International Business and Trades

Chapter 1: TEN PRINCIPLES OF services for present and future consumption.

ECONOMICS
How people make decisions? Principle #1: People Face Trade-offs.
Economy People face trade-offs.
- Greek word for “one who manages a The cost of something is what you give up to get “There is no such thing as a free lunch!”
household.” it - opportunity cost.
Rational people think at the margin cost. To get one thing, we usually have to give up
A household and an economy face many People respond to incentives. another thing.
decisions: Example: Food vs. Clothing
Who will work? How people interact with each other.
What goods and how many of them should be Trade Note: Making decisions requires trading-off
produced? - can make everyone better off. one goal against another.
What resources should be used in production? Markets Efficiency
At what price should the goods be sold? - are usually a good way to organize economic -means society gets the most that it can from its
activity. scarce resources.
Society and Scarce Resources: Governments
The management of society’s resources is - can sometimes improve economic outcomes. Equity
important because resources are scarce. - impose price control (price floorwage and price - means the benefits of those resources are
ceiling) distributed fairly among the members of society.
Scarcity
- means that society has limited resources and The forces and trends that affect how the Principle #2: The Cost of Something Is What
therefore cannot produce all the goods and economy as a whole works. You Give Up to Get It.
services people wish to have.
- to live wit your means, expand your means The standard of living depends on a country’s Decisions require comparing costs and benefits
production. - increasing GDP of alternatives.
Economics Example:
- is the study of how society manages its scarce Prices rise when the government prints too Whether to go to college or to work?
resources. much money. - Inflation Whether to study or go out on a date?
- is a Social science concerned with the way Whether to go to class or sleep in?
society chooses to employ its limited resources Society faces a short-run trade-off between
which have alternative uses to produce goods inflation and unemployment. - inflation Opportunity cost
and - is what you give up to obtain that item.
 International Business and Trades
- interdepence (disadvantages)
Principle #8: The Standard of Living Depends
Marginal changes Principle #6: Markets Are Usually a Good on a Country’s Production.
- are small, incremental adjustments to an Way to Organize Economic Activity.
existing plan of action. • Standard of living may be measured in different
Market economy ways:
Note: People make decisions by comparing - is an economy that allocates resources through • By comparing personal incomes.
costs and benefits at the margin. the decentralized decisions of many firms and • By comparing the total market value of a
households as they interact in markets for goods nation’s production.
Principle #4: People Respond to Incentives. and services. • Almost all variations in living standards are
• Households decide what to buy and who to explained by differences in countries’
Marginal changes in costs or benefits motivate work for. productivities.
people to respond. • Firms decide who to hire and what to produce.
Productivity
The decision to choose one alternative over Principle #7: Governments Can Sometimes - is the amount of goods and services produced
another occurs when that alternative’s Improve Market Outcomes. from each hour of a worker’s time.
marginal benefits exceed its marginal costs!
Market failure Principle #9: Government Prices Rise When
Principle #5: Trade Can Make Everyone - occurs when the market fails to allocate the Prints Too Much Money.
Better Off. resources efficiently.
- When the market fails (breaks down) Inflation
People government can intervene to promote efficiency - is an increase in the overall level of prices in
- gain from their ability to trade with one and equity. the economy.
another. - One cause of inflation is the growth in the
Market failure may be caused by quantity of money.
Competition • an externality, which is the impact of one - When the government creates large quantities
- results in gains from trading. person or firm’s actions on the well-being of a of money, the value of the money falls.
bystander.
Trade • market power, which is the ability of a single
- allows people to specialize (choose) in what person or firm to unduly influence market prices.
they do best.
- more options.
 International Business and Trades

Principle #10: Society Faces a Short-run Macroenvironment (external) Customers

Trade-off Between Inflation and - larger societal forces that affect the whole - five types markets that purchase of a
Unemployment. microenvironment. company’s goods and a services.

The Phillips Curve illustrates the trade-off The Microenvironment Customer’s Market
between inflation and unemployment:
Forces Affecting Company’s Ability to
⇩Inflation ⇨ ⇧Unemployment It’s a short-run Serve Customers
tradeoff! Company or Company’s Internal
Environment
Trade Barriers - functional areas such as top management,
finance, and manufacturing, etc.
Tariff
- type of tax on imports/exports. Publics
- any group that perceives itself having an
Quota interest in a company’s ability to achieve its
- fee ⇨tax objectives. Macroenvironment

Chapter 3: Marketing Environment Suppliers Forces that Shape Economic Opportunities

- provide the resources needed to produce goods and Pose Threats to a Company
Marketing Environment and services.
- All the actors and forces influencing the Demographic
company’s ability to transact business effectively Competitors - monitors population in terms of age, sex, race,
with it’s target market. - those who serve a target market with similar occupation, location and other statistics.
products and services.
Two Environments Cultural
Intermediaries or Marketing Intermediaries -forces that affect a society’s basic values,
Microenvironment (internal) - help the company to promote, sell, and perceptions, preferences, and behaviors.
- forces close to the company that affect its distribute its goods to final buyers.
ability to serve its customers. Political
 International Business and Trades
-laws, agencies and groups that influence or limit a marketing mix to meet the need of that group, - Live in a period of transition—bridging
marketing actions. resulting in mutually satisfying exchanges between being a kid and being a teenager
- Important for marketing managers in order to Teens spend a lot of time using media
plan for the future - Many teens pass technology down to their
Natural parents
- natural resources needed as inputs by marketers Social change - They command an immense amount of buying
or that are affected by marketing activities. - is the most difficult external variable for power
marketing managers to forecast, influence, or
Technological integrate into marketing plans. Generation Z
= forces that create new product and market - people born between 1995 and 2010
opportunities. American Values - Have never known a world without social
America’s core values have strongly influenced media or smartphones
Economic Americans’ attitudes and lifestyles - embraces multiculturalism as a touchstone of
- factors that affect consumer buying power and who they are
patterns. Component lifestyles - Have high product and service quality
- the practice of choosing goods and services that expectations
Responding to the Marketing Environment meet one’s diverse needs and interests rather
Environmental Management Perspective than conforming to a single, traditional lifestyle Millennials
- Increase the complexity of consumers’ buying - people born between 1979 and 1994
Taking a proactive approach to managing the habits Are currently in two stages:
microenvironment and the macroenvironment to - People born in 1994 have entered young
affect changes that are favorable for the Social media adulthood
company. How? Hire lobbyists , run - are web-based technology for creating and - People born in 1979 have established careers
“advertorials”, file law suits and complaints, and exchanging content and have started families
form agreements. - are more idealistic and eager to please
Demography - Exposed to digital world from childhood
Chapter 4 - the study of people’s vital statistics, such as
The External Marketing Environment age, race and ethnicity, and location Generation X
- People are the basis for any market - people born between 1965 and 1978
Target market - Independent, resilient, and adaptable
- a group of people or organizations for which an Tweens (10-13) - Saving money is a major priority
organization designs, implements, and maintains
 International Business and Trades
- Most plan to keep working during their - Over time, basic research often leads to a) utility
retirement years innovations in the marketplace b) abstract
- Many support their aging parents c) market
- Place a high value on education and knowledge d) incentive
Purchasing power 4. If people want more cars than there are cars
- a comparison of income versus the relative cost Applied research available, then it must be true that
of a standard set of goods and services in - research that attempts to develop new or a) there is a decreased supply of cars.
different geographic areas improved products b) there is a surplus of cars.
- Also known as the cost of living c) none of the above
Quiz d) cars are scarce.
Recession 5. Because producers are better able to organize
- a period of economic activity characterized by 1. Economists believe that people's wants are than consumers are, we would expect there to be
negative growth, which reduces demand for a finite political pressure to create
goods and services b infinite a. free trade
- Also defined as occurring when the gross c irrational b. import restrictions
domestic product falls for two consecutive d unimportant because needs are more important c. export restrictions
quarters than wants d. none of the above
2. Which of the following statements about trade 6. Scarcity means
Gross domestic product (GDP) is true? a. wants are limited.
- is the total market value of all final goods and a. Trade can benefit everyone in society because b. wants are greater than the limited
services produced during a period of time it allows people to specialize in activities in resources available to satisfy these wants.
which they have an absolute advantage. c. resources are infinite.
Inflation b. Unrestricted international trade benefits every d. wants are less than the limited resources
- a measure of the decrease in the value of person in a country equally. available to satisfy these wants.
money, expressed as the percentage reduction in c. Trade can benefit everyone in society 7. A rational person does not act unless
value since the previous year because it allows people to specialize in a. action is ethical
activities in which they have a comparative b. the action produces marginal costs that exceed
Basic research advantage. marginal benefits
- pure research that aims to confirm an existing d. People that are skilled at all activities cannot c. the action produces marginal benefits that
theory or to learn more about a concept or benefit from trade. exceed marginal costs.
phenomenon 3. Something that motivates or encourages d. Consumers will gain and producers will lose.
people to take an action is referred to as a(n)
 International Business and Trades
8. Decision making “at the margin" means c. makes the members of a country more equal. d. a comparative disadvantage in the production
making choice based on __________ of a d. increases the scarcity of resources. of the good.
decision. e. is none of the above. 15. When economists say, "There is no such
a. The total benefits 12. Which of the following statements about thing as a free lunch," they mean that all
b. The total costs trade is false? economic decisions involve trade-offs. (T or F)
c. Comparing the total benefits and costs a. an import quota that restricts imports to -T
d. Comparing the additional benefits and the same degree as a tariff raises more 16. Rational people act only when the marginal
costs government revenue than the equivalent benefit of the action exceeds the marginal cost.
9. If free trade is allowed, a country will export a tariff. (T or F) - T
good if the world price is? b. opponents of free trade often argue that free 17. A tax on alcoholic drinks raises the price of
a. below the before-trade domestic price of the trade destroys domestic jobs. alcoholic drinks and provides an incentive for
good. c. if a foreign country subsidizes its export consumers to drink more. (T or F) - F
b. above the before-trade domestic price of the industries, its tax payers are paying to improve 18. An unintended consequence of public support
good. the welfare of consumers in the importing for higher education is that low tuition provides
c. equal to the before-trade domestic price of the countries. an incentive for many people to attend state
good. d. all statements are true universities even if they have no desire to learn
d. none of the above. 13. If it is discovered that using drugs enhances a anything. (T or F) - T
10. Since people respond to incentives, we would person's chance of contracting a lethal disease, 19. High and persistent inflation is caused by
expect that, if the average salary of accountants the cost of using drugs excessive growth in the quantity of money in the
increases by 50% while the average salary of a. increases economy. (T or F) - T
teachers increases by 20%: b. decreases 20. In the short run, a reduction in inflation tends
a. Fewer students will attend college c. is not affected. to cause a reduction in unemployment. (T or F)
b. Students will shift majors from accounting to d. is irrelevant, since they are illegal anyway. -F
education. 14. If the world price for a good exceeds the 21. Self-sufficiency is the best way to increase
c. Students will shift majors from education to before-trade domestic price for a good, then that one's material welfare. (T or F) - F
accounting. country must have? 22. If trade benefits one country, its trading
d. None of the above. a. an absolute advantage in the production of the partner must be worse off due to trade. (T or F) -
11. In engaging Foreign trade good. F
a. allows a country to have a greater variety of b. an absolute disadvantage in the production of 23. When a country removes a specific import
products at a lower cost than if it tried to the good. restriction, it always benefits every worker in
produce everything at home. c. a comparative advantage in the production that country. (T or F) - F
b. allows a country to avoid trade-offs. of the good.
 International Business and Trades
24. If gains from trade are based solely on
comparative advantage, and if all countries have
the same opportunity costs of production, then
there are no gains from trade. (T or F) - T
25. If the world price for a good exceeds the
before-trade domestic price for that good, the
country should import that good. (T or F) - F
26. Countries should import products for which
they have a comparative advantage in
production. (T or F) - F
27. If free trade is allowed and a country imports
wheat, domestic buyers of bread are better off
and domestic farmers are worse off when
compared to the before-trade domestic
equilibrium. (T or F) - T
28. If free trade is allowed and a country exports
a good, the gains of domestic producers exceed
the losses of domestic consumers and total
surplus rises. (T or F) - T
29. Trade can make everyone better off if the
winners from the trade compensate the losers
form trade. (T or F) - T