CHAPTER 3

3.10b0Review Questions
10. Why do firms engage in international trade? Firms engage in international trade for the same reason they engage in domestic tradeto expand their business and profits. 20. What is the difference between an absolute and a comparative advantage in international trade? How are both types of advantages related to the concept of specialization? Absolute advantage is the ability to produce a specific product more efficiently than any other nation. Comparative advantage is the ability to produce a specific product more efficiently than any other products. Relating to the concept of specialization, a nation would be well off if it possessed both advantages. 30. What is a favorable balance of trade? n what way is it !favorable"? A favorable balance of trade results when a country exports more than it imports. hat is, it sells more of its own products and services than it purchases, and thus greater profit is earned.

Chapter 3Exploring Global Business #0. $ist and briefly describe the principal restrictions that may be applied to a nation%s imports. he restrictions that may be applied to a nation!s imports are as follows" a#. Tariff (import duty$a tax that is levied on a foreign product entering a country b#. Quotaa limit on the amount of a particular good that may be imported into a country c#. Embargoa complete halt to trading with a particular nation or in a particular product d#. Foreign-exchange controla restriction on the amount of a particular foreign currency that can be purchased or sold e#. Currency devaluationreduction of the value of a nation!s currency relative to the currencies of other countries f#. Cultural barriers and bureaucratic red tape &0. What reasons generally are given for imposing trade restrictions? %ome of the reasons for trade restrictions are" a#. o e&ualize a nation!s balance of payments b#. o protect new or wea' industries c#. o protect national security d#. o protect the health of citizens e#. o retaliate for another nation!s trade restrictions f#. o protect domestic (obs '0. What are the general effects of import restrictions on trade? )oth within the restricting nation and in world trade patterns, import restrictions lead to certain immediate and long*term economic conse&uences such as +,$ higher prices for consumers, +-$ restriction of consumers! choices, +.$ misallocation of international resources, and +/$ loss of (obs. (0. )efine and describe the ma*or ob*ectives of the World +rade ,rganization -W+,. and the international economic communities. he 0 1 was established by 2A to oversee the provisions of the 3ruguay Round and to resolve any trade disputes among the member nations. All members are obligated to observe 2A rules. he primary ob(ective of the 0 1 is to remove barriers to trade on a worldwide basis. An international economic community is an organization of nations to promote the free movement of resources and products among its members and to create common economic policies. 4a(or international economic communities include the 5uropean 3nion, the 6orth American Free rade Agreement, the A%5A6 Free rade Area, and the 1rganization of 7etroleum 5xporting Countries.

Chapter 3Exploring Global Business /0. Which nations are the principal trading partners of the 0nited 1tates? What are the ma*or 0.1. imports and e2ports? Canada, 4exico, the 0estern 5uropean countries, and 8apan are the 3nited %tates! largest trading partners. he ma(or 3.%. exports are capital goods, industrial supplies and materials, and foods and beverages9 its ma(or imports are capital goods, consumer goods, and automobiles. 30. +he methods of engaging in international business may be categorized as either direct or indirect. How would you classify each of the methods described in this chapter? Why? he methods of engaging in international business are as follows" a#. :icensingindirect b#. 5xportingindirect c#. 8oint venturedirect d#. otally owned facilitiesdirect e. %trategic alliancesdirect f#. rading companiesindirect g#. Countertradeindirect h#. 4ultinational enterprisesdirect 100. n what ways is a multinational enterprise different from a large corporation that does business in several countries? he multinational enterprise operates on a worldwide basis and has no particular ;home< country. 110. $ist some 4ey sources of e2port assistance. How can these sources be useful to small business firms? =ey sources of export assistance are 3.%. 5xport Assistance Centers, the >nternational rade Administration, 3.%. and Foreign Commercial %ervices, 5xport :egal Assistance 6etwor', Advocacy Center, American )usiness Center, the )usiness >nformation %ervice for the 6ewly >ndependent %tates, 5astern 5urope )usiness >nformation Center, and the 6ational rade ?ata )an'. All these sources can be useful to small business firms, especially the 5xport :egal Assistance 6etwor'. 120. n what ways do 52imban46 multilateral development ban4s6 and the 78 enhance international trade? 5ximban' extends and guarantees credit to overseas buyers of American goods and services, guarantees short*term financing for exports, and discounts negotiable instruments that arise from export transactions. he 4?)s are internationally supported ban's that provide loans to developing countries to help them grow. he >4F is an international ban' that ma'es short* term loans to countries experiencing balance*of*payment deficits.