C211 Global Economics for Managers Flashcards

Comprehensive vocabulary flashcards covering global business views, FDI, trade theories, market structures, and macroeconomic principles based on WGU C211 lecture notes.

Institution-Based View

A perspective in global business that argues a firm’s success or failure is heavily influenced by the formal and informal rules of the game within a country, focusing on the external environment.

Regulatory Pillar

One of the three pillars of institutions that includes formal laws, regulations, and government policies like trade rules, labor laws, and environmental regulations.

Normative Pillar

An institutional pillar involving societal values, cultural norms, and expectations about appropriate business conduct.

Cognitive Pillar

An institutional pillar reflecting shared beliefs, assumptions, and ways of thinking within a society that influence perception of business activities.

Resource-Based View

A perspective focusing on the internal environment of a firm, arguing that competitive advantage comes from unique internal resources and capabilities.

VRIO Framework

A framework used to evaluate resources based on whether they are Valuable, Rare, Inimitable, and Organized.

Globalization

The closer economic integration of countries and people around the world through trade, investment, capital flows, and technology transfer.

Pendulum View

A perspective that sees globalization as a process swinging back and forth between extremes rather than moving steadily in one direction.

Foreign Direct Investment (FDI)

The control and management of business activities in a foreign country, characterized by management control rights.

Multinational Enterprises (MNEs)

Firms that engage in FDI, operating in multiple countries and coordinating activities like production and supply chains across borders.

Foreign Portfolio Investment (FPI)

Holding financial assets like stocks or bonds in foreign companies without active management or control.

Horizontal FDI

Occurs when a firm produces the same products or offers the same services in a host country as it does in its home country.

Upstream Vertical FDI

Relocating or expanding specific parts of a production process into earlier stages, such as raw materials or component production.

OLI Advantage

Also known as the Eclectic Theory, explains that firms engage in FDI when Ownership, Location, and Internalization advantages exist simultaneously.

Radical View on FDI

A perspective rooted in Marxist ideology that treats FDI as an instrument of imperialism used by wealthy countries to exploit poorer nations.

Pragmatic Nationalism View

A political perspective that evaluates FDI on a case-by-case basis, approving it only when expected benefits outweigh the costs.

Collusion

Collective attempts by competing firms to reduce competition, increase profits, or divide markets.

Concentration Ratio

A measure of the percentage of total industry sales accounted for by the largest firms, where a high ratio makes collusion easier.

Market Commonality

The degree of overlap between competitors across multiple markets, which can lead to restrained rivalry to avoid retaliation.

Dodger Strategy

A strategy for local firms where high industry pressure to globalize exists, and firms avoid direct competition with MNEs by cooperating through joint ventures.

Defender Strategy

A strategy for local firms focusing on protecting the home market by leveraging deep cultural understanding and local customer relationships.

Trade Deficit

Occurs when a nation imports more goods and services than it exports over a given period.

Mercantilism

An early trade theory viewing trade as a zero-sum game where wealth is fixed and nations must export more than they import.

Absolute Advantage

Introduced by Adam Smith, the theory that nations gain from trade by specializing in goods they produce more efficiently using fewer resources.

Comparative Advantage

A theory by David Ricardo stating a nation should specialize in goods it can produce at a lower opportunity cost compared to other countries.

Porter’s Diamond Theory

Examines national competitive advantage based on four factors: Factor conditions, Demand conditions, Related and supporting industries, and Firm strategy, structure, and rivalry.

Purchasing Power Parity (PPP)

An economic theory comparing currency values based on the cost of the same basket of goods in different countries, illustrated by the Big Mac Index.

Fixed Exchange Rate System

A system where the government sets the currency value at a fixed rate relative to another currency, requiring central bank intervention.

Managed Float

Also known as a dirty float, a system where exchange rates are primarily market-determined but governments selectively intervene to smooth volatility.

Currency Hedging

Short-term financial transactions like forward contracts or swaps designed to protect against fluctuations in foreign exchange spot rates.

Strategic Hedging

A long-term operational approach to managing currency risk by spreading production and sales across different currency zones.

Theocratic Totalitarianism

A political system where power is monopolized by a religious party or leaders, and laws are based on religious doctrine.

Common Law

A legal tradition shaped primarily by judicial precedents and past court decisions rather than solely by written statutes.

Command Economy

An economic system characterized by government ownership of factors of production and central planning agencies determining production and prices.

Property Rights

The legal right to use an economic resource and to derive income and benefits from it.

Budget Constraint

The boundary representing combinations of goods and services a consumer can afford given their income and the prices of those goods.

Indifference Curve

A curve showing combinations of two goods that provide a consumer with the same level of satisfaction or utility.

Marginal Rate of Substitution (MRS)

The rate at which a consumer is willing to give up one good to gain one more unit of another while maintaining the same satisfaction.

Marginal Cost (MC)

The additional cost incurred from producing one more unit of output, calculated as $\text{Change in Total Cost} \div \text{Change in Quantity}$.

Short Run Shutdown Rule

A rule stating that a firm should temporarily stop production if Price ($P$) is less than Average Variable Cost ($AVC$).

Monopolistic Competition

A market structure with many firms selling differentiated products and having low barriers to entry.

Nash Equilibrium

A situation in game theory where neither player has an incentive to change their strategy unilaterally, given the choice of the other player.

Federal Funds Rate

The interest rate that banks charge each other for overnight loans of reserves.

Open Market Operations

The buying and selling of government bonds by the Federal Reserve to control the money supply and influence interest rates.

Crowding Out Effect

Occurs when increased government spending through borrowing leads to higher interest rates, which reduces private sector investment.

Expenditure Multiplier Effect

The phenomenon where a change in spending leads to a larger total increase in aggregate demand because one person’s spending becomes another’s income.

Automatic Stabilizers

Built-in economic features like progressive income taxes and unemployment insurance that counteract fluctuations without explicit legislation.

Consumer Surplus

The difference between the maximum amount a buyer is willing to pay and the amount actually paid, represented graphically as the area above the price and below the demand curve.

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country’s borders during a given period of time.

Deadweight Loss

The net loss to society that occurs when a tariff or tax reduces total surplus and prevents mutually beneficial trades from occurring.