Chapter 12

Questions

1. Identify the various factors that have promoted the globalization of business?

2. How does comparative advantage explain international trade?

3. If the terms of trade improve for a country, then how have the price of exports changed
relative to the price of imports?

4. Economies of scale and product differentiation are important for explaining what feature
of international trade?

5. Identify the main types of protectionist policies.

6. If international trade has benefits for the global economy, explain why some countries
still find advantages in protectionist policies.

7. What is the World Trade Organization and how important is this body for international
trade?

8. What is foreign direct investment and what types of companies undertake foreign direct
investment?

9. What are the key benefits for business and consumers from membership of trade blocs
such as the EU?

10. Evaluate whether the EU should remove the common agricultural policy?

11. What problems do global businesses face when exploiting international business
opportunities?

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12. Using the diagram provided, illustrate the impact of either a tariff or a quota on the
domestic price of a good or service.

13. Is cheap labour a source of sustainable comparative advantage?

14. Is globalization a threat, or an opportunity for business?

Exercises

1. True or false?

a) Comparative advantage reflects international differences in the opportunity costs of

producing different goods.

b) The need to protect infant industries is a powerful argument in favour of protectionist

measures.

c) The imposition of a tariff stimulates domestic demand

d) The purchase of a share in Microsoft by someone who is not a citizen of the US is an

example of foreign direct investment.

e) Comparative advantage could stem from an abundance of factor endowments.

f) The increase in world merchandise trade has not been entirely global.