Which Theory Explains Why a Firm Would Choose to Enter

question 91

Multiple Choice

Which theory explains why a firm would choose to enter a foreign market via FDI rather than exploit its ownership advantages internationally through other means?

• A) eclectic theory
• B) internalization theory
• C) relative factor endowments
• D) national competitive advantage

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Definitions:

Substitution Effect

The change in consumption resulting from a change in the relative prices of goods, prompting consumers to replace more expensive items with less costly alternatives.

Income Effect

The shift in income for an individual or the economy, and its influence on the demand for a specific good or service.

Wages Increase

The act or occurrence of raising the amount of money that workers are paid for their labor.

Consumer's Optimal

The point at which an individual achieves the best possible satisfaction or utility from the consumption of goods and services, given their budget constraints.