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Chapter 1 (70%)

Question 1
Globalization refers to:
a) A more integrated and interdependent world
b) Less foreign trade and investment
c) Global warming
d) Lower incomes worldwide
Feedback:
Globalization integrates economies and societies of different countries through the links
created by trade, investment, and migration. The links make countries more dependent on
each other.
Page reference: 5, 19

Question 2
Which one of the following is a push factor in emigration?
a) Political freedom
b) Job opportunities in host country
c) Higher incomes in host country
d) War
Feedback:
Conflicts such as civil wars arising from, for example ethnic, tribal, and religious tensions
can be a significant push factor for migrants.
Page reference: 18

Question 3
Which of the following do NOT facilitate globalization?
a) Improvements in communications
b) Barriers to trade and investment
c) Looser immigration controls
d) Removal of controls on movement of capital across borders
Feedback:
Barriers such as tariffs, quotas, and controls on the movement of capital and people hinder
rather than facilitate globalisation.
Page reference: 25-28

Question 4
Which of the following constitutes Foreign Direct Investment?
a) A speculator trying to make a profit by buying company shares on a foreign stock
exchange.
b) A UK energy company buying territory abroad where it expects to find oil reserves.
c) A tourist purchasing foreign currency to spend on a holiday abroad.
d) A company signing an agreement with a wholesaler to distribute its products in foreign
markets.
Feedback:
The energy company will own and control the territory and the oil reserves it contains.
Page reference: 12-17

Question 5
Which of the following could be defined as a multinational company?
a) A firm that owns shares in a foreign company but does not participate in the company's
decision making.
b) A UK based internet package holiday firm specializing in selling tours to Turkey to
German customers.
c) A firm owning a chain of supermarket outlets outside its country of origin.
d) A finance company transferring its HQ and all its activities from the UK to the US.
Feedback:
The supermarket chain owns and controls its foreign outlets, and therefore qualifies as an
MNC.
Page reference: 12, 13

Question 6
Which of the following is a driver of globalization?
a) Trade barriers and controls on inflows of foreign direct investment.
b) Weak competition.
c) Technological advance.
d) Economies of scale are being exploited to the maximum.
Feedback:
Globalization is driven by the removal of barriers to foreign trade and investment.
Page reference: 21-24

Question 7
Globalization is beneficial for firms because:
a) It protects them against foreign competition.
b) It cushions them from the effects of events in other countries.
c) It opens up new market opportunities.
d) It increases the risk and uncertainty of operating in a globalizing world economy.
Feedback:
Globalization involves the removal of barriers to the movement of goods, services, capital,
and people and therefore opens up new market opportunities.
Page reference: 30

Question 8
The internet facilitates globalization by:
a) Making it more difficult to contact potential customers abroad.
b) Cutting the cost for firms of communicating across borders.
c) Making it harder to send money from one country to another.
d) Making it easier for governments to censor the information received by their citizens from
abroad.
Feedback:
The internet offers a cheap and easy way for business to send and receive information across
borders.
Page reference: 23, 24

Question 9
What might western food MNCs encounter when launching operations in Africa or the
Middle East?
a) No language barriers.
b) Customer tastes the same as those of their domestic customers.
c) Corruption.
d) Well-developed road and rail links
Feedback:
Numerous languages are spoken in Africa. While there may be some overlap between
domestic and African consumer tastes, there are also major differences. Many African
countries have poor infrastructure. Corruption is a major problem in Africa.
Page reference: 16,17,27,28, 34, end case study p35

Question 10
Globalization can create problems for business because:
a) It can result in more competition.
b) It reduces vulnerability to political risk and uncertainty when operating abroad.
c) It means that they can increase prices.
d) All of the options given are correct.
Feedback:
by removing protective barriers to trade and investment, globalization opens up markets and
makes firms more vulnerable to competition
Page reference: 30-32
Chapter 2 (20%)
Question 1
Calculating the value of GDP of two countries using the Purchasing Power Parity (PPP)
method involves:
a) Expressing the value of both country's output in US dollars.
b) Finding out what can be bought in each country with a unit of the local currency.
c) Comparing the inflation rates in each country.
d) Taking into account the exchange rate of each country's currency.
Feedback:
The PPP method calculates what each currency unit will buy in terms of goods and services
and then uses the results to work out GDP.So if £1 buys twice as many goods and services in
the UK as a US dollar in the United States, then UK GDP valued at £1000bn by the
conventional method of measurement would be equivalent to a US GDP of $2000bn. The
PPP method avoids the problems created by exchange rates and the fluctuations that can
occur in exchange rates. It also avoids the need to remove the effects of inflation when trying
to get an estimate of real GDP.
Page reference: 40-41

Question 2
Which of the following is included in GDP?
a) The value of goods produced illegally.
b) The value of local government provided social services.
c) The value of volunteer work.
d) The value of housework.
Feedback:
The cost of goods produced illegally adds to the amount of goods and services available for
consumption, but this is part of the unrecorded shadow economy and therefore not included
in GDP.and house workers receive no income and therefore their work, although adding
value, is not recorded in official figures. Local government provided social services add value
and are recorded and therefore this is the correct answer.
Page reference: 42-43

Question 3
It has been estimated that Bolivia has a massive shadow economy equivalent to 66% of
official GDP estimates. On the other hand, the US shadow economy is the equivalent of 8.6%
of GDP. Use the figures for both countries in Table 2.1 on p 42 to work out how the shadow
economy would affect income per capita (PPP) in each country were it to be included in the
official calculations. Do your calculations show:
a) A narrowing of the income gap between Bolivia and the USA in absolute terms?
b) A reduction in the income gap between Bolivia and the USA in relative terms?
c) No change in the income gap between Bolivia and the USA in absolute terms?
d) An increase of the income gap between Bolivia and the USA in relative terms?
Feedback:
Bolivia's GDP per capital (PPP) in 2009 was $US5616 while in the US it was $US54,979, an
absolute difference of $US49363. The average US citizen was about 10 times better off than
the average Bolivian. Increasing the Bolivian figure by 66% and the US figure by 8.6% gives
$US9322 and $US59707 respectively. The absolute gap increases to $US50385 while the
average income of an American is 6.4 times higher than that of a Bolivian.
Page reference: 40-43
Question 4
Fast rates of growth in emerging market economies help international business because:
a) It opens up access to more natural resources.
b) It means that the poorest economies in Africa are growing.
c) It signifies that some markets for goods and services are expanding rapidly.
d) Inflation is on the increase.
Feedback:
Rapid rates of economic growth in emerging economies indicate that their markets are
expanding fast.An emerging market economy is one experiencing rapid economic growth and
industrialization.a few countries in Africa qualify as an emerging economy e.g. Egypt and
Tunisia.Economic growth will increase the demand for natural resources, but that does not
automatically increase access to natural resources.example, there may be laws preventing the
exploitation of natural resources in certain areas e.g. oil in Alaska.growth may, or may not,
cause inflation to rise.
Page reference: 43-46

Question 5
The Chinese economy has been growing very rapidly, and much faster than that of the US.
This means that:
a) Chinese wages are now comparable with those in developed countries.
b) The Chinese economy in 2014 was bigger than the US economy in terms of gross domestic
product.
c) The gross domestic product of the Chinese economy in 2014 in PPP terms was twice the
size of the UK economy.
d) The Chinese market for both capital and consumer goods has become increasingly
attractive to foreign firms.
Feedback:
Economic growth means that incomes in China have been increasing quickly. Expenditures
on investment and consumption have grown, making the Chinese market an attractive
proposition for the foreign producers of capital and consumer goods, and services for that
matter. While wages have risen, Chinese labour remains relatively cheap. Table 2.1 shows
that the US economy in 2014 was larger than the Chinese economy both at current prices and
using the Purchasing Power Parity method. In PPP terms, China's gross domestic product was
nearly six times larger than that of the UK.
Page reference: 40-50

Question 6
What major weakness did Leontieff identify in the Hecksher-Ohlin theory of international
trade?
a) The assumption that resources are distributed unequally between countries.
b) The conclusion that a country will import goods that use resources that are in relatively
short supply in the importing nation.
c) The assumption that resources such as labour are homogeneous.
d) The conclusion that a country will export goods which use resources that are relatively
abundant in the exporting nation.
Feedback:
Leontieff found in his research on the US that while it was rich in capital, itexported
primarily labour-intensive goods and imported capital-intensive goods.
Page reference: 54-56
Question 7
In Porter's Diamond it is argued that a nation will NOT be competitive when:
a) National firms have to face much domestic competition.
b) Domestic customers are very sophisticated.
c) Firms in the supply chain are themselves internationally competitive.
d) There is a shortage of 'created factors'.
Feedback:
Porter argues that a nation's competitiveness will suffer, especially in an environment where
knowledge based industries are becoming increasingly important, if they are not able to
create a highly educated and trained labour force.He claims that competitiveness will be
enhanced when there is fierce rivalry in the domestic market, supply firms are competitive,
and customers sophisticated and demanding.
Page reference: 56-58

Question 8
Which of the following could be the major reason for countries taking steps to protect their
domestic economies from foreign competition in a global recession?
a) To increase imports of raw materials
b) To increase exports of services
c) To reduce the value of their currency on the foreign exchange market
d) To avoid increases in unemployment
Feedback:
In major recessions governments get very sensitive about unemployment in their economies
and will often take steps to prevent it rising.Therefore, despite their rhetoric in support of free
trade, politicians, seeing foreign competition as a threat to domestic jobs, take steps to control
imports.Thus, protectionist measures do not aim to increase imports of raw materials, nor to
increases service exports or to depreciate the value of the currency.
Page reference: 58-60

Question 9
Exchange rates determined purely by the forces of supply and demand are:
a) Fixed exchange rates
b) Floating exchange rates
c) Pegged exchange rates
d) Managed exchange rates
Feedback:
Countries where the exchange rate is determined purely by the forces of supply and demand
for the currency on the foreign exchange markets have floating exchange rates. According to
the IMF, there are 30 such countries (IMF 2013). Here the currency value would be
determined by the requirement to finance imports and exports, the movement of capital
across borders, the country's interest rates relative to others, and the demands of speculators.
All other systems require intervention in the market by the Government to a greater or lesser
extent depending on the preferred system.
Page reference: 63-65

Question 10
Between 2011 and mid-2015, the value of the pound sterling rose by 17% against the euro.
Which of the following most accurately reflects the effects of this on business?
a) German exporters to the UK will reap benefits from movements in the euro against
sterling.
b) Eurozone firms importing from the UK will reap benefits from movements in the pound
against the euro.
c) UK exporters will reap benefits from movements in sterling against the euro.
d) UK importers will have to pay more in pounds for the goods they import from the
Eurozone.
Feedback:
The increase in the value of sterling against the euro makes importing into the UK from the
Eurozone cheaper. Exports from the UK will be more expensive in euro terms. The
depreciation of the euro against the pound will make it cheaper for UK firms to buy goods
and services from Europe.
Page reference: 63-65
Chapter 3 (50%)
Question 1
Which of the following need to be identified when defining a market?
a) Complementary products, government action, geographical boundaries.
b) Rival products, competitor firms, geographical boundaries.
c) Market share, rival products, geographical boundaries.
d) Government action, rival products, geographical boundaries.
Feedback:
Defining a market involves identifying which products are close substitutes, the firms
producing those close substitutes, and the geographical limits of the market. Option a) only
contains one of those elements, geographical boundaries. Options c) and d) both have two of
the relevant elements. However option c) includes market share while d) has government
action which are not relevant to a definition of a market.
Page reference: 73-75

Question 2
Vertically integrated firms:
a) Produce a range of consumer goods.
b) Operate at different stages of production of a product.
c) Produce a range of products for industrial and commercial customers.
d) Assemble a product for sale to the final consumer.
Feedback:
Vertical integration involves firms producing at different stages of production of a product.
Options a) and c) indicate diversification rather than vertical integration. Option d) involves
an operation at only a single stage in the production process.
Page reference: 74-75

Question 3
Which of the following would you expect to have a high cross elasticity of demand for their
goods or services?
a) Firms producing cement for the construction industry.
b) Banks specializing in giving advice on mergers and high street banks.
c) Firms offering telephony services and makers of mobile handsets.
d) All of the options given.
Feedback:
Cross elasticity will be high because construction industry customers will see the cement
produced by the various manufacturers as being virtually homogeneous. Options b) and c) are
incorrect because the banks are offering services that are seen by customers as being
completely different and not in competition; telephony services and mobile handsets are used
together and thus are not competing with each other but are complementary.
Page reference: 74

Question 4
Which of the options best describes an oligopolistic market structure?
a) Many competitors, differentiated products, price as the main form of competition.
b) Many competitors, undifferentiated products, no barriers to entry/free entry and exit.
c) Few competitors, recognized interdependence among firms, firms having a degree of
control over the market.
d) Few competitors, firms having no market control, differentiated products.
Feedback:
Oligopoly is market structure characterized by only a few competitors where firms can
exercise some control over the market e.g. in terms of price or output. In oligopoly, firms
recognize their interdependence i.e. the actions of one firm are likely to provoke a response
from other firms. Option a) better represents the market structure of monopolistic competition
while b corresponds to perfect competition. Option d) does not represent oligopoly because of
the statement that firms have no control over the market.
Page reference: 74-75

Question 5
Market concentration measures:
a) The geographical concentration of firms in an industry.
b) The extent to which firms are able to exercise control over suppliers.
c) The distribution of market power among firms in the market.
d) The degree of control firms have over their competitors.
Feedback:
Market concentration measures the power held by firms in a market. This is reflected, for
example, in their ability to determine price and output. The highest levels of market
concentration are found in monopoly and oligopoly with lower levels being encountered in
conditions of monopolistic and perfect competition. Option a) is concerned solely with the
geographical location of firms while b) and d) are too limited in their portrayal of what is
measured by market concentration.
Page reference: 78-80

Question 6
Which of the following is not a force in the Porter Five Forces model?
a) Buyers
b) Suppliers
c) Complementary products
d) Industry rivalry
Feedback:
The five forces in the Porter model comprise buyers, suppliers, industry rivalry, new entry,
and substitutes. Complementary products are not an element in the model although some
analysts do add that force to the other five when using the model.
Page reference: 85-91

Question 7
Industry rivalry is likely to be more intense when:
a) The market is dominated by one seller.
b) The market is growing very slowly.
c) Fixed costs are low relative to total costs.
d) Firms are selling highly differentiated products.
Feedback:
Porter makes the case that rivalry is likely to be more intense when the growth rate of
demand in the market is slow. Options a) and d) are incorrect because Porter argues that the
smaller the number of firms and the more differentiated the products, the less intense rivalry
is likely to be. Option c) is incorrect because rivalry is likely to be less intense where fixed
costs constitute a small proportion of total costs.
Page reference: 81-84
Question 8
Analysts using Porter's Five Forces model would see which of the
following as substitutes for tourist flights to Western Europe offered by airlines such as BA
or Air France?
a) Flights provided by Lufthansa and Aer Lingus.
b) Flights offered by low cost airlines such as Ryanair and EasyJet.
c) Travel on the Eurostar.
d) Video-conferencing facilities.
Feedback:
Option c) is correct because substitutes are goods or services produced by firms in an
apparently different industry, delivering a similar service to the consumer but in a different
way. The Porter model would classify BA, Air France, Lufthansa, and Aer Lingus to the
same industry as they both offer the same service in the same way i.e. flying tourists from
one airport to another. A similar argument can be made regarding Ryanair and EasyJet.
Tourists want to be physically transported to their holiday destinations so they would not see
option d) video-conferencing as offering them that service.
Page reference: 88

Question 9
According to Porter, suppliers are more able to exercise
bargaining power over buyers when:
a) The supply industry is dominated by a few large firms.
b) The supply industry is populated by a large number of small firms.
c) When buyers have the ability to take over suppliers.
d) There are few buyers in the market.
Feedback:
Porter argues that buyers will have less power where they have to buy from large, dominant
suppliers. Conversely, buyers will have more bargaining power over suppliers when faced by
fragmented supply industries i.e. where there are large numbers of suppliers to choose from
and the level of market concentration is low. The ability to take over suppliers puts buyers in
a stronger bargaining position. Suppliers have less bargaining power where they supply
industries dominated by a few firms.
Page reference: 88-89

Question 10
Potential rivals will not find it difficult to enter a market where:
a) Existing firms have long-term contracts with the biggest customers.
b) Product differentiation is very strong.
c) Existing firms have the ability to retaliate strongly.
d) Economies of scale are insignificant.
Feedback:
Economies of scale arise when an increase in the scale of organization leads to a fall in unit
costs. Large economies of scale can constitute a significant barrier to entry into an industry.
When economies of scale are insignificant, then they will not pose a major barrier to firms
wishing to enter a market.
Page reference: 85-87
Chapter 4 (80%)
-An environment which is increasingly complex and turbulent displays:
a) More orderly competition.
b) A reduced risk of product obsolescence.
c) More predictable demand.
d) Increased speed of innovation.
Feedback:
Decision making becomes more difficult with growing complexity and turbulence in the
environment because there is more disorderly competition, increased risk of product
obsolescence, and much less predictable demand. In order to compete successfully businesses
need to speed up the innovation processes.
Page reference: 101

-Which of the following is NOT a business opportunity generated by globalization?


a) Access to low cost labour.
b) Cheap international transport.
c) Currency crises.
d) Less stringent regulation of the business environment.
Feedback:
Access to cheap labour, transport, and lighter regulation are all potentially beneficial to
international business and therefore opportunities. Currency crises might be an opportunity to
some financiers, but for business in general they increase risk and uncertainty and are
therefore a threat.
Page reference: 103-104

-Strategy involves which of the following:


a) Allocating resources to take advantage of opportunities arising from the organization's
external environment.
b) Determining the long term direction of the organization.
c) Understanding the goals of the organization.
d) All of the above.
Feedback:
The strategic process involves analyzing the resources and capabilities of an organization and
the external environment to take advantage of opportunities and minimize threats in order to
direct the organization to achieve its goals.
Page reference: 108

-Stakeholders can best be defined as:


a) The network of people who come into contact with a business.
b) All the organizations that work with a business.
c) All the suppliers, customers, and employees of a business.
d) Any individual, group, or organization that is affected by or can affect the activities of a
business.
Feedback:
Options a), b), and c) are all examples of stakeholders, but they are only partial answers.
Option d) encompasses the wide range of possible stakeholders with the important criteria of
being affected by or affecting the activities of the business.
Page reference: 108-110
-In stakeholder mapping one with a high level of power but low interest:
a) Should be kept informed.
b) Should be kept satisfied.
c) Is a key player.
d) Requires minimal effort.
Feedback:
Stakeholder mapping classifies stakeholders according to their level of power and level of
interest. Key players are those with both high power and level of interest. One with high
power but low levels of interest should be kept satisfied. Those with low interest and low
power require minimal effort and those with high interest but low power should be kept
informed.
Page reference: 109-110

-An impact analysis helps firms to:


a) Identify the most probable opportunities and threats.
b) Assess the impact of external forces on the business.
c) Assess the ability of the business to deal with these external forces.
d) Prioritize responses to the forces of the external environment.
Firms scan the environment to identify forces which will provide opportunities and threats.
They then have to assess the impact of these forces on the business and the ability of the
business to deal with them. Having undertaken this activity, an impact analysis helps firms to
prioritize their responses by plotting those forces which are most likely to happen against
those with the greatest impact.
Page reference: 110

-Exploring the strategic implications of global warming is best described as:


a) An external environmental analysis.
b) Scenario planning.
c) Futures forecasting.
d) A PESTLE analysis
Feedback:
Futures forecasting refers to attempts to predict what is going to happen in the future. This is
relevant to an external environmental analysis which takes these predictions and identifies
what elements of this future will impact on the business. PESTLE is simply a tool to help
with an external environmental analysis. Scenario planning looks at various alternatives of
the future and identifies possible strategic responses.
Page reference: 113

-PESTLE is an analytical tool which helps to undertake:


a) An internal analysis
b) An external analysis
c) A competitor analysis
d) A strategic analysis
Feedback:
PESTLE is an acronym which stands for political, economic, social, technological, legal, and
environmental, and is a tool to help undertake a macro-environmental analysis. It is an
indicator of the type of issues in the external environment likely to have an impact on
business.
Page reference: 114
-An analysis of the external environment enables a firm to identify:
a) Strengths and opportunities
b) Strengths and weaknesses
c) Weaknesses and threats
d) Opportunities and threats
Feedback:
An external analysis using a tool such as PESTLE refers to the analysis of the organization's
macro-environment, and enables the firm to identify opportunities and threats. Strengths and
weaknesses would be identified from an internal analysis.
Page reference: 101-105

-Raising income taxes would be included in which section(s) of a PESTLE analysis?


a) Social
b) Political and Legal
c) Economic and financial
d) Political, legal, economic and financial, social
Feedback:
PESTLE is simply a tool to indicate the type of issue to look for in the external environment
that might be relevant to the organization. It is the issue that is important and the possible
impact on the organization, not which section it might be in. A case could be made for taxes
being in all these sections, so Political, legal, economic and financial, social is the correct
answer.
Page reference: 115
Chapter 12 (60%)
Question 1
The fundamental cause of the ecological problem is:
a) Exploration for natural resources.
b) The scale and nature of production of goods and services.
c) The Chinese government.
d) Africa.
Feedback:
The fundamental cause is the quantity of goods and services produced and the techniques
used to produce them. While the Chinese government is not a fundamental cause, its
economy has become an important global producer of goods and is the biggest emitter of
carbon dioxide. Exploration for natural resources and countries in Africa are not fundamental
causes.
Page reference: 355

Question 2
The argument that firms polluting the environment should pay the cost of so doing has been
opposed on which of the following grounds?
a) Big firms in rich countries with lots of financial resources will be able to afford to pay,
while firms in poor countries will not.
b) The polluter pays principle reduces the emissions causing the problem in the first place.
c) The polluter pays principle solves climate change.
d) All of the options given.
Feedback:
Opponents see the polluter pays principle as unfairly penalising poor economies as opposed
to richer economies who can afford to pay the environmental charges. They argue that such
charges neither reduce emissions nor solve climate change.
Page reference: 356

Question 3
Which of the following gases is the major contributor to global warming?
a) Methane
b) Hydrogen
c) Nitrogen
d) Carbon Dioxide
Feedback:
The most important greenhouse gases in terms of their contribution to climate change are
carbon dioxide and methane, but carbon dioxide is the most significant.
Page reference: 370

Question 4
Which of the following is an example of a social cost?
a) UK coal-fired power stations creating acid rain that causes deforestation in Norway.
b) A new rail line reducing the number of commuters driving to work.
c) Power stations in China installing carbon capture technology.
d) The EU limits on fish catches.
Feedback:
When power stations burn fossil fuels such as coal, they emit gases causing acid rain that can
damage forests, lakes etc. Rail lines cutting the number of commuters in cars would be an
example of a social benefit, because it would reduce negative externalities such as exhaust
emissions, congestion, and the costs associated with these. Similarly, carbon capture
technology would reduce emissions of carbon dioxide into the atmosphere, while EU limits
on fishing are aimed at preventing certain species of fish from extinction and preserving bio
diversity.
Page reference: 356

Question 5
Which of the following best represents the views of the Right regarding the ecological
problem?
a) Business should not be forced to pay the social costs that it generates.
b) The polluter should pay.
c) There is no trade off between environmental damage and economic growth.
d) Environmentally friendly technologies are the enemy of business.
Feedback:
The Right believes in the polluter pays principle i.e. that business should internalise/pay
social costs of their production activities. It holds to the view that there is a trade off between
growth and environmental damage - restricting environmental damage could reduce
economic growth. It also believes that business, given appropriate incentives, could play an
important role in developing environmentally friendly technologies.
Page reference: 358

Question 6
Why might big multinational energy companies like Exxon be seriously dismayed by
governments passing laws to cut significantly carbon dioxide emissions?
a) Energy consumers would switch from using oil to coal.
b) Energy companies would need to spend more money on lobbying to influence the final
version of the law.
c) Energy company revenues and profits could be threatened.
d) Energy consumers would switch from oil to gas.
Feedback:
Laws cutting carbon emissions significantly could cause a major switch from fossil fuels to
other forms of energy generation. Thus, hitting company revenues and/or causing energy
companies to change their methods of production which could increase costs. Both would
have an adverse effect on profits.
Companies would not need to spend more money trying to influence the law, because it has
already been passed. The big energy companies are usually involved in the production of coal
and gas as well as oil, so any switch to those fuels would not be such a big blow to them. In
addition, coal and gas are carbon based fossil fuels. They would also be affected by the
emissions laws and so would be unlikely to attract energy consumers.
Page reference: 371

Question 7
Which of the following is not a policy used to deal with climate change?
a) Traffic congestion charges.
b) Switching to low carbon technologies.
c) Reducing demand for high emissions-intensive goods and services.
d) Building power stations using fossil fuels.
Feedback:
Building fossil fuel burning power stations would result in a rise in emissions of, for
example, carbon dioxide a major contributor to climate change. All the other options are
policies aimed at reducing emissions of greenhouse gases.
Page reference: 371
Question 8
Which of the following predictions were made in the Stern Review if no measures are taken
to combat global warming?
a) World temperatures will increase by less than 2º in the 22nd century.
b) World output could fall by up to a fifth in the next two hundred years.
c) Even if the annual rate of emissions does not rise, carbon concentration will exceed 6000
parts per million by 2050.
d) All of the options given.
Feedback:
Stern concluded that global output/income could be cut by 5-20% over the coming two
centuries. The Review concluded that that there was a high probability of the rise in global
temperatures exceeding 2º. Were nothing to be done, carbon concentration will rise to 550
parts per million by 2050.
Page reference: 372-373

Question 9
It is argued that it is in the interest of business to protect the environment because:
a) Short term profits will increase.
b) In the long term we are all dead.
c) Current operating costs will fall.
d) Maximizing short term profits endangers long term profits and increases risk.
Feedback:
Investing in production methods that maximise short term profits through depletion of
resources and damage to the environment increases financial risks and endangers future
returns. Adopting initially more costly sustainable production methods is likely to increase
current operating costs and to be at the expense of short term profitability. In the long term
we are not all dead, in the sense that there will be future generations. Therefore, action on the
environment needs to be taken now to protect them.
Page reference: 362

Question 10
Triple bottom line accounting aims to show:
a) The financial profit made by firms.
b) The social impact of firms.
c) The environmental impact of firms.
d) All of the options given.
Feedback:
Triple bottom line accounting aims to show the performance of business in all three areas:
social, environmental, and financial.
Page reference: 362-363
Chapter 6: (50%)
Question 1
Some British and US firms seem to assume that, since English is the international language of
business, their staff can safely ignore foreign languages. This approach could be problematic
where:
a) Prospective foreign customers can not understand English technical or legal terms.
b) Prospective foreign suppliers are fluent in written English but do not speak it very well.
c) English is an official language e.g. in India.
d) All of the options.
Feedback:
Firms could find it difficult to deal effectively with customers who do not understand English
technical terms about the good or service, or legal issues relating e.g. to contracts. Similarly,
problems could arise in verbal understanding of suppliers whose spoken English is poor.
Even in countries like India where English is an official language there could be problems
e.g. similar words with different meanings, words that have fallen out of use in the US and
UK but are still being used in India, words used in communications in English but derived
from other official languages in India.
Page reference: 175-177

Question 2
Hofstede argues that:
a) International firms can easily transfer their ways of working from one country to another.
b) Business does not need to take into account the norms and values of the countries where
they operate.
c) Each country has a single culture.
d) National culture is more influential than organizational culture.
Feedback:
Hofstede concluded from his research that firms can change people's values only to a limited
extent. He found that the norms and values embedded in a national culture are a very
powerful influence in the workplace. Foreign businesses setting up in a new country would
therefore need to take that into account.Page reference: 170-172

Question 3
Different cultures sometimes vary in their attitudes to time. In cultures where people follow
event time:
a) It is important to turn up for meetings on time.
b) Much time is devoted to having a chat over a coffee during the working day.
c) People get irritated if meetings do not start on time.
d) Where an event is running over time, people do not wait for it to finish before moving on
to the next event.
Feedback:
In cultures using event time people at work are likely to spend more time on social activities
like having a cup of coffee. Options a) and c) are incorrect because in such cultures the clock
is not followed, punctuality is not seen as very important and as a result people do not get
irritated when meetings do not start on time. Option d) is incorrect because where an event
like a meeting is running over time people will not leave before the end to ensure that they
are in time for the next event.
Page reference: 170,171
Question 4
In many countries the ratio of older people to total population is rising rapidly. This is
important to business because:
a) It could lead to a falling tax burden.
b) It will increase the supply of labour.
c) It could change the pattern of demand for goods and services.
d) It could increase economic growth.

Feedback:
The increase in the ratio of older people could affect the supply of labour insofar as it reduces
the number of people available for work. It could also change patterns of demand since older
people have different patterns of consumption to younger people. Public expenditure might
have to increase to support the older generation therefore leading to an increased tax burden
for those in work.
Page reference: 179,180

Question 5
Ageing of the population is caused by:
a) Low birth rates.
b) High death rates.
c) The immigration of relatively young workers from other countries.
d) High fertility rates.
Feedback:
Ageing of the population is caused by a combination of low birth rates and, with people
living longer, a fall in death rates. Migrant workers are usually young and this, along with
high fertility rates would lower the average age of the population.
Page reference: 179

Question 6
Organizations such as the ILO consider that the high rates of youth unemployment in many
countries are, to an important degree, due to:
a) Young people being lazy.
b) Young people demanding too high wages.
c) The expansion of the black economy.
d) The global economic crisis and weak recovery of the global economy.
Feedback:
Organizations such as the ILO observe that much of the rise in youth unemployment followed
the onset of the global financial crisis and the weakening of the economic recovery in 2012
and 2013.
Page reference: 188,190

Question 7
The liberal social model holds that:
a) Generous welfare benefits are necessary to protect the poorest in society.
b) The State is best equipped to deal with poverty.
c) Low taxes lead to a more efficient economy.
d) Markets need to be tightly regulated.
Feedback:
Supporters of the liberal model would be unhappy about the State intervention suggested by
options a), b), and d). They favour low taxes because, in their view, high taxes blunt
incentives and adversely affect efficiency.
Page reference: 173

Question 8
The social democratic welfare model holds that:
a) Dialogue between the social partners is not worthwhile.
b) Unemployment is best dealt with through market forces.
c) High levels of public expenditure should be avoided.
d) Governments should actively assist people in finding work.
Feedback:
The model holds that unemployment cannot be left to market forces and that people need
help to find jobs. It believes that dialogue between the social partners is valuable and supports
high levels of public expenditure.
Page reference: 174,175

Question 9
Researchers have found that attitudes to contracts vary from one culture to another. Which of
the following is correct?
a) Western cultures see contracts, once signed, as changeable.
b) Eastern cultures see contracts, once signed, as unchangeable.
c) Western cultures see contracts, once signed, as set in stone.
d) Both Western and Eastern cultures see contracts, once signed, as set in stone.
Eastern business takes a more flexible view of contracts. They are less concerned than their
Western counterparts about sticking rigidly to the terms and conditions in contracts. Western
firms are more inflexible and are unhappy when there are divergences from the contract.
Page reference: 161

Question 10
Hofstede found that some countries, like Germany, have a long-term orientation while others,
like the US, focus on the short term. His results mean that:
a) US business would be happy to invest in nuclear power and space exploration without any
government help.
b) British businesses prefer investments with a quick return.
c) Firms in Brazil shy away from ten year investment projects.
d) Indian business is impatient for a return on its investments.
Feedback:
British and US firms are short-termist in their attitudes to investment projects. They prefer
projects that pay back quickly. German and Brazilian business is prepared to wait longer for a
return on investment.
Page reference: 163
Chapter 7: (80%)
Question 1
Which of the following would not be classified as an innovation advance?
a) A company's R&D facility.
b) The launching of a completely new product.
c) A modification that improves an existing good or service.
d) A major improvement in a production process.
Feedback:
Innovation occurs when firms commercially exploit new knowledge. Examples of innovation
include new product launches, and improvements in existing products and in the production
process. R&D facilities do not, of themselves, classify as innovation but may be the source of
ideas that can be commercially exploited.
Page reference: 201,202

Question 2
Tacit knowledge is:
a) Knowledge that can be written down.
b) Lost when employees leave the firm.
c) Easily transferable from one employee to another.
d) Not important to the business.
Feedback:
Tacit knowledge is carried about in the heads of employees and is lost when they leave the
firm. It is not Codifiable and can be very important for a business e.g. in creative industries
such as music, theatre, and design.
Page reference: 201

Question 3
Which of the following can be seen as part of a commercial firm's intellectual property?
a) Scientists employed by a pharmaceutical company.
b) A technological breakthrough at a state funded university.
c) Expenditure on R&D.
d) A brand name such as Coke.
Feedback:
A brand name like Coke is a very important element of the company's intellectual property.
Scientists are employees who may produce ideas which then become part of the firm's
intellectual property.
Page reference: 215

Question 4
When looking for new ideas to exploit commercially, multinationals:
a) Depend exclusively on their own R&D efforts.
b) Always set up partnerships with university research laboratories.
c) May collaborate with rivals, suppliers, or customers.
d) Spend large sums of money on R&D.
Feedback:
Multinationals do not usually depend on a single source for ideas. Nor do they always spend
large sums on R&D. Often they look at both internal sources, such as their R&D departments
or their employees, and externally at rivals, suppliers, or customers.
Page reference: 210- 212
Question 5
Which of the following are likely to be the most active innovators?
a) A small retailer in India.
b) A medium-sized Spanish textile firm.
c) A large Chinese producer of smartphones.
d) A large Brazilian mining company.
Feedback:
The most active innovators are most likely to be large manufacturing firms, most commonly
in developed economies. However, large ICT companies like Huawei in China spend large
sums on R&D compared with rivals such as Apple (see end of chapter case study).
Page reference: 200, 201,226

Question 6
Technological advance does not:
a) Allow firms to bring new goods and services to the market.
b) Make it possible to freeze competitors out of the market place.
c) Increase productivity.
d) Guarantee that business will be successful.
Feedback:
Technological advance involves new knowledge which firms may be able to turn into new
goods, services, and production processes. It may also allow firms who have had their
product specifications accepted as the standard for the industry, to freeze out rivals. New
production processes can lead to productivity increases.
Page reference: 215-218

Question 7
China raises a problem for Western firms trying to protect their intellectual property rights
(IPRs) because of:
a) The high cost of taking out patents.
b) The failure by the Chinese authorities to enforce the law on IPRs.
c) The high cost of pursuing infringers of IPRs through the Chinese courts compared with the
US.
d) The hostile attitude of the Communist Party to Western firms.
Feedback:
The Chinese authorities do not have a good record of enforcing the law on intellectual
property rights. The cost of registering patents is relatively low in China. The pursuit of those
who infringe IPRs is much higher in the US than in China. China, a Communist state, has
encouraged Western firms to invest there.
Page reference: 214-216

Question 8
Information and communications technology (ICT) means that international firms:
a) Can monitor their employees more closely.
b) Find it more difficult to control remote foreign subsidiaries.
c) Do not need to redesign jobs.
d) Face increasing production costs.
Feedback:
ICT gives firms the possibility of monitoring more closely the behaviour and performance of
their employees e.g. as illustrated in call centres where technology can monitor the number
and length of calls, what is said, and the outcomes. ICT makes it easier, cheaper, and quicker
to exercise control foreign subsidiaries e.g. in terms of monitoring performance, instructing
them to change prices or production. The increasing use of ICT can force firms to redesign
jobs in order to stay competitive. ICT is usually associated with reductions in production
costs e.g. in newspaper production.
Page reference: 215-220

Question 9
The development of the Cloud can result in:
a) Small firms finding it more difficult to communicate with large numbers of customers.
b) Big multinationals facing more competition from small and medium-sized rivals.
c) Multinationals focussing solely on competing with their large established rivals.
d) An increase in a small firm's expenditure on IT personnel and infrastructure.
Feedback:
The Cloud allows business to use software on the internet to store its data. Small and
medium-sized firms therefore can spend less on IT software, infrastructure, and associated
personnel. The Cloud gives SMEs access to similar IT services as big MNCs and this, along
with reductions in IT costs, should make it somewhat easier for them to compete.
Page reference: 207

Question 10
Schumpeter's concept of creative destruction involves:
a) Firms competing in perfectly competitive markets.
b) Oligopolists competing through innovation.
c) Firms competing solely on price.
d) Firms holding a permanent monopoly of the market.
Feedback:
Schumpeter argued that a major source of competition took place through the creative
process of innovation. In his eyes innovation could not just eat into profits and market shares
but could lead to the destruction of whole industries. This contrasts with the view of orthodox
economists who saw price as the main tool in competitive markets.
Page reference: 219
Chapter 8: (70%)
Question 1
Which of the following statements best describe systems of liberal democracy?
a) Liberal democratic political systems only occur in highly industrialized societies.
b) The same political party holds power continuously in liberal democratic regimes.
c) Liberal democratic governments prevent their citizens from travelling abroad.
d) Liberal democratic governments protect basic civil liberties.
Feedback:
Civil liberties are the rights held by citizens of a country. In liberal democracies citizens have
rights such as freedom of speech, freedom of association e.g. to join a trade union, freedom to
choose their political representatives.
Page reference: 235-,237

Question 2
In which political system does one person or a small group of people hold absolute power?
a) Liberal democratic systems
b) Authoritarian systems
c) Theocratic systems
d) Federal systems
Feedback:
Absolute power is held by one person or a small group of people in authoritarian regimes,
one example being Saudi Arabia. There, the family of Saud holds political power relatively
unrestrained by other institutions of the state. When the head of state gives up the position or
dies, another member of the ruling family takes over.
Page reference: 237

Question 3
Which of the following are important for business in influencing government bodies in
China?
a) Lobbying.
b) Bribery.
c) Guanxi.
d) All of the options above.
Feedback:
Research by Holtbrugge and Berg, and by Kennedy identified lobbying, bribery, PR,
sponsorship, and guanxi as being important elements in influencing central and provincial
governments in China.
Page reference: 256

Question 4
Why are governments often reluctant to embark on policies that would adversely affect big
hi-tech MNCs? Is it because these MNCs could:
a) Cut employment by moving existing productive capacity abroad. .
b) Locate new investment projects elsewhere.
c) Transfer R&D facilities abroad.
d) All of the options above.
Feedback:
Governments usually wish to have high levels of employment, and, in particular, jobs
requiring high skills and paying good wages and salaries. To that end they wish to see their
economies with a healthy growth rate in productive capacity. They see hi-tech investment in
productive capacity and R&D as crucial in helping them achieve their economic objectives.
Page reference: 252,253

Question 5
In countries with a federal system of government like the US, firms wanting public contracts:
a) Only ever need to negotiate with one department of central government to get a contract.
b) May have to persuade decision makers at different levels of the federation to award them
contracts.
c) Can always adopt the same approach to selling as they do when dealing with a unitary
system of government.
d) Only have to deal with sub-national government agencies to get contracts.
Feedback:
In federal systems the responsibility for making decisions is shared between the national and
sub national government institutions. Thus, in the US, the authority to make decisions is
shared between the national and the 50 state governments. The national government has the
authority to make decisions regarding the protection of the country against external threats. A
consequence of this is that it makes the decisions about which defence equipment is
purchased. So a firm supplying arms would concentrate its efforts on the national government
in the capital, Washington. On the other hand, the states are responsible for decisions around
transport and infrastructure. Firms involved in those sectors would need to focus on decision
makers at state level to win contracts.
Page reference: 230

Question 6
What role does the executive branch play in liberal democracies?
a) It passes the laws affecting business.
b) It puts laws and regulations into effect and ensures that the desired outcomes are achieved.
c) It interprets and applies the law to business.
d) It imprisons business executives who break the law.
Feedback:
The executive branch puts the laws into effect and ensures the desired outcomes. It also gives
policy advice to government ministers. This branch includes administrative bodies, such as
the civil service in the UK, the European Commission in the EU, and regulatory agencies,
such as the Federal Trade Commission which protects US consumers or the Kartellamt which
is the competition authority in Germany.
Page reference: 225

Question 7
China is described as 'one-nation two-systems' because:
a) Liberal democracy and communism operate side by side in mainland China.
b) Communism and authoritarianism operate side by side in China.
c) Hong Kong operates with more freedoms and democracy than mainland China.
d) Theocracy and communism operate side by side in Hong Kong.
Feedback:
When the British colony of Hong Kong was handed back to China in 1997, the Chinese
agreed to greater freedoms and democracy there. Such democracy and freedoms do not
prevail in mainland China which operates under a communist regime.
Page reference: 238,239
Question 8
Big multinational pharmaceutical firms try to exercise influence over the policy decisions
made by government departments and regulatory agencies. Which of the following does not
reflect how the companies try to exercise their influence?
a) Lobbying political representatives in the legislative branch.
b) Ignoring their regulatory agencies.
c) Promising to increase their investment in R&D.
d) Threatening to cut off the supply of important drugs.
Feedback:
Pharmaceutical firms do not ignore regulatory agencies. They usually spend much time and
effort trying to influence the decisions made by them e.g. to get approval for the use of their
drugs. The firms also go in for lobbying and may, at times, use threat or promises to achieve
their desired outcome.
Page reference: 242-247

Question 9
The State performs various functions, many of which are important for international business.
Which of the following functions, performed by the State, would be the most important for
firms like Boeing and Airbus?
a) Passing laws on urban transport.
b) Increasing spending on renewable energy.
c) As a customer.
d) As a supplier of electricity.
Feedback:
State agencies such as Defence Departments are very important customers for companies
selling aircraft and other aerospace and defence equipment. The other functions specified in
the question are of lesser importance to Boeing and Airbus.
Page reference: 235-241

Question 10
Tax rates on profits have been falling. Select one of the reasons below that help explain why
governments are doing this.
a) To cut company production costs.
b) To reduce government borrowing.
c) To reduce budget deficits.
d) To retain and attract investment by multinational companies.
Feedback:
Governments have reduced taxation on companies to ensure that those already operating in
their countries continue to invest there and also to attract foreign direct investment from
multinational companies. Tax liabilities do not form part of a company's production costs so
tax cuts do not affect those costs. These tax cuts are more likely to increase the budget deficit
and government borrowing, especially if governments wish to maintain or increase their
public expenditure.
Page reference: 242-244
Chapter 11: (40%)
Question 1
Which of the following statements best describes corporate social responsibility?
a) A corporation's requirement to make as much profit as possible.
b) A corporation's obligation to society that goes beyond the requirements of the law and
economics to take into account the social and environmental impact of its decisions.
c) A corporation's obligation to consider the impact of its decisions on the environment.
d) The duty of care a corporation has to its employees and customers.
Feedback:
Answers c) and d) are incorrect because, while they are true, they are only a part of the wider
obligation of CSR reflected in the correct answer, b). Answer a) is incorrect because it
reflects the narrow view of free market economists, such as Friedman, that business should
concentrate on maximizing profit.
Page reference: 325-333

Question 2
Which of the following pairs would fit the principal/agent relationship?
a) Manager/owner
b) Shareholder/customer
c) Manager/shareholder
d) Shareholder/manager
Feedback:
Managers are employed as the agents of the principals (the owners or shareholders) and are
assumed to work in their interest. Therefore the correct answer is d).
Page reference: 326

Question 3
Which of the following arguments was NOT put forward by Friedman in his criticism of the
idea of CSR?
a) Managers are not experts in social welfare or in dealing with environmental problems.
b) Managers are the agents of the owners and should act in their best interest.
c) Corporations have responsibilities.
d) Using funds for purposes other than profit maximization would be undemocratic.
Feedback:
Option c) is the correct answer because, in Friedman's view, this is untrue. Friedman argued
that only people were capable of having responsibilities. He did argue that managers are
agents of the owners (shareholders) and that they should concentrate on doing what they were
best at, i.e. making business decisions. He also argued that as managers were not elected,
spending business funds to solve society's problems would be undemocratic.
Page reference: 325-328

Question 4
'Enlightened Shareholder Value' or 'enlightened self-interest' refers to which of the
following?
a) The pursuit of short term profit maximization to increase the value of shares.
b) The pursuit of short term profit maximization to increase dividends.
c) That stakeholder engagement reduces profits.
d) The idea that CSR can help companies increase their profits and therefore dividends and
share value.
Feedback:
The idea that taking account of all stakeholders rather than focusing on short term profit
maximization makes good business sense and leads to increased profits. It avoids possible
negative publicity which may arise from a failure to address all stakeholder concerns and has
a positive impact on employees, customers, and all other stakeholders.
Page reference: 329-333

Question 5
The moral case for CSR, i.e. that it is the right thing to do, is justified by which of the
following arguments?
a) That the corporation is a creation of society and should therefore serve its needs.
b) That the corporation is a legal creation and therefore cannot be a moral agent.
c) Large corporations do not have the power or resources to address society's problems.
d) Business decisions will have social and environmental consequences which will be
addressed by governments.
Feedback:
The moral case for CSR endows the corporation with 'personhood', and therefore citizenship,
and argues that a good corporate citizen has the same responsibilities as any other citizen.
Corporations are created by society and are 'artificial persons', but nevertheless can act like an
individual and therefore act as a moral agent to serve the needs of society. Corporations do
have enormous power and command over resources and, rather than leave problems to
government, should use these to address society's problems, not least because they have
caused many of them.
Page reference: 328-329

Question 6
Which of the following form part of the business case for CSR?
a) Better motivated staff reduce operating costs.
b) Increased brand value and reputation.
c) Organizational growth
d) All of the options given.
Feedback:
Options a), b) and c) are just three of the benefits which sustainability Ltd. put forward as
part of the business case for CSR.
Page reference: 332-333

Question 7
Cultural relativism could be described as;
a) Adopting a universal set of principles wherever business operates.
b) 'When in Rome do as the Romans do'
c) Taking an ethnocentric approach to business decision making.
d) An approach which recognizes country differences, but because there are so many
differences adopts home country standards wherever they operate.
Feedback:
A business taking a cultural relativist approach recognizes country differences and tries to
accommodate them in decision making. A company adopting home country standards
wherever it operates is taking an ethnocentric approach to decision making.
Page reference: 334-336

Question 8
Which of the following is NOT a true statement in highlighting problems associated with
bribery and corruption?
a) It adds substantially to the cost of doing business.
b) It can undermine the democratic process.
c) It may divert resources away from public service projects such as schools and hospitals.
d) It is commonly accepted and just another feature of a properly working market economy
Feedback:
The correct answer here is d) as bribery and corruption undermine the proper workings of a
market economy. It distorts price and cost considerations so that resources are not necessarily
used in the most efficient way. Decisions are based on who pays the biggest bribe rather than
price, quality, service, and innovation.
Page reference: 338-339

Question 9
Which of the following reasons for child work is a 'pull' factor?
a) Poverty
b) Cheap labour
c) Lack of educational opportunities
d) Family breakdown
Feedback:
Reasons for child work are generally classified into 'push' (demand) and 'pull' factors.
Poverty, lack of educational opportunities, family breakdown, and cultural practices tend to
push children into work, whereas cheap labour, obedience, skills, inadequate laws, and poor
infrastructure lead to employers pulling children into work.
Page reference: 343-344

Question 10
Which of the following is NOT a millennium development goal?
a) The eradication of extreme poverty and hunger.
b) Universal primary and secondary education.
c) Gender equality and empowerment of women.
d) Reducing the child mortality rate.
Feedback:
In 2000, 189 members of the United Nations adopted the eight MDGs aimed at the alleviation
of world poverty and general development with a target date of 2015 for most of them.
Option b) is the correct answer because the goal only refers to primary education. Including
secondary education as well would have been overly ambitious.
Page reference: 344-346