Valley)
, How do firms strategically respond to foreign exchange movements? (Chap 7) - Answer -• 3
foreign exchange transactions are: 1. Spot transactions: single-shot exchange of one currency for
another, 2 forward transactions: participants buy and sell currencies now for future delivery & 3. Swaps:
between 2 firms in which one currency is converted into another at Time 1 with an agreement to revert
it back to the original currency at a specified Time 2 in the future.
• Firms' strategic response include: 1. Currency hedging: protects traders and investors from exposure to
the fluctuations of the spot rate, 2. Strategic hedging: spreading activities in a number of countries in
different currency zones to offset any currency losses in one region through gains in other regions, 3.
Both
How do institutions reduce uncertainty? - Answer -* By signaling which conduct is legitimate and
which is not, institutions constrain the range of acceptable actions.
• Institutions are commonly defined as the rules of the game.
• Institutions are formal and informal components each with different supportive pillars
• Their key function is to reduce uncertainty, curtail transaction costs, and combat opportunism.
How do monetary policy and fiscal policy affect interest rates and aggregate demand? - Answer -•
Monetary: An increase in the money supply reduces the equilibrium interest rate for any given price
level. Because a lower interest rate stimulates investment spending, the aggregate-demand curve shifts
to the right. Conversely, decreasing money supply raises the equilibrium interest rate for any given price
level and shifts the aggregate-demand curve to the left.
• Fiscal: An increase in government purchases or a cut in taxes shifts the aggregate- demand curve to the
right, a decrease in government purchases or an increase in taxes shifts curve to the left.
How do resources and capabilities influence competitive dynamics of the firm?(Chap11) - Answer -
o Resource similarity and market commonality can yield a powerful framework for competitor analysis.
How do supply and demand determine equilibrium price and quantity? (Chap 4) - Answer -•
Equilibrium: the point at which the supply and demand curves intersect.
• At the equilibrium price, the quantity of the good that buyers are willing and able to buy exactly
balances the quantity that sellers are willing and able to sell.
• The equilibrium price is sometimes called the market-clearing price because everyone in the market
has been satisfied: buyers have bought all they want to buy, and sellers have sold all they want to sell.
How do the components of gross domestic product (GDP) affect aggregate demand? - Answer -•
Gross domestic product (GDP) measures an economy's total expenditure on newly produced goods and
services and the total income earned from the production of these goods and services. More precisely,
GDP is the market value of all final goods and services produced within a country in a given period of
time. The aggregate demand is the overall demand for all goods and services in an economy - it
describes the relationship between everything bought within a country and prices; based on this
understanding the two are equal.
Correct Solutions Guaranteed Pass
Contrast between civil law, common law, and theocratic law? - Answer -• Civil law: uses
comprehensive statues and codes as a primary means to form legal judgements (over 80 countries
practice civil law)
o Less flexible than common - judges power only to apply the law; it is less confrontational; usually
shorter/ less specific
• Common law: shaped by precedents and traditions from previous judicial decisions.
o has more flexibility; judges have to resolve specific disputes based on their interpretation of the law.
o More confrontational than civil; tends to be long/detailed
• Theocratic
o Based on religious teachings: ex. Jewish law and Islamic Law
How are total cost and marginal cost are related? (Chap 13) - Answer -• From a firm's total cost,
two related measures of cost are derived. Average total cost: total cost divided by quantity of output.
Marginal: the amount by which total cost rises if output increase by 1 unit.
How do demand curves shift in response to economic events? (chap 4) - Answer -Any change that
raises the quantity that buyers wish to purchase at any given price shifts the demand curve right.
Changes that lower the quantity shifts curve left.
• Income: lower income - lower demand (normal good); other things being equal, increase in income
leads to decrease in demand (inferior good) Ex: bus vs. car
• Price of related goods: substitutes - when price of one reduces demand for another good;
complements - when a fall in price of one good raises demand for another good
• Tastes: when you like it you buy more
• Expectations: Higher expectations can affect your demand (expect higher income buy more, expect
less income, buy less)
• # of buyers: Increase in buyers - increase in quantity demand - increase market demand
How do efforts to achieve location specific advantages support strategic goals (where to enter)? (Chap
10) - Answer -Where to enter depends on certain foreign countries' location-specific advantages
and firms' strategic goals, such as seeking: 1. Natural resources: possession of natural resources and
related transport and communication infrastructure (ex: oil in the Middle East, Russia, Venezuela), 2.
Market: Abundance of strong market demand and customers willing to pay (ex: GM in China), 3.
Efficiency: Economies of scale and abundance of low-cost factors (ex: Manufacturing in China) & 4.
Innovation: Abundance of innovative individuals, firms, and universities (ex: IT in Silicon Valley)
, How do firms strategically respond to foreign exchange movements? (Chap 7) - Answer -• 3
foreign exchange transactions are: 1. Spot transactions: single-shot exchange of one currency for
another, 2 forward transactions: participants buy and sell currencies now for future delivery & 3. Swaps:
between 2 firms in which one currency is converted into another at Time 1 with an agreement to revert
it back to the original currency at a specified Time 2 in the future.
• Firms' strategic response include: 1. Currency hedging: protects traders and investors from exposure to
the fluctuations of the spot rate, 2. Strategic hedging: spreading activities in a number of countries in
different currency zones to offset any currency losses in one region through gains in other regions, 3.
Both
How do institutions reduce uncertainty? - Answer -* By signaling which conduct is legitimate and
which is not, institutions constrain the range of acceptable actions.
• Institutions are commonly defined as the rules of the game.
• Institutions are formal and informal components each with different supportive pillars
• Their key function is to reduce uncertainty, curtail transaction costs, and combat opportunism.
How do monetary policy and fiscal policy affect interest rates and aggregate demand? - Answer -•
Monetary: An increase in the money supply reduces the equilibrium interest rate for any given price
level. Because a lower interest rate stimulates investment spending, the aggregate-demand curve shifts
to the right. Conversely, decreasing money supply raises the equilibrium interest rate for any given price
level and shifts the aggregate-demand curve to the left.
• Fiscal: An increase in government purchases or a cut in taxes shifts the aggregate- demand curve to the
right, a decrease in government purchases or an increase in taxes shifts curve to the left.
How do resources and capabilities influence competitive dynamics of the firm?(Chap11) - Answer -
o Resource similarity and market commonality can yield a powerful framework for competitor analysis.
How do supply and demand determine equilibrium price and quantity? (Chap 4) - Answer -•
Equilibrium: the point at which the supply and demand curves intersect.
• At the equilibrium price, the quantity of the good that buyers are willing and able to buy exactly
balances the quantity that sellers are willing and able to sell.
• The equilibrium price is sometimes called the market-clearing price because everyone in the market
has been satisfied: buyers have bought all they want to buy, and sellers have sold all they want to sell.
How do the components of gross domestic product (GDP) affect aggregate demand? - Answer -•
Gross domestic product (GDP) measures an economy's total expenditure on newly produced goods and
services and the total income earned from the production of these goods and services. More precisely,
GDP is the market value of all final goods and services produced within a country in a given period of
time. The aggregate demand is the overall demand for all goods and services in an economy - it
describes the relationship between everything bought within a country and prices; based on this
understanding the two are equal.
