Download PART_B Question_01 A) Explain with examples the following two

PART_B
Question_01
A) Explain with examples the following two terms:
-Substitute goods
-complementary goods
Availability of substitute, if there are many close substitutes or alternative
Product available, then the demand is likely to be price elastic. But if there few
Alternative products then demand is likely to be price inelastic.
Ex, the demand for petrol is price inelastic , but the demand for petrol products Is elastic.
Complements are goods that are used in conjunction with other goods.
A fall in price of a good will increase the demand for its complement. The cross-price elasticity
of complement is negative.
B) Explain how the production of both substitute and complementary good at low prices
for Woof Could affect the sales of Woof
The effect on Wood revenue of a change in price depends on the price elasticity of demand for
its product.
When demand is elastic (for example: we can replace the dog toy, decrease in price will lead to
increase in Wood revenue,
When demand is inelastic decrease in price will fall in revenue.
If the price of substitute goods go down the demand for Woof will increase
If the price of Complimentary goods go down the demand for Woof good will increase and this
will give an opportunity for the price will increase
C) Using materials from B200 market and examples explain how foreign direct investment
(FDI) and multinational enterprises (MNEs) affect their host countries.
Multinational corporations do businesses around the world are corporations that operate beyond
the borders of any single country, Corporations that do business across national borders are
sometimes so large that their annual revenues from worldwide operations exceed the value of
goods and services (gross domestic product) of entire nations.
For example, General Motors had revenues of $ 164 billion in 1996.
MNCs are “enterprises which own or control production or service facilities outside the country
in which they are used.” The MNC is an agency of direct, as opposed to portfolio, investment in
foreign countries. It is not always incorporated or private. It can be a cooperative or state-owned
entity.
Almost every large business organization has some direct or indirect involvement with foreign
countries, but only when an enterprise confronts one or more of the problems of designing,
producing, marketing, or financing its products or services within and among foreign nations
does it become truly multinational.
For example, MNC have foreign nationals in top-management positions, the top executives of
Coca-Cola include nationals from Australia, Ireland, Italy, and Austria.
Many of firms of businesses go multinational for many reasons:
For the profit, management would like to manufacture in those countries where it finds the
greatest competitive advantage, would like to buy and sell anywhere in the world to take
advantage of the most favorable price to the company, advantage of labor cost, trade agreements,
and currency fluctuations;
MSN help governments to improve economy through employment, sales and buy profits, tax,
improve technology, improve people skills, social stability, productivity of local market, high
competition in local market.
There are many of problems that an organisation may face when it goes multinational as
mentioned below:
The operating in a new and unfamiliar environment, coordination of the activity of subsidiaries
located in different parts of the world, cross cultural issues.
But in other side there are benefits that MNCs may bring to their host nations, such as:
Increase growth rate of host nation through investment, new technologies or managerial
competencies (like skills and experience will be gained), stimulation of competition inducing
domestic rivals to be more innovative, competitive, promotion of development of supporting
industries or complementary activities, Encourage new business industries, improve management
skills level, and provide products and services that raise the standard of living .
For example, France offered lucrative inducements to get the Mercedes-Benz Swatch mobile
factory to locate in France in 1995.
In the United States, South Carolina brought a BMW plant to Spartanburg partly with
inducements. California, Tennessee, and other states brought Japanese automobile plants to their
areas with various inducements.
There are many of the disadvantages that MNC investment may bring to their host nations for
example:
Challenge to Nation- State rules, They want control of their economies and want to achieve
their economic, political, and social objectives. The power of the MNC can influence each of
these objectives and in so doing may challenge the sovereignty (rule), or the supreme (top)
political power, of the government.
Inequities, import raw materials from home country but not from host country, avoidance of
taxes and giving the best management jobs to MNC home-country citizens.
Interference with Economic Objectives for example The MNCs have the strength to attract
bank loans which otherwise might be available for local businesses, or an MNC may wish to
locate a plant in an area of prosperity when the host country would prefer its location in an
underdeveloped region.
Social Disruption (trouble), the introduction of different mores (traditions), habits, behavior,
and ethical values, plus new products, management styles, distribution systems, more money,
and technology, do affect local ways of thinking and doing things. Some locals may applaud
(approve) the changes, while others deplore (‫ )يستنكر‬them.
Environmental Degradation (poverty), Many nations are becoming more concerned about the
impact of MNCs on their environment.
Imperialism, many of the awakening (developing) nations look on foreign managers with fear
and distrust as the embodiment (picture) of an old, nor easily forgotten, exploitative (unfair)
colonialism.
Symbol of annoyance and Antipathy, the LDCs have grievances ( ‫ )شككى‬about their position in
the world that have nothing to do with the MNC, but the MNC is a convenient (suitable) visible
target for their anger
Destruction (affect and damage) of local competition, repatriation (send home) of profits and
no investment in the local economy, problems of footloose industry including uncertainty in the
labour market.
Developing countries should encourage MNC investment in their economies, and they
should try to regulate MNC activity, there are broad generalizations that vary, of course, from
country to country. Sometimes the complaints are completely justified; at other times they are
more perceived than real.
So the country and Local Corporation discover the benefit of MSN.
But even in some of the highly industrialized countries there are resentments against foreign
investment and restraints are imposed on foreign firms.
Hong Kong impose few restrictions (limits) on foreign investments. Sweden treats foreign
MNCs as it does its domestic companies. China has many restrictions.