Questions and Answers of International Financial Reporting And Analysis

9. Many countries have value-added taxes—taxes that are paid by producers, but are intended to fall on consumers. (They’re basically just an indirect way of imposing sales taxes.) Such
8. “The fundamental problem with any attempt to limit climate change is that the countries whose growth poses the greatest threat to the planet are also the countries that can least afford to pay
7. France, in addition to its occasional stabs at strategic trade policy, pursues an active nationalist cultural policy that promotes French art, music, fashion, cuisine, and so on. This may be
6. What is the main critique against the WTO with respect to environmental protection?How does the WTO justify its position on trade disputes that involve environmental issues?
5. Suppose the European Commission asked you to develop a brief on behalf of subsidizing European development of software for smartphones—bearing in mind that this industry is currently dominated
4. Why do strategic trade policies normally attract trade retaliation actions from other countries? Examine a case-study of your choice and analyze its implication.
2. Globalization has often attracted a lot of criticism, especially from emerging countries. Taking the analysis made in this chapter into consideration, state your conclusions.
1. What are the main arguments in favor of an interventionist trade policy? Provide one example of each.
5. What is export-led growth and why is it so popular? Make an example by referring to the Asian miracle.
4. India and Mexico both followed import-substitution policies after World War II.However, India went much further, producing almost everything for itself, while Mexico continued to rely on imports
3. A country currently imports automobiles at $8,000 each. Its government believes that, given time, domestic producers could manufacture autos for only $6,000 but that there would be an initial
2. “Japan’s experience makes the infant industry case for protection better than any theory. In the early 1950s, Japan was a poor nation that survived by exporting textiles and toys. The Japanese
1. Two trade theories have been historically prevalent among developing countries, one being import-substituting industrialization and the other is export-led growth. Which one proved to be more
■■ Discuss the recent economic history of the Asian countries, such as China and India, and detail the relationship between their rapid economic growth and their participation in international
■■ Recapitulate the case for protectionism as it has been historically practiced in developing countries and discuss import-substitution-led industrialization and the “infant industry”
9. One argument against free trade is the terms of trade—since an export subsidy worsens the terms, it has to be conceived as a negative one, a tax paid by foreigners.However, the optimum export
8. Free trade is a precise political choice, with arguments for and against it. One of them includes providing incentives to companies to internationalize themselves and export to new countries, thus
7. What is a rent-seeking decision and how is it applied in practice?
6. “There is no point in the United States complaining about trade policies in Japan and Europe. Each country has a right to do whatever is in its own best interest. Instead of complaining about
5. Upon Poland’s entering the European Union, suppose it is discovered that the cost of automobile production in Poland is :20,000 while it is :30,000 in Germany. Suppose the EU, which has a
4. Suppose demand and supply are exactly as described in problem 3, but there is no marginal social benefit to production. However, for political reasons the government counts a dollar’s worth of
3. A small country can import a good at a world price of 10 per unit. The domestic supply curve of the good is S = 20 + 10P The demand curve is D = 400 - 5P In addition, each unit of production
2. Which of the following are potentially valid arguments for tariffs or export subsidies, and which are not? Explain your answers.a. “The more oil the United States imports, the higher the price
1. According to the WTO and its MFN principle, all preferential tariffs granted to a member have to be extended to all others. However, there are exceptions to this rule; and this is where all
10. Suppose Brazil—the largest producer of sugar—provides 20 percent export subsidy to sugar companies. By what extent would the domestic prices and the terms of trade be affected in Brazil? If
9. The nation of Acirema is “small” and unable to affect world prices. It imports peanuts at the price of $10 per bag. The demand curve is D = 400 - 10P.The supply curve is S = 50 + 5P.Determine
8. Use your knowledge about trade policy to evaluate each of the following statements:a. “An excellent way to reduce unemployment is to enact tariffs on imported goods.”b. “Tariffs have a more
7. Return to the example of problem 2. Starting from free trade, assume that Foreign offers exporters a subsidy of 0.5 per unit. Calculate the effects on the price in each country and on welfare,
6. In a world having two nations, the imposition of tariff adversely affects the import and export of the country that imposes tariff—evaluate. How would the imposition of protective tariff by the
5. The recent growth in Chinese industries has enabled them to follow the dumping and anti-dumping activities in the international market. Elucidate how dumping and anti-dumping would affect the
4. Suppose Foreign had been a much larger country, with domestic demand D* = 800 - 200P, S* = 400 + 200P.(Notice that this implies the Foreign price of wheat in the absence of trade would have been
2. Now add Foreign, which has a demand curve D* = 80 - 20P and a supply curve S* = 40 + 20P.a. Derive and graph Foreign’s export supply curve and find the price of wheat that would prevail in
1. Home’s demand curve for wheat is D = 100 - 20P.Its supply curve is S = 20 + 20P.Derive and graph Home’s import demand schedule. What would the price of wheat be in the absence of trade?
■■ Recognize the effect of voluntary export restraints (VERs) on both importing and exporting countries, and describe how the welfare effects of these VERs compare with tariff and quota policies.
10. Consider the example of industries in the previous problem. What would those choices imply for the extent of intra-firm trade across industries? That is, in what industries would a greater
9. Most firms in the apparel and footwear industries choose to outsource production to countries where labor is abundant (primarily, Southeast Asia and the Caribbean)—but those firms do not
8. Sometimes a company, instead of investing directly in a country, chooses alternatives.Provide an example of substitutes for horizontal and vertical FDI and motivations for such choices.
7. FDI’s, according to their typology, can be divided into (1) horizontal and vertical;(2) inward and outward; (3) portfolio investments and Greenfield. Classify the following cases according to
6. Which of the following are direct foreign investments?a. A Saudi businessman buys $10 million of IBM stock.b. The same businessman buys a New York apartment building.c. A French company merges
5. In the chapter, we described a situation where dumping occurs between two symmetric countries. Briefly describe how things would change if the two countries had different sizes.a. How would the
4. Go back to the model with firm performance differences in a single integrated market (pages 206–207). Now assume a new technology becomes available. Any firm can adopt the new technology, but
3. Suppose that fixed costs for a firm in the automobile industry (start-up costs of factories, capital equipment, and so on) are $5 billion and that variable costs are equal to $17,000 per finished
2. Suppose the two countries we considered in the numerical example on pages 198–202 were to integrate their automobile market with a third country, which has an annual market for 3.75 million
1. Why do firms prefer being price setters over price takers, even in the absence of monopoly? Explain with an example.
■■ Explain why firms that engage in the global economy (exporters, outsourcers, multinationals) are substantially larger and perform better than firms that do not interact with foreign markets.
9. Which of the following goods or services would be most likely to be subject to(1) external economies of scale and (2) dynamic increasing returns? Explain your answers.a. Software tech-support
8. In our discussion of labor market pooling, we stressed the advantages of having two firms in the same location: If one firm is expanding while the other is contracting, it’s to the advantage of
7. Is it always true that trade increases the welfare of a nation? Under what circumstances would the concentration of industries in one country leave another country worse off when trade resumes
6. It is fairly common for an industrial cluster to break up and for production to move to locations with lower wages when the technology of the industry is no longer rapidly improving—when it is
5. Consider two countries—India and Japan—facing a forward falling supply curve.Both produce two commodities—cloth and radios. India, a labor surplus country, produces cloth using cheap labor.
4. Evaluate the relative importance of economies of scale and comparative advantage in causing the following:a. Most of the world’s aluminum is smelted in Norway or Canada.b. Half of the world’s
3. Give two examples of products that are traded on international markets for which there are dynamic increasing returns. In each of your examples, show how innovation and learning-by-doing are
2. It is often argued that local knowledge spillover is more feasible for firms existing in clusters. The difficulty in transferring the knowledge lies in the distance.Explain with reference to the
1. For each of the following examples, explain whether it is a case of external or internal economies of scale:a. A number of firms doing contract research for the drug industry are concentrated in
12. Which of the following countries would you expect to have intertemporal production possibilities biased toward current consumption goods, and which biased toward future consumption goods?a. A
11. In a trade-off between current and future consumption, discuss how real interest rates affect the relative price of future consumption.
10. “In a two country and a two commodity world, an imposition of home country’s import tariff increases its terms of trade and export subsidy reduces its terms of trade”—explain. If an
9. From an economic point of view, India and China are somewhat similar: Both are huge, low-wage countries, probably with similar patterns of comparative advantage, which until recently were
8. Economic growth is just as likely to worsen a country’s terms of trade as it is to improve them. Why, then, do most economists regard immiserizing growth, where growth actually hurts the growing
7. Countries A and B have two factors of production, capital and labor, with which they produce two goods, X and Y. Technology is the same in the two countries.X is capital-intensive; A is
6. The Internet has allowed for increased trade in services such as programming and technical support, a development that has lowered the prices of such services relative to those of manufactured
5. Japan primarily exports manufactured goods, while importing raw materials such as food and oil. Analyze the impact on Japan’s terms of trade of the following events:a. A war in the Middle East
4. The counterpart to immobile factors on the supply side would be lack of substitution on the demand side. Imagine an economy where consumers always buy goods in rigid proportions—for example, one
3. Imagine the world having two countries producing wheat and cloth, with no difference in preferences across the two countries. If the home country—exporting cloth—experiences a growth strongly
2. In the trade scenario in problem 1, due to overfishing, Norway becomes unable to catch the quantity of fish that it could in previous years. This change causes both a reduction in the potential
1. Suppose Indonesia and China are trading partners. Indonesia initially exports palm oil to and imports lubricants from China. Using the standard trade model, explain how an increase in the relative
■■ Understand how the components of the standard trade model, production possibilities frontiers, isovalue lines, and indifference curves fit together to illustrate how trade patterns are
7. Will free trade and perfect competition lead to an equalization of wage rate internationally?Explain. Why would the wage rate greatly vary between developed and developing countries, in the same
6. Explain why the Leontief paradox and the more recent Bowen, Leamer, and Sveikauskas results reported in the text contradict the factor-proportions theory.
5. Recently, computer programmers in developing countries such as India have begun doing work formerly done in the United States. This shift has undoubtedly led to substantial pay cuts for some
3. “The world’s poorest countries cannot find anything to export. There is no resource that is abundant—certainly not capital or land, and in small poor nations not even labor is abundant.”
2. Suppose in the year 2013, Australia had a population of 45 million and its capital stock is US $90,000 million, and the corresponding figure for Malaysia is 30 million and US $75,000 million.
7. A country produces two crops—paddy and wheat. Given the price of paddy (Pp)and wheat (Pw), the relationship of labor allocation is shown as MPLp * Pp =MPLw * Pw = w, where MPLp and MPLw are
6. Using the numerical example in problem 5, assume now that Foreign limits immigration so that only 2 workers can move there from Home. Calculate how the movement of these two workers affects the
5. In Home and Foreign, there are two factors each of production, land, and labor used to produce only one good. The land supply in each country and the technology of production are exactly the same.
4. Consider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2 (with labor and land) according to the production functions described in problems 2 and 3. Initially,
3. The marginal product of labor curves corresponding to the production functions in problem 2 are as follows:Workers Employed MPL in Sector 1 MPL in Sector 2 10 1.51 1.59 20 1.14 1.05 30 1.00 .82 40
2. An economy can produce good 1 using labor and capital and good 2 using labor and land. The total supply of labor is 100 units. Given the supply of capital, the outputs of the two goods depend on
1. A country opts for free trade while some workers remain unemployed in the import-competing sector. Why? Given real wage rate in Thailand is higher than Bangladesh, how would international trade
10. We have focused on the case of trade involving only two countries. Suppose that there are many countries capable of producing two goods, and that each country has only one factor of production,
9. International immobility of resources is compensated by the international flow of goods—justify.
8. Anyone who has visited Japan knows it is an incredibly expensive place; although Japanese workers earn about the same as their U.S. counterparts, the purchasing power of their incomes is about
7. Japanese labor productivity is roughly the same as that of the United States in the manufacturing sector (higher in some industries, lower in others), while the United States is still considerably
6. “Chinese workers earn only $.75 an hour; if we allow China to export as much as it likes, our workers will be forced down to the same level. You can’t import a $10 shirt without importing the
5. Suppose Mike and Johnson produce two products—hamburgers and T-shirts. Mike produces 10 hamburgers or 3 T-shirts a day and Johnson produces 7 hamburgers or 4 T-shirts. Assuming they can devote
4. Suppose an hour’s labor produces 10 kg of rice and 5 meter of cloth in India, and 5 kg and 2 meter in Thailand. Using opportunity costs, explain which country will export cloth and which will
3. Now suppose world relative demand takes the following form: Demand for apples/demand for bananas = price of bananas>price of apples.a. Graph the relative demand curve along with the relative
1. Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2.a. Graph Home’s
5. A century ago, most British imports came from relatively distant locations: North America, Latin America, and Asia. Today, most British imports come from other European countries. How does this
4. Over the past few decades, East Asian economies have increased their share of world GDP. Similarly, intra–East Asian trade—that is, trade among East Asian nations—has grown as a share of
2. The gravity model is often used to not only explain trade between two countries, but also to investigate the reasons why they don’t. Illustrate this anomaly with suitable examples and reasons.
1. Explain why Canada and South Korea are similar in terms of population and GDP but differ in trade—the US arguably Canada’s largest trading partner, whilst Korea divides 60 percent of its
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The following are selected accounts of the Laura Gibson Company on December 31:Normal Permanent (P) Balance or Temporary (T) (Dr.) or (Cr.)Cash _______________ ____________ Accounts Receivable
Required Answer the following multiple-choice questions:a. The balance sheet equation can be defined as which of the following?1. Assets + Stockholders’ Equity = Liabilities 2. Assets + Liabilities

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