International Business Exam 2 practice test

Article 23 of the Universal Declaration of Human Rights implies that it is unethical to employ child labor in sweatshop settings and pay less than subsistence wages, even if that happens to be common practice in some countries. This is in contrast to

cultural relativism.

A firm moved its entire production operation to a foreign country, where the company was free to dump pollutants into the river located adjacent to the factory. In this scenario, the company is contributing to

the global tragedy of the commons.

A prefabricated home builder has research and manufacturing units all across the globe. The company expects its expatriate managers to adopt the ethics propagated by the culture in which they operate their respective units. The company allows its managers to pursue any actions if they are permitted in the host nation—even if they would be considered unethical in the home country. This company is following

cultural relativism.

One way businesses can make sure they are hiring individuals with strong personal ethics is by

asking for letters of reference from the prospective employees.

Jiang believes that it is the obligation of the state government to ensure that all corporations eliminate toxic emissions from their manufacturing facilities. Jiang believes that government should act as

a moral agent.

Tari is leading the team at Sports Academies in creating a formal statement of the ethical priorities the business will adhere to. What type of document is Tari and her team working on?

code of ethics

The chairman of the board of Everyday Entertainment engages in corruption and uses his power in the company to enrich himself and his family members. Consequently, his employees also engage in the same behavior. In this case, the roots of unethical behavior can most likely be traced to

organizational leadership.

__________blank is the idea that businesspeople should consider the social consequences of economic actions when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and social consequences.

Corporate social responsibility

The biggest criticism of the righteous moralist approach to an ethical situation is that it

goes too far and not every situation can be approached relying on home-country standards.

Which company is contributing to the global tragedy of the commons? a firm exploiting the weak employment standards in a host nation

• a firm dumping its chemical wastes directly into a river

• a firm exploiting the weak intellectual property rights in a developing nation

• a neighboring country opposing the introduction of a free trade area

• a country denying its citizens basic human rights

a firm dumping its chemical wastes directly into a river

Parnell would like to hire just one company to construct the new botanic garden exhibit in Tucson, but he can’t imagine asking such a small crew to work many months in the hot conditions of the Arizona summer. Parnell is relying on __________blank to make his decision.

his moral imagination

Chavez is the expatriate manager of his company’s facility in Brazil. He expects the exact same standards of working conditions, wages, and labor management in the Brazilian facility that is practiced in the United States. His policy does not always lead to profits because of the vast cultural differences between the two nations. What straw men approach to ethics is Chavez using?

righteous moralism

What practice should a company avoid to ensure ethical decision making?
auditing past decisions made in the company

• protecting the fundamental rights of stakeholders

• taking care of the interests of external stakeholders

• placing its economic interests before its moral principles

• adopting the moral principles specified in the company code of ethics

placing its economic interests before its moral principle

The practice of “gift giving” between the parties to a business negotiation is considered right and proper in many Asian cultures. However, some Westerners view the practice as a form of bribery, and therefore unethical, particularly if the gifts are substantial. This demonstrates that

what is ethical depends on one’s cultural perspective.

The Universal Declaration of Human Rights would agree that

it is unethical to employ child labor in sweatshops even if that happens to be common in some countries.

According to Milton Friedman, the only social responsibility of business is to

increase profits.

The United States imports chemicals, plastics, and leather products from France. In turn, the United States exports electronic components, and medical instruments and supplies to France. What theory is illustrated by this form of trade between France and the United States?

absolute advantage

A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries.

For years, U.S. corporations made the majority of photocopiers. Today, however, most photocopiers sold in the United States are imported from Japan and Great Britain, and few are manufactured in the United States. Which trade theory does this demonstrate

product life-cycle

One explanation for the Leontief paradox observed in the case of the United States is that the United States

has a special advantage in producing goods made with innovative technologies.

No one is quite sure why we observe the Leontief paradox. One possible explanation of the Leontief paradox is that the United States has a special advantage in producing new products or goods made with innovative technologies

A neo-mercantilist strategy would promote

the equal distribution of exports and imports.

• boosting exports and limiting imports.

• boosting both imports and exports.

• limiting both imports and exports.

• boosting imports and limiting exports.

boosting exports and limiting imports.

Neo-mercantilists equate political power with economic power and economic power with a balance-of-trade surplus. Critics argue that several nations have adopted a neo-mercantilist strategy that is designed to simultaneously boost exports and limit imports.

Based on the last quarterly report, Jason realizes that it is now taking more resources to produce each of the refrigerators his company makes. What aspect of comparative advantage is Jason noticing?

diminishing returns

What might result in the absence of trade if certain products have small national markets
The variety of products available to consumers increases.

• Limited demand for such products leads to non-realization of economies of scale.

• Each nation will specialize in producing a narrower range of products than it would in the presence of trade.

• At low volumes of production, unit costs and prices would be lowered.

• The first movers in an industry may get a lock on the world market that discourages subsequent entry.

Limited demand for such products leads to non-realization of economies of scale.

Raymond Vernon argued that pioneering firms in the United States kept production facilities closer to the market and centers of decision making because

of the uncertainty and risks inherent in introducing new products

Which theory states that in those industries where the output required to attain economies of scale represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises?

new trade

According to new trade theory, trade, through its impact on economies of scale, is most likely to

increase the variety of goods available to consumers

Mila works in a country where the government does not set quotas or duties on what its citizens can buy from another country, or what they can produce and sell to another country. In other words, the country where Mila lives practices

free trade.

New trade theory supports the ideas that trade increases __________blank and it also lowers average prices

specialization of production

the number of available products

government intervention

factor endowments

mercantilism

specialization of production

Michael Porter was interested in learning more about international trade in relation to

a particular industry.

Like the work of the new trade theorists, Porter’s work was driven by a belief that existing theories of international trade told only part of the story. For Porter, the essential task was to explain why a nation achieves international success in a particular industry.

A European nation specializes in engine parts, while its geographical neighbor specializes in automobiles. Each country exports the product in which it specializes to the other country. According to the theory of comparative advantage, this mutually beneficial trade relationship best illustrates

a positive-sum game.

The basic message of the theory of comparative advantage is that potential world production is greater with unrestricted free trade than it is with restricted trade. The theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains.

A business that follows the product life-cycle theory would agree that __________blank influence the movement of the locus of global production from advanced countries to developing countries.

cost considerations

As the market in the United States and other advanced nations matures, cost considerations start to play a greater role in the competitive process. The locus of global production initially switches from the United States to other advanced nations and then from those nations to developing countries.

If a company were to draw from the ideas proposed in the various theories of international trade, from a profit perspective, how would it go about selecting locations for its businesses?

It would disperse its productive activities to those countries where they can be performed most efficiently

According to the product life-cycle theory, as the market in the United States and other advanced nations matures and the product becomes more standardized, __________ becomes the main competitive weapon.

price

As the market in the United States and other advanced nations matures, the product becomes more standardized, and price becomes the main competitive weapon

Intel spreads the huge fixed costs of developing new generation chips over the nearly 2 billion chips it sells to computer makers. Intel benefits from

economies of scale.
Economies of scale are unit cost reductions or cost advantages associated with a large scale of output.

When Chao accepted his new job at State Insurance, his manager explained that each employee who came up with at least two ideas that could lead the company to a competitive advantage received a $4,000 bonus at the end of the year. This bonus is an example of a(n)

incentive.

Multinational companies must establish an incentive system that encourages local employees to acquire new skills. This is not as easy as it sounds. Creating new skills involves a degree of risk. Not all new skills add value.

Marketing functions may have to be delegated to national subsidiaries when there is a

difference in distribution channels.

A firm's marketing strategies may have to be responsive to differences in distribution channels among countries, which may necessitate the delegation of marketing functions to national subsidiaries.

Firms that pursue a(n) __________blank strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

global standardization

Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

The term __________blank is used by economists when referring to charging each customer a price that reflects that individual’s assessment of the value of a product.

reservation price

It is normally impossible to segment the market to such a degree that the firm can charge each customer a price that reflects that individual’s assessment of the value of a product, which economists refer to as a customer’s reservation price.

A number of studies have observed that a product's production costs decline by some quantity about each time

cumulative output doubles.

A carpeting manufacturer believes that by producing its products in Mexico, the company can take advantage of lower wage rates in that country. By pursuing such a strategy, the firm hopes to realize

• a position inside the efficiency frontier.

• the experience curve.

• economies of scale.

• location economies.

• demographic advantages.

location economies.

For a firm that is trying to survive in a competitive global market, the firm will benefit by basing each value creation activity it performs at that location where economic, political, and cultural conditions—including relative factor costs—are most conducive to the performance of that activity. Firms that pursue such a strategy can realize location economies.

Assume that the value of a base model computer to an average consumer is $300, but the average price that Dell can charge a consumer for that product is $275, and the average unit cost of producing that product for Dell is $150. For this scenario, which statement is accurate?

The consumer surplus per computer is $25.

The consumer surplus per unit is equal to V – P. The firm makes a profit so long as P is greater than its costs. Profit will be greater the lower cost is relative to P. The lower the intensity of competitive pressure, the higher the price charged relative to V.

Of all the value creation activities in a firm, __________blank is concerned with the design of products and production processes.

research and development

Research and development (R&D) is concerned with the design of products and production processes. Although we think of R&D as being associated with the design of physical products and production processes in manufacturing enterprises, many service companies also undertake R&D.

Cost reduction pressures tend to be particularly relevant in industries that

create products that serve universal needs.

Pressures for cost reduction can be particularly intense in industries producing commodity-type products where meaningful differentiation on nonprice factors is difficult and price is the main competitive weapon. This tends to be the case for products that serve universal needs.

Firms that pursue a(n) __________blank strategy sell products that are first produced for their domestic market across various markets with only minimal local customization

international

Firms that pursue an international strategy take products first produced for their domestic market and sell them across various markets (internationally) with only minimal local customization.

What are the two categories of value creation activities that firms undertake?

primary activities and support activities

According to the basic strategy paradigm, a firm maximizes its profitability when it

configures internal operations to support its position on the efficiency frontier.

To maximize its profitability, a firm should pick a position on the efficiency frontier that is viable in the sense that enough demand exists to support that choice, then configure its internal operations, such as manufacturing, marketing, logistics, information systems, human resources, and so on, so that they support that position. Finally, it should make sure it has the right organization structure in place to execute the strategy.

A company produces in-house all the products that it sells through its network of stores. It has a function in its value chain that controls sending the physical materials through the value chain, from procurement through production and into distribution. This function is called

logistics.

A running shoe manufacturer does not feel the pressure to create custom shoes for any of its markets around the world, but it does want to focus on cost reductions. What strategy should this company consider using to achieve this?

global standardization strategy

Global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal. These conditions prevail in many industrial goods industries, whose products often serve universal needs.

A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if

indigenous competitors in the nations that the company enters lack comparable products.

A company uses brand positioning and advertising to increase the value that consumers perceive to be in a product. Which support function performs these activities?

marketing

The marketing and sales functions of a firm can help create value in several ways. Through brand positioning and advertising, the marketing function can increase the value (V) that con­sumers perceive to be contained in a firm’s product.

By standardizing equipment and streamlining its operations, Executive Limousines competes by offering less expensive rides than the competition. According to Michael Porter, the strategy that Executive Limousines uses is

low cost.

Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry. A strategy that focuses primarily on lowering production (or operating) costs is called a low-cost strategy.