Quiz On International Business: Trivia!

McDonald's, KFC, and Subway are examples of international franchising. International franchising is a mode of entry where a company grants the rights to another party to operate its business in a foreign market using its brand, products, and business model. The franchisor provides support, training, and guidelines to the franchisee, who pays fees or royalties in return. This allows the franchisor to expand its business globally while minimizing financial risk and maintaining control over its brand and operations.

The theory of "absolute advantage" best describes a situation where there are two countries, A and B, and potentially two goods, X and Y, that can be traded. Country A is better at producing X and country B is better at producing Y. If country A specializes in producing X and country B specializes in producing Y, and they trade together, both countries will benefit. This theory emphasizes the importance of countries focusing on producing goods in which they have a comparative advantage and engaging in trade to maximize overall gains.

NAFTA, which stands for the North American Free Trade Agreement, is an example of a Free Trade Agreement (FTA). An FTA is a trade agreement between two or more countries that eliminates or reduces tariffs, quotas, and other trade barriers, allowing for the free flow of goods and services between the participating countries. In the case of NAFTA, it was an agreement between Canada, Mexico, and the United States, aimed at promoting economic integration and facilitating trade among these countries by eliminating trade barriers.

A cross license is a reciprocal licensing agreement in which intangible property is transferred between two parties. This means that both parties involved in the agreement grant each other the rights to use their respective intellectual property. It allows both parties to benefit from each other's patents, copyrights, or other intangible assets, while still maintaining their own exclusive rights. This type of agreement is commonly used in industries where multiple companies hold valuable intellectual property and want to avoid legal disputes or infringement claims.

The factor endowment theory is not considered a 'modern' trade theory because it was developed in the early 20th century by economists such as Eli Heckscher and Bertil Ohlin. This theory suggests that countries specialize in producing and exporting goods that utilize their abundant factors of production, such as land, labor, and capital. While it is still relevant in understanding trade patterns, it predates the more recent theories like the product life cycle theory and the national competitive advantage (diamond model), which emerged in the latter half of the 20th century.

Porter's Diamond Model is a framework used to analyze the competitive advantage of nations. It includes four determinants: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. The correct answer, "Industry strategy, structure, and rivalry," is related to the competitive dynamics within an industry, rather than the determinants of national competitive advantage. This factor is more commonly associated with Porter's Five Forces framework, which analyzes the competitive forces within a specific industry.

The factor endowment theory suggests that national resource endowments are the foundation for comparative advantages in international trade. This means that countries with abundant resources, such as natural resources or skilled labor, have a competitive advantage in producing certain goods or services. This theory explains why countries specialize in producing and exporting certain products that they have a comparative advantage in, based on their resource endowments. By focusing on their strengths and trading with other countries, nations can benefit from the efficiency gains and increased productivity that come from specialization and trade.

A common currency is not a feature of a common or single market. A common or single market refers to a situation where there are no internal trade barriers, meaning goods, services, and capital can move freely between countries within the market. It also typically involves a common external tariff, which means that member countries impose the same tariffs on goods from outside the market. Factor and asset mobility is another feature, allowing for the free movement of labor, capital, and other factors of production. However, a common currency, such as the Euro in the European Union, is not a necessary feature of a common or single market.

The Leontief paradox refers to the observation that despite the United States being a capital-abundant country, its exports were found to be labor-intensive while its imports were capital-intensive. This contradicted the predictions of the Heckscher-Ohlin theory, which suggests that a country will export goods that use its abundant factor of production and import goods that use its scarce factor of production. The paradox highlighted the complexity of international trade patterns and raised questions about the validity of the Heckscher-Ohlin theory.

The New Trade Theory suggests that consumers benefit from the increased variety of products available through trade. This theory argues that countries can specialize in producing certain goods and trade them with other countries, leading to a wider range of products for consumers. This increased variety allows consumers to have access to goods that may not be available domestically or may be too expensive to produce domestically. Therefore, one of the implications of the New Trade Theory is that consumers gain from the increased variety of products.