WGU C211 Global Econ Study Guide & Cohort Questions and answers.

Views of globalization (Chp 1.4) 1. It's a new phenomenom, starting in the late 20th century. 2. It's a long term part of human history. 3. Neither recent nor one directional, it's a pendulum that swings back and forth. Location specific advantage of Natural resource—seeking Strategic goal - Possession of natural resources and related transport and communication infrastructure Location specific advantage of Market-seeking Strategic goal - Abundance of strong market demand and customers willing to pay Location specific advantage of Efficiency-seeking Strategic goal - Economies of scale and abundance of low-cost factors Location specific advantage of Innovation-seeking Strategic goal - Abundance of innovative individuals, firms, and universities Name first mover advantages: (Chp 10.3) 1. Proprietary, technological leadership 2. Pre-emption of scarce resources 3. Establishment of entry barriers for late entrants 4. Avoidance of clash with dominant firms at home 5. Relationships with key stakeholders such as governments Name late mover advantages: (Chp 10.3) 1. Opportunity to free ride on first-mover investments 2. Resolution of technological and market uncertainty 3. First mover's difficulty to adapt to market changes Name strategic goals supported by location specific advantages (Chp 10.2) 1. Natural resources 2. Market 3. Efficiency 4. Innovation Proposition (1) underpinning an institution based view of global business. Managers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework Proposition (2) underpinning an institution based view of global business. While formal and informal institutions combine to govern firm behavior, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy to managers and firms Market economy An economy that is characterized by the "invisible hand" of market forces. No country has embraced Adam Smith's Laissez faire model Command economy Supply, Demand, and price are planned by the government. An economy that is characterized by government ownership and control of factors of production. Mixed economy An economy that has elements of both a market economy and a command economy. Property rights The legal rights to use an economic property (resource) and to derive income and benefits from it. Purpose of property rights The formal protection of property rights helps to facilitate economic growth. Civil Law A legal tradition that uses comprehensive statutes and codes as a primary means to form legal judgments. This is the oldest and dates back to the romans Common Law A legal tradition that is shaped by precedents and traditions from previous judicial decisions. Such as the U.S. Theocratic Law A legal system based on religious teachings. Suach as Jewish or Islamic States Democracy Right to freedom of expression and organization. Totalitarianism One person or party exercises absolute control. How do institutions reduce uncertainty? (Chp 2-2) By signaling which conduct is legitimate and which is not they constrain the range of acceptable actions. Comprehensive model of foreign market entries 1. How to enter depends on the scale of entry: large-scale versus small-scale entries. 2. First focuses on the equity (ownership) issue. 3. Second step focuses on making the actual selection, such as exports, contractual agreements, joint ventures and wholly owned subsidiaries. Political realities governing international trade. Political realities suggest that as "rules of the game", plenty of trade barriers exist. Defined as The net impact of various tariffs and nontariff barriers is that the whole nation is worse off while certain special interest groups (such as certain industries, firms, and regions) benefit. Economic arguments against free trade: 1. protectionism 2. infant industries Political arguments against free trade: 1. national security 2. consumer protection 3. foreign policy 4. environmental and social responsibility Radical view Hostile to foreign direct investment (FD) Pragmatic nationalism Only approves foreign direct investment (FDI) FDI when its benefits outweigh its costs. Free Market View Suggests that foreign direct investment (FDI) unrestricted by government intervention is the best. Benefits of FDI to home countries 1. Repatriated earnings from profits from FDI. 2. Increased exports of components and services to host countries. 3. Learning via FDI from operations abroad. Costs of FDI to home countries 1. Capital outflow 2. Job loss Benefits of FDI to host countries 1. Capitol inflow 2. Technology 3. Management 4. Job creation Costs of FDI to host countries 1. loss of sovereignty 2. adverse effects on competition 3. capital outflow Resources influencing competitive dynamics: 1. Value 2. Rarity 3. Imitability 4. Organization 5. Resource similarity What are the optimal choices for consumers given income and prices? The point on her budget constraint that lies on the highest indifference curve. At this point, called the optimum, the marginal rate of substitution equals the relative price of the two goods. The marginal-cost curve always crosses the average-total-cost curve at __________________. the minimum of average total cost When Marginal Cost is less than Average Total Cost: MC ATC average total cost is falling When Marginal Cost is greater than Average Total Cost: MC ATC average total cost is rising If Marginal Revenue is greater than Marginal Cost: MR MC firm should increase output If Marginal Cost is greater than Marginal Revenue: MC MR firm should decrease output If Marginal Revenue equals Marginal Cost: MR = MC profit-maximizing level of output Direction of Competitive demand curve horizontal demand curve, perfectly elastic Direction of Monopolist demand curve downward sloping demand curve, Inelastic Demand A monopoly maximizes profit by choosing the quantity at which marginal revenue ____________. equals marginal cost A monopoly determines price to charge by using demand curve to find the price that will induce consumers to buy the quantity at which MR=MC Monopoly one firm - for example, Cable TV Oligopoly few firms - For example Ciggarettes Monopolistic competition many firms, differentiated products - such as Movies or clothes, Free entry & exit, uses advertising Perfect competition many firms, identical products - for example, milk How does the prisoner's dilemma apply to oligopoly? Each oligopolist has an incentive to cheat. Just as self-interest drives the prisoners in the prisoners' dilemma to confess, self-interest makes it difficult for the oligopolists to maintain the cooperative outcome with low production, high prices, and monopoly profits. Federal Reserve's tools of monetary control 1. Open market operations, 2. the discount rate, 3. term auction facility, and 4. reserve requirements Open market operations: -Purchase and sale of U.S. government bonds by the Fed -To increase the money supply •The Fed buys U.S. government bonds -To reduce the money supply •The Fed sells U.S. government bonds -Used more often The discount rate: -Interest rate on the loans that the Fed makes to banks -Higher discount rate •Reduce the money supply -Smaller discount rate •Increase the money supply Term auction facility: -The Fed sets a quantity of funds it wants to lend to banks -Eligible banks bid to borrow those funds -Loans go to the highest eligible bidders •Acceptable collateral •Pay the highest interest rate Reserve requirements: -Regulations on minimum amount of reserves •That banks must hold against deposits -An increase in reserve requirement •Decrease the money supply -A decrease in reserve requirement •Increase the money supply -Used rarely -disrupt business of banking Policymakers can influence aggregate demand with monetary policy. 1. 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. 2. A decrease in the money supply raises the equilibrium interest rate for any given price level and shifts the aggregate-demand curve to the left. Policymakers can influence aggregate demand with fiscal policy. 1. An increase in government purchases or a cut in taxes shifts the aggregate-demand curve to the right. 2. A decrease in government purchases or an increase in taxes shifts the aggregate-demand curve to the left. Shift in demand curve = decrease in demand Demand curve shifts left. Any change that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve to the left. Shift in demand curve = increase in demand Demand curve shifts right. Any change that raises the quantity that buyers wish to purchase at any given price shifts the demand curve to the right. Variable that can shift the demand curve: -Income -Prices of related goods -Tastes -Expectations -Number of buyers Effects of a tariff A tariff reduces the quantity of imports and moves a market closer to the equilibrium that would exist without trade. Effects of a tariff -Price rises by the amount of the tariff, -Domestic quantity demanded decreases, -Domestic quantity supplied increases, -Reduces the quantity of imports, --Domestic sellers are better off, -Domestic buyers are worse off. Consumer surplus - Amount a buyer is willing to pay for a good, minus amount the buyer actually pays for it -Measures the benefit buyers receive from participating in a market -Closely related to the demand curve Producer surplus - Amount a seller is paid for a good minus the seller's cost of providing it. - Closely related to the supply curve. - A higher price raised producer surplus. Total surplus Consumer surplus + Producer surplus