True or False? Explain your answer. 1. If a Chinese business buys a Tesla car, this...
True or False? Explain your answer.
1. If a Chinese business buys a Tesla car, this would be an example of foreign direct investment inflow for the US.
2. In the presence of external economies of scale, trade will unambiguously improve welfare in the exporting country and worsen welfare in the importing country.
Homework Answers
Question 1
Selling of goods and services to the resident of another country is referred to as exports.
On the other hand, selling of partial or full ownership of a business to the resident of another country is referred to as foreign direct investment.
So, if a Chinese business buys a Tesla car then this implies the sale of goods by US business to Chinese business and thus would be termed as export by the United States.
This is not a foreign direct investment inflow as Chinese business has only purchased a Tesla car and not the controlling stake in the business producing Tesla car.
Hence, the given statement is False.
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