What are costs to home countries of foreign direct investment (FDI)? (Choose TWO.)
Correct Answer: A,D
According toGlobal Economics for Managers, foreign direct investment (FDI) can generate substantial benefits for both home and host countries, but it may also impose certain costs on thehome country, particularly in the short to medium term. Two commonly identified costs arejob lossandcapital outflow, making options A and D correct. Job lossmay occur when firms shift production facilities, service operations, or manufacturing plants from the home country to foreign locations. This relocation is often driven by lower labor costs, proximity to emerging markets, or favorable regulatory environments abroad. While such decisions may increase firm profitability and global competitiveness, they can lead to unemployment or downward wage pressure in specific domestic industries.Global Economics for Managersemphasizes that these adjustment costs are often concentrated in particular regions or sectors, even if the national economy benefits in the long run. Capital outflowrefers to the movement of financial resources from the home country to finance investment abroad. When domestic firms invest overseas, funds that could have been used for domestic investment are instead allocated to foreign operations. In the short run, this may reduce domestic capital formation and slow economic growth, particularly if domestic investment opportunities remain underfunded. The remaining options are less consistent with standard managerial economics analysis. Reduced standard of living is not a direct or inevitable consequence of FDI and often depends on broader macroeconomic conditions. Cultural disintegration is a sociological concern rather than an economic cost emphasized in managerial economics. Loss of sovereignty is typically associated with host countries rather than home countries. Loss of intellectual property may occur in certain cases but is not a primary or systematic cost identified for home countries in FDI theory. Thus, job loss and capital outflow best represent the principal costs to home countries highlighted inGlobal Economics for Managers.
Question 17
What is an example of goods that tend to have negative cross-price elasticities?
Correct Answer: C
InGlobal Economics for Managers,complementary goodshavenegative cross-price elasticity, making option C correct. When the price of one good rises, demand for its complement falls. Examples include cars and gasoline or printers and ink. Substitutes have positive cross-price elasticity. Inferior and luxury goods relate to income elasticity, not cross- price elasticity. Thus, option C is correct.
Question 18
An import tariff is implemented on apples. What is the effect on domestic government revenue?
Correct Answer: C
InGlobal Economics for Managers, animport tariffgeneratesgovernment revenue, making option C correct. A tariff is a tax on imported goods. When apples are imported and subject to a tariff, the government collects revenue equal to the tariff rate multiplied by the quantity imported. Although the quantity of imports usually declines after a tariff is imposed, the government still earns revenue on remaining imports. This revenue comes at the expense of consumers, who face higher prices, and contributes to deadweight loss. However, from the government's perspective, tariff revenue increases. Thus, option C is correct.
Question 19
Which quantity is calculated using the formula variable costs (VC) + fixed costs (FC)?
Correct Answer: C
InGlobal Economics for Managers,total cost (TC)is defined as the sum offixed costs (FC)andvariable costs (VC), making option C correct. The formula is: TC = FC + VC Fixed costs do not change with output in the short run, such as rent or license fees, while variable costs change with the level of production, such as labor or raw materials. Total cost captures the full economic cost of producing a given level of output. Option A, implicit cost, refers to opportunity costs without direct monetary payment. Option B, explicit cost, includes direct monetary expenditures but does not represent the total cost formula. Option D, average variable cost, is calculated as VC divided by quantity produced. Understanding total cost is essential for profit maximization and production decisions. Therefore, option C is correct.
Question 20
Which statements concerning property rights are true? (Choose TWO.)
Correct Answer: C,F
InGlobal Economics for Managers, property rights are fundamental to economic development and global competitiveness, making optionsC and Fthe correct answers. Option F correctly definesproperty rightsas the legal rights governing the use of an economic resource and the ability to derive income and benefits from it. These rights specify ownership, control, transferability, and enforcement, providing clarity and predictability for economic actors. Option C is also correct becauseprotection of property rights is widely recognized as a key driver of economic progress, especially in developing countries. Secure property rights encourage investment, innovation, and long-term planning by reducing the risk of expropriation or misuse. Firms are more willing to invest in capital-intensive production and research and development when their assets and returns are legally protected. Option A is incorrect because secure property rights encourage-not discourage-long-term investment and capital-intensive industries. Option B is incorrect because insecure property rights undermine economies of scale and R&D by increasing uncertainty. Option D contradicts extensive evidence showing that weak property rights constrain sustainable growth. Option E is partially normative but not emphasized as a core analytical statement in managerial economics texts. Thus, options C and F accurately reflect the role and definition of property rights in global economics.
