ECO 305 Week 7 Quiz – Strayer
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Quiz 6 Chapter 9
INTERNATIONAL FACTOR MOVEMENTS
AND MULTINATIONAL ENTERPRISES
MULTIPLE CHOICE
1. "Risk
spreading" is a motive most likely to be served when firms undergo:
a. Horizontal integration
b. Vertical integration
c. Conglomerate integration
d. None of the above
2. The
source (home) location of most of the world's leading multinational enterprises
is:
a. North America and Europe
b. North America and Asia
c. Europe and South America
d. Europe and Asia
3. Which
type of multinational diversification occurs when the parent firm establishes
foreign subsidiaries to produce intermediate goods going into the production of
finished goods?
a. Forward vertical integration
b. Backward vertical integration
c. Forward horizontal integration
d. Backward horizontal integration
4. Suppose
that an American automobile manufacturer establishes foreign subsidiaries to
market the automobiles. This practice is referred to as:
a. Forward vertical integration
b. Forward conglomerate integration
c. Backward vertical integration
d. Backward conglomerate integration
5. Suppose
that a steel manufacturer headquartered in Japan sets up a subsidiary in Canada
to produce steel. This practice is referred to as:
a. Conglomerate integration
b. Forward vertical integration
c. Backward vertical integration
d. Horizontal integration
6. During
the 1970s, American oil companies acquired nonenergy companies (e.g., copper,
auto components) in response to anticipated decreases in investment
opportunities in oil. This type of diversification is referred to as:
a. Horizontal integration
b. Conglomerate integration
c. Forward vertical integration
d. Backward vertical integration
7. Which
of the following best refers to the outright construction or purchase abroad of
productive facilities, such as manufacturing plants, by domestic residents?
a. Direct investment
b. Portfolio investment
c. Short-term capital investment
d. Long-term capital investment
8. In
recent years, the largest amount of U.S. direct investment abroad has occurred
in:
a. Central America
b. South America
c. Europe
d. Japan
9. In
recent years, most foreign direct investment in the United States has come
from:
a. Western Europe
b. Central America
c. South America
d. Asia
10. Most
U.S. direct investment abroad occurs in:
a. Communications
b. Petroleum
c. Finance and insurance
d. Manufacturing
11. Most
foreign direct investment in the United States occurs in:
a. Public utilities
b. Communications
c. Manufacturing
d. Mining and smelting
12. Which
of the following is not a significant motive for the formation of multinational
enterprises?
a. Avoiding tariffs by obtaining foreign
manufacturing facilities
b. Obtaining the benefits from overseas
comparative advantages
c. The acquisition of natural resource
supply sources
d. Subsidies granted by the home
government to overseas corporations
13. Suppose
General Motors charges its Mexican subsidiary $1 million for auto assembly
equipment that could be purchased on the open market for $800,000. This practice
is best referred to as:
a. International dumping
b. Cost-plus pricing
c. Transfer pricing
d. Technological transfer
14. Multinational
enterprises may provide benefits to their source (home) countries because they
may:
a. Secure raw materials for the source
country
b. Shift source country technology
overseas via licensing
c. Export products which reflect
source-country comparative disadvantage
d. Result in lower wages for
source-country workers
15. Trade
analysis involving multinational enterprises differs from our conventional
trade analysis in that multinational enterprise analysis emphasizes:
a. Absolute cost differentials rather than
comparative cost differentials
b. The international movement of factor
inputs rather than finished goods
c. Purely competitive markets rather than
imperfectly competitive markets
d. Portfolio investments rather than
direct foreign investments
16. Direct
foreign investment has taken all of the following forms except:
a. Investors buying bonds of an existing
firm overseas
b. The creation of a wholly owned business
enterprise overseas
c. The takeover of an existing company
overseas
d. The construction of a manufacturing
plant overseas
17. Which
of the following would best explain why foreign direct investment might be
attracted to the United States?
a. U.S. price ceilings that hold down the
price of energy
b. U.S. wage rates exceeding the
productivity of U.S. labor
c. Artificially high prices being charged
for the stock of U.S. firms
d. Anticipations of future reductions in
U.S. tariff levels
18. Both
Coca-Cola Co. and Pepsi-Cola Co. are multinational firms in that their soft
drinks are bottled throughout the world. This practice illustrates:
a. Backward vertical integration
b. Forward vertical integration
c. Horizontal integration
d. Conglomerate integration
19. The
market power effect of an international joint venture can lead to welfare
losses for the domestic economy unless offset by cost reductions. Which type of
cost reduction would not lead to offsetting welfare gains for the overall
economy?
a. R&D generating improved technology
b. Development of more productive
machinery
c. New work rules promoting worker
efficiency
d. Lower wages extracted from workers
20. All
of the following are potential advantages of an international joint venture
except:
a. Sharing research and development costs
among corporations
b. Forestalling protectionism against
imports
c. Establishing work rules promoting
higher labor productivity
d. Operating at diseconomy-of-scale output
levels
21. Which
term best describes the New United Motor Manufacturing Co.?
a. Multinational enterprise
b. International joint venture
c. Multilateral contract
d. International commodity agreement
22. Multinational
enterprises:
a. Increase the transfer of technology
between nations
b. Make it harder for nations to foster
activities of comparative advantage
c. Always enjoy political harmony in
nations where their subsidiaries operate
d. Require governmental subsidies in order
to conduct worldwide operations
23. Firms
undertake multinational operations in order to:
a. Hire low-wage workers
b. Manufacture in nations they have
difficulty exporting to
c. Obtain necessary factor inputs
d. All of the above
24. Multinational
enterprises face problems since they:
a. Cannot benefit from the advantages of
comparative advantage
b. May raise political problems in
countries where their subsidiaries operate
c. Can invest only at home, but not
overseas
d. Can invest only overseas, but not at
home
25. American
labor unions have recently maintained that U.S. multinational enterprises have
been:
a. Exporting American jobs by investing
overseas
b. Exporting American jobs by keeping
investment in the United States
c. Importing cheap foreign workers by
shifting U.S. investment overseas
d. Importing cheap foreign workers by
keeping U.S. investment at home
26. American
labor unions accuse U.S. multinational firms of all of the following except:
that such firms
a. Enjoy unfair advantages in taxation
b. Export jobs by shifting technology
overseas
c. Export jobs by shifting investment
overseas
d. Operate at output levels where scale
economies occur
27. Which
of the following refers to the price charged for products sold to a subsidiary
of a multinational enterprise by another subsidiary in another nation?
a. Transfer pricing
b. International dumping
c. Price discrimination
d. Full-cost pricing
28. Which
business device involves the creation of a new business by two or more
companies, often for a limited period of time?
a. Multinational enterprise
b. International joint venture
c. Horizontal merger
d. Vertical merger
29. International
joint ventures can lead to welfare losses when the newly established firm:
a. Adds to the preexistent productive
capacity
b. Enters markets neither parent could
have entered individually
c. Yields cost reductions unavailable to
parent firms
d. Gives rise to increased amounts of
market power
30. Multinational
enterprises:
a. Always produce primary goods
b. Always produce manufactured goods
c. Produce primary goods or manufactured
goods
d. None of the above
Figure
9.1 illustrates the market conditions facing Sony Company and American Company
initially operating as competitors in the domestic ball bearing market. Each
firm realizes constant long-run costs, MC0=AC0.
Figure
9.1. International Joint Venture
31. Consider
Figure 9.1. With Sony Company and American Company behaving as competitors, the
equilibrium price and output respectively equal:
a. $4 and 2 units
b. $4 and 4 units
c. $6 and 2 units
d. $6 and 4 units
32. Consider
Figure 9.1. At the equilibrium price, domestic households attain ____ of
consumer surplus:
a. $4
b. $8
c. $12
d. $16
33. Consider
Figure 9.1. Suppose that Sony Company and American Company jointly form a new
firm, Venture Company, whose ball bearings replace the output sold by the
parents in the domestic market. Assuming that Venture Company operates as a
monopoly and that its costs equal MC0=AC0, the firm's price, output, and total
profit would respectively equal:
a. $6, 2 units, $4
b. $4, 2 units, $2
c. $6, 4 units, $4
d. $4, 4 units, $2
34. Consider
Figure 9.1. Compared to the market equilibrium position achieved by Sony
Company and American Company as competitors, Venture Company as a monopoly
leads to a deadweight loss of consumer surplus of:
a. $2
b. $4
c. $6
d. $8
35. Consider
Figure 9.1. Assume Venture Company's formation yields new cost reductions, indicated
by MC1=AC1, which result from technological advances. Realizing that Venture
Company results in a deadweight loss of consumer surplus, the net effect of
Venture Company's formation on the welfare of the domestic economy is:
a. No change
b. Gain of $2
c. Gain of $4
d. Loss of $2
36. Consider
Figure 9.1. Assume Venture Company's formation yields new cost reductions,
indicated by MC1=AC1, which result from wage concessions accepted by Venture
Company employees. The net effect of Venture Company's formation on the welfare
of the domestic economy is:
a. No change
b. Gain of $2
c. Loss of $2
d. Loss of $4
37. Consider
Figure 9.1. Assume Venture Company's formation yields new cost reductions,
indicated by MC1=AC1, which result from changes in work rules by Venture
Company employees that led to higher worker productivity. The net effect of
Venture Company's formation on the welfare of the domestic economy is:
a. No change
b. Gain of $2
c. Gain of $4
d. Loss of $2
Figure
9.2 represents the U.S. labor market. Assume that labor and capital are the
only factors of production. Also assume the initial supply schedule of labor is
denoted by S0 and consists entirely of native U.S. workers. The demand schedule
of labor is denoted by D0.
Figure
9.2. U.S. Labor Market
38. Consider
Figure 9.2, at labor market equilibrium, workers are hired at a wage rate of
$____ per hour, while total wages equal ____.
a. 2, $12, $24
b. 2, $12, $36
c. 3, $9, $27
d. 3, $9, $36
39. Consider
Figure 9.2. At labor market equilibrium, the payment to U.S. capital owners
equals:
a. $3
b. $6
c. $9
d. $12
40. Consider
Figure 9.2. If Mexican migration to the United States results in the labor
force increasing to 3 workers, denoted by schedule S1, the:
a. Wage rate for native U.S. workers
decreases and the payments to U.S. capital owners increases
b. Wage rate for native U.S. workers
decreases and the payments to U.S. capital owners decreases
c. Wage rate for native U.S. workers
increases and the payments to U.S. capital owners increases
d. Wage rate for native U.S. workers
increases and the payments to U.S. capital owners decreases
41. Consider
Figure 9.2. As the result of the Mexican migration to the United States:
a. U.S. capital owners lose
b. Native U.S. workers lose
c. U.S. capital owners and native U.S.
workers lose
d. U.S. capital owners and native U.S.
workers gain
42. Consider
Figure 9.2. Policies that permit Mexican workers to freely migrate to the
United States would likely be resisted by:
a. U.S. capital owners
b. Native U.S. workers
c. U.S. capital owners and native U.S.
workers
d. Neither U.S. capital owners nor native
U.S. workers
43. ____
refers to highly educated and skilled people who migrate from poor developing
countries to wealthy industrial countries.
a. Direct investment
b. Portfolio investment
c. Transfer pricing
d. Brain drain
44. "Guest
worker" programs generally result in temporary migration of workers from:
a. Wealthy nations to wealthy nations
b. Wealthy nations to impoverished nations
c. Impoverished nations to wealthy nations
d. Impoverished nations to impoverished
nations
45. Mexico's
____ refer to an assemblage of U.S.-owned companies that use U.S.-owned parts
and Mexican assembly to manufacture goods that are exported to the United
States.
a. Multinational corporations
b. International joint ventures
c. Maquiladoras
d. Transplants
46. Critics
of U.S. trade and immigration policy maintain that
a. It has depressed wages for many
Americans
b. It has increased the supply of less
educated workers in the United States
c. It has an adverse impact on the
employment opportunities of less-skilled, American workers
d. All of the above
47. American
critics of U.S. multinational enterprises contend that they promote
a. Runaway jobs
b. Technology transfers abroad
c. Tax evasion
d. All of the above
48. Joint
ventures may lead to
a. Welfare increases
b. Welfare decreases
c. No changes in welfare
d. All of the above
49. Foreign
direct investment typically occurs when
a. The earnings of the parent company are
invested in plant expansion overseas
b. The parent company transfers jobs
overseas
c. The parent company closes its foreign
production plants
d. The parent company purchases bonds of
foreign governments
TRUE/FALSE
1. International
trade in goods and services and flows of productive factors are substitutes for
each other.
2. Most
multinational corporations have a low ratio of foreign sales to total sales,
usually 5 percent or less.
3. Vertical
integration occurs if a parent multinational corporation establishes foreign
subsidiaries to produce intermediate goods or inputs that go into the
production of a finished good.
4. Exxon
Oil Co. would undertake forward vertical integration if its retailing division
acquired oil wells in the Middle East.
5. Forward
vertical integration would occur if a U.S. automobile manufacturer acquired a
German subsidiary.
6. Most
vertical foreign investment, as implemented by multinational corporations, is
"forward" in nature rather than "backward."
7. Horizontal
integration would occur if General Motors sets up a subsidiary in Mexico to
produce automobiles identical to those that it produces in the United States.
8. Multinational
corporations sometimes locate manufacturing subsidiaries abroad to avoid tariff
barriers which would place their products at a competitive disadvantage in a
foreign country.
9. Foreign
direct investment would occur if Mobile Inc. of the United States acquired
sufficient common stock in a foreign oil company to assume voting control.
10. Foreign
direct investment would occur if Microsoft Inc. of the United States purchased
securities of the French government.
11. Conglomerate
integration would occur if General Motors Inc. of the United States acquired a
controlling interest in a British chemical company.
12. Both
economic theory and empirical studies support the notion that foreign direct
investment is conducted in anticipation of future profits.
13. Multinational
corporations often locate manufacturing operations abroad in order to take
advantage of foreign resource endowments or wage scales.
14. If
the size of the Canadian market is large enough to permit efficient production
in Canada, a U.S. firm would profit by establishing a Canadian manufacturing
subsidiary or licensing rights to a Canadian firm to manufacture and sell its
product in Canada.
15. There
is virtually universal agreement among economists that foreign direct
investment in the United States has reduced the economic welfare of the average
U.S. citizen.
16. Foreign-owned
companies in the United States operate under more strict antitrust,
environmental, and other regulations than U.S.-owned companies.
17. During
the 1980s and 1990s, Japanese auto firms established manufacturing facilities
in the United States known as "transplants."
18. By
establishing transplant factories in the United States, Japanese automakers
were able to avoid export restrictions imposed by the Japanese government, but
not import restrictions imposed by the U.S. government.
19. Mergers
differ from joint ventures in that they involve the creation of a new business
firm, rather than the union of two existing companies.
20. Developing
countries, such as Mexico and India, often close their borders to foreign
companies unless they are willing to take on partner companies in developing
countries.
21. In
natural-resource oriented industries, such as oil and copper, joint ventures
have often been formed by several companies since the cost of
resource-extraction may be prohibitively large for a particular company.
22. International
joint ventures tend to yield a welfare increasing market-power effect and a
welfare decreasing cost-reduction effect.
23. A
joint venture leads to increases in national welfare if the cost-reduction
effect is due to wage concessions and if it more than offsets the market-power
effect.
24. A
joint venture leads to increases in national welfare if its cost-reduction
effect is due to productivity gains and if it more than offsets the
market-power effect.
25. Joint
ventures lead to losses in national welfare when the newly established business
adds to pre-existing production capacity and fosters additional competition.
26. Joint
ventures lead to national welfare gains if the newly established business
yields productivity increases that would have been unavailable if each parent
performed the same function separately.
27. A
joint venture along two large competing companies tends to yield a market-power
effect, which results in a reduction in consumer surplus, that is not offset by
a corresponding gain to producers.
28. If
a joint venture among competing firms is able to cut costs by extracting wage
concessions from domestic workers, national welfare increases.
29. Critics
of multinational corporations maintain that they often abandon domestic workers
in order to take advantage of lower wage scales abroad.
30. The
theory of multinational enterprise is totally inconsistent with the principle
of comparative advantage.
31. Due
to transfer-pricing problems, multinational corporations must shift profits
away from countries with low corporate tax rates to high tax-rate countries,
thus absorbing a larger tax bite.
32. Maquiladoras
refer to an assemblage of U.S.-owned companies that combine Mexican parts and
U.S. assembly to manufacture goods that are exported to Mexico.
33. Opposition
to Mexico's maquiladoras has come from U.S. labor unions which claim that
maquiladoras have resulted in job losses for U.S. workers.
34. As
workers migrate from low-wage Mexico to high-wage United States, wages tend to
rise in Mexico and fall in the United States.
35. The
migration of workers from Mexico to the United States tends to exert downward
pressure on the wages of native U.S. workers that compete against Mexican
workers for jobs.
36. The
effect of workers migrating from low-wage Mexico to high-wage United States is
to redistribute income from capital to labor in the United States and from
labor to capital in Mexico.
37. In
the United States, labor unions have generally resisted efforts to implement
restrictions on the number of foreigners allowed into the country.
38. Developing
countries have sometimes feared open immigration policies of developed
countries on the grounds that highly educated and skilled people may emigrate
to the developed countries, thus limiting the growth potential of the
developing countries.
39. The
United States has discouraged the "brain drain" problem by permitting
the immigration of unskilled workers while restricting the immigration of
skilled persons.
40. Labor
migration tends to increase output and decrease wages in the country of
immigration while decreasing output and increasing wages in the country of
emigration.
SHORT ANSWER
1. What
are the typical ways in which multinational enterprises have diversified their
operations?
2. What
are Mexican maquiladoras?
ESSAY
1. Are
there any differences between the theory of multinational enterprises and
conventional trade theory?
2. What
are the disadvantages of forming joint ventures?
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