FIN 565 Week 1 Homework Questions and Applications
Questions and Applications Imperfect Markets Explain how the existence of imperfect markets has led to the establishment of subsidiaries in foreign markets. If each country’s markets were closed to all other countries, then there would be no international business. At the other extreme, if markets were perfect and thus the factors of production (such as labor) easily transferable, then labor and other resources would flow wherever they were in demand. Such unrestricted mobility of factors would create equality in both costs and returns and thus would remove the comparative cost advantage, which is the rationale for international trade and investment (Madura, J., 2018) If perfect markets existed, would wages, prices, and interest rates among countries be more similar or less similar than under conditions of imperfect markets? More similar. Why? Under perfect market conditions companies would be able to easily transfer laborers / production and resources to other countries removing the comparative cost advantage. 7. Benefits and Risks of International Business As an overall review of this chapter, identify possible reasons for growth in international business. Then list the various disadvantages that may discourage international business. Possible reasons for growth international business could be cheaper labor, or lower cost of goods; savings from logistics (import / export of goods); broader customer base; and access to foreign markets. The disadvantages could be large capital expenditure commitment; foreign governments / polit
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