INB Exam 2

Business ethics

accepted principles of right and wrong governing conduct of business people

Ethical Strategy

strategy or course of action that does not violate these accepted principles


Foreign Corrupt Practices Act

What did the FCPA do?

prohibits US corporations from making illegal payments to foreign officials; you are not allowed to bribe

Ethical Dilemma

situations in which no available alternatives seem ethically acceptable

Organizational Culture

refers to the values and norms that are shared among employees of an organization

6 Determinants of Ethical Behavior:

Societal Culture, Personal Ethics, Decision-Making Process, Organizational Culture, leadership, Unrealistic Performance Goals

Friedman Doctrine

the only social responsibility of business is to increase profits, so long as the company stays within the rules of law; only responsibility is to return a profit to the shareholders

Cultural Relativism

the practice of judging a culture by its own standards

Righteous Moralist

One who claims that a multinational's home-country standards of ethics are the appropriate ones for companies to follow in foreign countries

Naive Immoralist

asserts that if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either

Most common ethical issues in business involve:

1. Employment practices2. Human rights3. Environmental regulations4. Corruption5. Moral obligations

Utilitarian Approaches to Ethics

hold that the moral worth of actions is determined by their consequences

Rights Theories

recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures; establish a minimum of morally acceptable behavior

Code of Ethics

formal statement of the ethical priorities a business adheres to


All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address


Corporate Social Responsibility: a business's concern for society's welfare

Sustainable Strategies

strategies that not only help make good profits without harming the environment and ensuring the company operates in a socially responsible manner; try to reduce carbon footprint

Triple Bottom Line

people, planet, profit

Balanced Scorecard

Measure performance in 4 areas: finances, customers, internal operations, and innovation/learning

Free Trade

situation where a government does not attempt to restrict what its citizens can buy/sell from another country

Who promoted unrestricted free trade?

Adam Smith

New Trade Theory

Countries may specialize in the production and export of particular products because in certain industries, the world market can only support limited number of firms

Government is involved in trade because:

1. Sovereignty2. Security3. Sustainability/Survivability


16th and 17th centuries; encouraged exports and discouraged imports

Who built on Adam Smith's ideas?

David Ricardo

Who refined Ricardo's work in the 20th century?

Heckscher and Ohlin

Absolute Advantage

the ability to produce a good using fewer inputs than another producer; more efficient

What principle or theory argues that it is in a country's best interests to maintain a trade surplus?

Principle of Mercantilism

Comparative Advantage

the ability to produce a good at a lower opportunity cost than another producer

Factor Endowments

A country's endowment with resources such as land, labor, and capital

Economies of Scale

factors that cause a producer's average cost per unit to fall as output rises

First Mover Advantages

advantages accruing to the first to enter a market

Heckscher-Ohlin Theory

The theory that a country will export goods that make intensive use of the factors of production in which it is well endowed

Leontief Paradox

The empirical finding in contrast to the predictions of the Heckscher-Ohlin theory that says US exports are less capital intensive than US imports

Balance-of-Payments Accounts

a summary of the country's transactions with other countries of a certain time period

3 Sections of Balance-of-Payments:

Current account, Capital account, and financial account

Trade deficit

An excess of imports over exports

Trade surplus

when a country exports more than it imports


General Agreement on Tariffs and Trade; international trade organization that encourages free trade by lowering tariffs and other trade restrictions

Milton Friedman

free market economist, Free to Choose

Stakeholder View

1. Shareholders2. Employees3. Suppliers4. Customers5. Community6. Government


A tax on imported goods

Specific Tarrif

levied as a fixed charge for each unit of a good imported

There are seven main instruments used in trade policy with ________ being the oldest and the simplest


7 instruments of trade policy:

1. Tariffs- taxes2. Subsidies3. Import quotas4. Voluntary export restraints5. Local content requirements6. Administrative policies7. Anti-dumping duties

A nation that imposes a fixed charge of $3 per barrel of oil imported into the country is relying on which instrument of trade?

Specific Tariff

One objective of tariffs is to

reduce exports from a sector to ensure sufficient supply

Following the global financial downturn in 2008-2009, some developed nations subsidized automobile makers to help them survive the economic climate. One negative consequence of this action was that

Companies had an unfair advantage in the global industry

Ad Valorem Tariff

a tariff levied as a proportion of the value of an imported good

In some years, the U.S. government has paid wheat farmers an additional 50 cents on every bushel of wheat they sell. This money is an example of a(n)


Import Quota

a limit on the number of products in certain categories that a nation can import

A(n) ________ is in place when a lower tariff rate is applied to imports within the government quota than those over the quota.

Tariff Rate Quota

If a country is experiencing a surge of electronic imports from a trading partner, it might ask that country to set a limit on how much can be exported. This limit is known as a

Voluntary Export Restraint

Local Content Requirements

demands that some specific fraction of a good be produced domestically; benefit domestic producers and jobs but consumers face high prices

One objective of export tariffs is to...

reduce exports from a sector to ensure sufficient supply


Selling goods in another country below market prices

Smoot-Hawley Act

1930 Act that erected a wall of tariff barriers against imports into the US

Multilateral trade agreements


What is a bilateral trade agreement?

a trade agreement between 2+ partners

Countervailing duties

anti-dumping duties; government tariffs to offset suspected subsidies provided by foreign governments to their producers

Administrative Trade Policies

bureaucratic rules designed to make it difficult for imports to enter a country

The ________ theory argues that such advanced nations as the United States have an incentive to develop consumer products and hence such nations tend to produce newer products.

product life-cycle

The country of Globolatvia follows the precept that a country should specialize in producing those goods for which it has an absolute advantage. This is the foundation of ________ theory.

Adam Smith's

Which of the following is an example of an advanced factor, as proposed by Porter, that a nation will possess?

Skilled labor

Ford was the first company to mass-produce cars in the United States. This gave Ford a first-mover advantage, which is:

an economic and strategic advantage that accrues to early entrants into an industry

Infant Industry Argument

An industry should be protected until it can develop and be viable and competitive internationally

zero-sum game

a gain by one country results in a loss in another

Raymon Vernon

created product life-cycle theory; trade patterns reflect a product's life cycle

Paul Krugman's Trade Theory

world market can only support a limited number of firms in some industries; trade will skew toward countries that have firms that are able to capture first mover advantage

FDI occurs when:

invests directly in facilities to produce a product in a foreign country

Which of the following is an example of a greenfield investment?

A Chinese sugar maker sets up a sugar crushing facility in Cuba

The majority of cross-border investment in the developed world is in the form of:

mergers and acquisitions

An Italian car manufacturer purchases a U.S. producer of car tires. This is an example of:


`When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than undertake greenfield investments?

Mergers and Acquisitions are easier to execute than Greenfield Investments


Investment made by a foreign company in the economy of another country

Outflows of FDI

Flow of foreign direct investment out of a country

Advantages of Regional Integration

Increased FDIEconomies of scale are created Increased competition Trade effects Improved market efficiency Increased security

Greenfield Investments

the establishment of a wholly new operation in a foreign country

Brownfield Investments

Investments in infrastructure assets that are already constructed


the legal process whereby a licensor allows another firm to use its manufacturing process, trademarks, patents, trade secrets, or other proprietary knowledge


A market structure in which a few large firms dominate a market

Offshore Production

FDI undertaken to serve the home market

From least integrated to most integrated, the levels of economic integration are a:

free trade area, a customs union, a common market, an economic union, and a political union

Which level of economic integration eliminates trade barriers between member countries and adopts a common external trade policy?

customs union

Which feature of a common market differentiates it from a customs union?

allow factors of production to move freely among members

________ involves the free flow of products and factors of production between member countries, the adoption of a common external trade policy, a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.

Economic union

Which is the most enduring free trade area in the world?

European Free Trade Association (EFTA)

Which feature of an economic union differentiates it from a common market?

a common monetary and fiscal policy

Which of the following is a reason the European Union is considered an imperfect economic union?

Not all members of the union have adopted the euro

________ has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members.

common market

________ entails even closer economic integration and cooperation than a common market.

Economic union

Country X and Country Y reach an agreement to boost bilateral trade. They agree to remove all barriers to the trade of goods and services. They, however, are free to determine their own trade policies with regard to nonmembers. Which level of economic integration is this an example of?

Free Trade Area

Multipoint competition

arises when two or more enterprises encounter each other in different regional markets/industries

Market Imperfections

theory stating that when an imperfection in the market makes a transaction less efficient than it could be, a company will undertake FDI to internalize the transaction/remove the imperfection

Disadvantages of Integration

Regionalism, Loss of Sovereignty, Concessions, Interdependence

Current round of the WTO

Doha Round

How many members/observers are in the WTO?

164 members, 23 observers

Regional Economic Integration

enabled countries to focus on issues that are relevant to their stage of development as well as encourage trade between neighbors

5 Main Types:

Free trade area, Customs union, Common market, Economic union, Political Union

Pros of Creating Regional Agreements

Trade creation, Employment opportunities, Market efficiency, Consensus and cooperation

Cons of Creating Regional Agreements:

Trade diversion, Employment shifts and reductions, Interdependence, Loss of national sovereignty


Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area


North American Free Trade Agreement; allows open trade with US, Mexico, and Canad


An association of English-speaking Caribbean states that are attempting to establish a customs union


Most integrated form of economic cooperation with 23 members

EU Governance

Has its own governing and decision-making institutions

Sectors of EU Governance

European Council, European Commission, European Parliament, Council of the European Union, Court of Justice


Association of Southeast Asian Nations


United Nations. New organization set up after WWII to foster international security and cooperation

Free Trade Area

A group of countries committed to removing all barriers to the free flow of goods and services between each other

Customs Union

eliminates trade barriers between member countries and adopts a common external trade policy

Common Market

a market in which members do away with duties/trade barriers

Economic Union

set a common trade policy against nonmembers and coordinate their economic policies


relationship between FDI and rivalry in oligopolistic industries

3 major reasons for BREXIT

Economics, Loss of Sovereignty, and Political Elitism

What is NAFTA new name