Question 1

If a firm located in a country charges high prices on its exports and earns profits on its export sales, then:

Accepted Answer

A) the profit earned by the firm is not considered as a part of the exporting country's GDP. 
B) the firm emerges as a natural monopolist in the long-run. 
C) the high export price enhances the exporting country's terms of trade. 
D) the majority of the gains from international trade accrue to the foreign buyers. 
A) the profit earned by the firm is not considered as a part of the exporting country's GDP. 
B) the firm emerges as a natural monopolist in the long-run. 
C) the high export price enhances the exporting country's terms of trade. 
D) the majority of the gains from international trade accrue to the foreign buyers. C

Question 2

Internal scale economies occur when:

Accepted Answer

A) expansion of output by a firm leads to greater specialization of labor. 
B) expansion in an industry drives down the input prices. 
C) industry growth leads to a greater diffusion of knowledge among firms. 
D) a firm pays higher input prices to expand production. 
A) expansion of output by a firm leads to greater specialization of labor. 
B) expansion in an industry drives down the input prices. 
C) industry growth leads to a greater diffusion of knowledge among firms. 
D) a firm pays higher input prices to expand production. A

Question 3

An industry in which a few firms cater to the entire market is called:

Accepted Answer

A) a monopoly. 
B) an oligopoly. 
C) a perfect competition. 
D) a monopsony. 
A) a monopoly. 
B) an oligopoly. 
C) a perfect competition. 
D) a monopsony. B

Question 4

The table given below shows the export and import values of automobiles, pharmaceuticals, and clothing in country A and country B. $$\begin{array} { | c | c | c | } 
\hline \text { Country A } & \text { Exports (\$billions) } & \text { Imports (\$billions) } \
\hline \text { Automobiles } & 20 & 40 \
\hline \text { Pharmaceuticals } & 30 & 30 \
\hline \text { Clothing } & 40 & 0 \
\hline
\end{array}$$ $$\begin{array} { | c | c | c | } 
\hline \text { Country A } & \text { Exports (\$billions) } & \text { Imports (\$billions) } \
\hline \text { Automobiles } &0 & 20 \
\hline \text { Pharmaceuticals } & 40 & 40 \
\hline \text { Clothing } & 45 & 35 \
\hline
\end{array}$$ Country B has a higher intra-industry trade (IIT) share compared to country A for:

Accepted Answer

A) only automobiles. 
B) only pharmaceuticals. 
C) only clothing. 
D) both pharmaceuticals and clothing. 
A) only automobiles. 
B) only pharmaceuticals. 
C) only clothing. 
D) both pharmaceuticals and clothing.

Question 5

If international trade is based on product differentiation, for a country the basis for:

Accepted Answer

A) exporting is the domestic production of unique models or varieties demanded by some consumers in foreign markets. 
B) importing is that the price of the imports is the same as the price of the domestic products. 
C) importing is that foreign firms usually enjoy external scale economies. 
D) exporting is that the domestic producers can charge a much higher price in the international markets. 
A) exporting is the domestic production of unique models or varieties demanded by some consumers in foreign markets. 
B) importing is that the price of the imports is the same as the price of the domestic products. 
C) importing is that foreign firms usually enjoy external scale economies. 
D) exporting is that the domestic producers can charge a much higher price in the international markets.

Question 6

Which of the following is true of the gravity model?

Accepted Answer

A) The gravity model states that the trade flows between two countries is independent of the geographical distance between them. 
B) The gravity model emphasizes on the role of the government to generate adequate gains from trade. 
C) The gravity model states that trade flows between a developing and a developed nation is usually unidirectional. 
D) The gravity model states that the trade flows between two countries is directly proportional to their GDP. 
A) The gravity model states that the trade flows between two countries is independent of the geographical distance between them. 
B) The gravity model emphasizes on the role of the government to generate adequate gains from trade. 
C) The gravity model states that trade flows between a developing and a developed nation is usually unidirectional. 
D) The gravity model states that the trade flows between two countries is directly proportional to their GDP.

Question 7

External scale economies are more likely to arise in an industry:

Accepted Answer

A) in which a single firm caters to the total market demand. 
B) in which a few dominant firms compete aggressively with each other in terms of product prices. 
C) in which firms readily share technology improvements. 
D) which is solely export oriented. 
A) in which a single firm caters to the total market demand. 
B) in which a few dominant firms compete aggressively with each other in terms of product prices. 
C) in which firms readily share technology improvements. 
D) which is solely export oriented.

Question 8

_____ is a market structure in which a large number of firms compete vigorously with each other in producing and selling different varieties of a basic product.

Accepted Answer

A) Perfect competition 
B) Monopoly 
C) Oligopoly 
D) Monopolistic competition 
A) Perfect competition 
B) Monopoly 
C) Oligopoly 
D) Monopolistic competition

Question 9

A significant gain from trade in an oligopolistic market results from the increase in the number of product varieties that trade brings.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following refers to a two-way trade in which a country both exports and imports the same or very similar products?

Accepted Answer

A) Net trade 
B) Inter-industry trade 
C) Intra-industry trade 
D) Internal trade 
A) Net trade 
B) Inter-industry trade 
C) Intra-industry trade 
D) Internal trade

Question 11

Which of the following correctly identifies an impact of the opening of trade for an industry with external economies?

Accepted Answer

A) Consumers of the product in the exporting country lose consumer surplus. 
B) Producers of the product in the importing countries lose producer surplus. 
C) Consumers of the product in the importing country lose consumer surplus. 
D) Producers of the product in the exporting country lose producer surplus. 
A) Consumers of the product in the exporting country lose consumer surplus. 
B) Producers of the product in the importing countries lose producer surplus. 
C) Consumers of the product in the importing country lose consumer surplus. 
D) Producers of the product in the exporting country lose producer surplus.

Question 12

In a monopolistically competitive market, as the number of product variants decreases, the price of a particular firm's product is likely to_____ because the demand for each variety becomes more _____.

Accepted Answer

A) increase; elastic 
B) decrease; elastic 
C) increase; inelastic 
D) decrease; inelastic 
A) increase; elastic 
B) decrease; elastic 
C) increase; inelastic 
D) decrease; inelastic

Question 13

Analysis using the gravity model shows that countries that have a higher degree of government corruption trade more with other countries.

Accepted Answer

A) True 
 B)False

Question 14

Relative to standard competitive trade, trade based on monopolistic competition has _____ impact on factor incomes.

Accepted Answer

A) greater 
B) lower 
C) the same 
D) no 
A) greater 
B) lower 
C) the same 
D) no

Question 15

When external scale economies exist in an industry, which of the following groups is most likely to be left worse off after the opening of free trade?

Accepted Answer

A) Consumers in the importing country 
B) Producers in the importing country 
C) Consumers in the exporting country 
D) Producers in the exporting country 
A) Consumers in the importing country 
B) Producers in the importing country 
C) Consumers in the exporting country 
D) Producers in the exporting country

Question 16

In oligopoly pricing, firms are caught in a situation called prisoner's dilemma when they:

Accepted Answer

A) cooperate to maximize profits. 
B) cooperate to minimize prices. 
C) compete aggressively and earn high profits. 
D) compete aggressively and earn low profits. 
A) cooperate to maximize profits. 
B) cooperate to minimize prices. 
C) compete aggressively and earn high profits. 
D) compete aggressively and earn low profits.

Question 17

Consider that in country A, there are some models of cars available in the luxury segment produced by the domestic companies. Some more models are available in the same segment in country B as well. Explain with the help of suitable figures how the consumers in both the countries gain if these countries engage in free trade.

Accepted Answer

Let us assume that in the pre-trade situ

Question 18

When the average cost of a typical firm declines as the output of the industry within a geographic area increases it is referred to as:

Accepted Answer

A) internal scale economies. 
B) external scale economies. 
C) internal scale diseconomies. 
D) constant returns to scale. 
A) internal scale economies. 
B) external scale economies. 
C) internal scale diseconomies. 
D) constant returns to scale.

Question 19

Which of the following indicates the difference between the volume of exports and imports of a product?

Accepted Answer

A) Net trade 
B) Intra-industry trade 
C) Total trade 
D) Terms of trade 
A) Net trade 
B) Intra-industry trade 
C) Total trade 
D) Terms of trade

Question 20

The table given below shows the export and import values of automobiles, pharmaceuticals, and clothing in country A and country B. $$\begin{array} { | c | c | c | } 
\hline \text { Country A } & \text { Exports (\$billions) } & \text { Imports (\$billions) } \
\hline \text { Automobiles } & 20 & 40 \
\hline \text { Pharmaceuticals } & 30 & 30 \
\hline \text { Clothing } & 40 & 0 \
\hline
\end{array}$$ $$\begin{array} { | c | c | c | } 
\hline \text { Country A } & \text { Exports (\$billions) } & \text { Imports (\$billions) } \
\hline \text { Automobiles } &0 & 20 \
\hline \text { Pharmaceuticals } & 40 & 40 \
\hline \text { Clothing } & 45 & 35 \
\hline
\end{array}$$ In country B, the product with the highest intra-industry trade (IIT) share is _____ and the product with the lowest IIT share is _____.

Accepted Answer

A) automobiles; pharmaceuticals 
B) pharmaceuticals; automobiles 
C) clothing; automobiles 
D) clothing; pharmaceuticals 
A) automobiles; pharmaceuticals 
B) pharmaceuticals; automobiles 
C) clothing; automobiles 
D) clothing; pharmaceuticals

Exam 6: Scale Economies, Imperfect Competition, and Trade

If a firm located in a country charges high prices on its exports and earns profits on its export sales, then:

Internal scale economies occur when:

An industry in which a few firms cater to the entire market is called:

If international trade is based on product differentiation, for a country the basis for:

Which of the following is true of the gravity model?

External scale economies are more likely to arise in an industry:

_____ is a market structure in which a large number of firms compete vigorously with each other in producing and selling different varieties of a basic product.

A significant gain from trade in an oligopolistic market results from the increase in the number of product varieties that trade brings.

Which of the following refers to a two-way trade in which a country both exports and imports the same or very similar products?

Which of the following correctly identifies an impact of the opening of trade for an industry with external economies?

In a monopolistically competitive market, as the number of product variants decreases, the price of a particular firm's product is likely to_____ because the demand for each variety becomes more _____.

Analysis using the gravity model shows that countries that have a higher degree of government corruption trade more with other countries.

Relative to standard competitive trade, trade based on monopolistic competition has _____ impact on factor incomes.

When external scale economies exist in an industry, which of the following groups is most likely to be left worse off after the opening of free trade?

In oligopoly pricing, firms are caught in a situation called prisoner's dilemma when they:

When the average cost of a typical firm declines as the output of the industry within a geographic area increases it is referred to as:

Which of the following indicates the difference between the volume of exports and imports of a product?

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

In a monopolistically competitive market, as the number of product variants decreases, the price of a particular firm's product is likely to_ because the demand for each variety becomes more _.