Question 1

A large amount of intra-industry trade is not compatible with the comparative-advantage theory of trade.

Accepted Answer

A) True 
 B)False

Question 2

In an oligopoly market, firms vigorously compete with each other by selling different varieties of the same product.

Accepted Answer

A) True 
 B)False

Question 3

"In the shift from no trade to free trade, the monopolistic-competition model can predict which specific varieties of products will be produced by which countries, and the models based on substantial scale economies can predict which countries will be the major production locations for a product." Are these claims correct? Explain briefly.

Accepted Answer

The monopolistic-competition model indic

Question 4

Which of the following can help explain the rise of intra-industry trade?

Accepted Answer

A) Recent recessions and increase in the price of oil have led to lower national income levels. 
B) The demand for product variety has increased substantially over time. 
C) Countries widely vary in terms of their resource endowments. 
D) The developed nations have recently implemented more conservative fiscal policies. 
A) Recent recessions and increase in the price of oil have led to lower national income levels. 
B) The demand for product variety has increased substantially over time. 
C) Countries widely vary in terms of their resource endowments. 
D) The developed nations have recently implemented more conservative fiscal policies.

Question 5

Suppose the global market for personal computers is monopolistically competitive. If a country engages in a two-way trade in personal computers, such trade is usually based on _____.

Accepted Answer

A) external scale economies 
B) comparative advantage 
C) product differentiation 
D) constant returns to scale 
A) external scale economies 
B) comparative advantage 
C) product differentiation 
D) constant returns to scale

Question 6

Scale economies are said to be present when:

Accepted Answer

A) an increase in output leads to an increase in average cost. 
B) an increase in output has no impact on average cost. 
C) an increase in output leads to a decrease in average cost. 
D) there is a single firm in an industry. 
A) an increase in output leads to an increase in average cost. 
B) an increase in output has no impact on average cost. 
C) an increase in output leads to a decrease in average cost. 
D) there is a single firm in an industry.

Question 7

Suppose the market for personal computers in country A is monopolistically competitive. Country A exports as well as imports personal computers from the rest of the world. After full adjustment to the opening of trade, a firm in this industry which enjoys scale economies will:

Accepted Answer

A) receive a higher price for its product. 
B) receive a lower price for its product. 
C) enjoy a greater market share. 
D) ultimately go out of business. 
A) receive a higher price for its product. 
B) receive a lower price for its product. 
C) enjoy a greater market share. 
D) ultimately go out of business.

Question 8

The Heckscher-Ohlin theory predicts that trade between similar industrialized countries should:

Accepted Answer

A) be much greater than trade between developed and developing countries. 
B) be rather limited in volume. 
C) consist mainly of highly sophisticated manufactured goods. 
D) be bidirectional with one country exporting products to the other countries and simultaneously importing very similar products from them. 
A) be much greater than trade between developed and developing countries. 
B) be rather limited in volume. 
C) consist mainly of highly sophisticated manufactured goods. 
D) be bidirectional with one country exporting products to the other countries and simultaneously importing very similar products from them.

Question 9

Suppose country A had been traditionally enjoying a comparative advantage in the production of good X. As a result most of the large firms manufacturing and exporting good X were concentrated in country A. However, recently it has been observed that the comparative advantage in the production of good X has shifted to country B owing better factor availability and lower input prices. Some new firms are contemplating to start operating in country B. Which of the following, if it happens, will indicate that the new firms in country B will not be able to operate profitably?

Accepted Answer

A) The firms in country A will expand production beyond the optimum point and will experience an increase in per unit cost with a further increase in output. 
B) The demand for good X will increase substantially in country A in recent future. 
C) The firms in country A will lower the prices for their products. 
D) The input prices in country A are likely to increase significantly in the near future. 
A) The firms in country A will expand production beyond the optimum point and will experience an increase in per unit cost with a further increase in output. 
B) The demand for good X will increase substantially in country A in recent future. 
C) The firms in country A will lower the prices for their products. 
D) The input prices in country A are likely to increase significantly in the near future.

Question 10

Carefully explain how, and under what conditions, an increase in foreign markets available to the United States computer producers would lead to an increase in economic well-being for consumers of computers in the United States.

Accepted Answer

According to the standard competitive mo

Question 11

Consumers of the exportable product in the exporting country gain when trade is based on:

Accepted Answer

A) different factor endowments. 
B) technological differences. 
C) external scale economies. 
D) increasing-cost industries. 
A) different factor endowments. 
B) technological differences. 
C) external scale economies. 
D) increasing-cost industries.

Question 12

Explain the concept of scale economies. Explain the difference between internal and external scale economies. What pattern of trade do we expect to see in industries with substantial external scale economies?

Accepted Answer

Scale economies are realized when the in

Question 13

A monopolistically competitive firm:

Accepted Answer

A) sets price of its product equal to its marginal cost of production. 
B) sells a homogeneous product in the market. 
C) faces a perfectly elastic demand curve. 
D) earns zero economic profits in the long-run. 
A) sets price of its product equal to its marginal cost of production. 
B) sells a homogeneous product in the market. 
C) faces a perfectly elastic demand curve. 
D) earns zero economic profits in the long-run.

Question 14

Which of the following can best explain the clustering of some industries, such as banking and finance in New York City and high-technology computer production in Silicon Valley?

Accepted Answer

A) External scale economies 
B) Perfect competition 
C) Intra-industry trade 
D) Comparative advantage 
A) External scale economies 
B) Perfect competition 
C) Intra-industry trade 
D) Comparative advantage

Question 15

When external scale economies exist in an industry, new trade opportunities will cause:

Accepted Answer

A) the consumers in both the exporting and the importing countries to gain. 
B) the consumers in the exporting country to gain but the consumers in the importing country to lose. 
C) the consumers in both the importing and exporting countries to lose. 
D) the consumers in the importing country to gain but the consumers in the exporting country to lose. 
A) the consumers in both the exporting and the importing countries to gain. 
B) the consumers in the exporting country to gain but the consumers in the importing country to lose. 
C) the consumers in both the importing and exporting countries to lose. 
D) the consumers in the importing country to gain but the consumers in the exporting country to lose.

Question 16

Scale economies help explain why products are produced in a limited number of varieties in a country.

Accepted Answer

A) True 
 B)False

Question 17

When firm X doubled its output, it was found that its cost per unit declined by 10%. It can be concluded that:

Accepted Answer

A) the firm was facing external scale diseconomies. 
B) the firm was enjoying internal scale economies. 
C) the firm was operating on the inelastic portion of the demand curve. 
D) the marginal cost of production at the initial output level was constant. 
A) the firm was facing external scale diseconomies. 
B) the firm was enjoying internal scale economies. 
C) the firm was operating on the inelastic portion of the demand curve. 
D) the marginal cost of production at the initial output level was constant.

Question 18

Intra-industry trade in differentiated products is negligible between countries that are similar in their general production capabilities.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following features is common to both perfect competition and monopolistic competition?

Accepted Answer

A) An individual firm faces a horizontal demand curve. 
B) New firms are free to enter the market in the long-run. 
C) Each firm produces a perfectly homogeneous product. 
D) The firms earn positive economic profit in the long run. 
A) An individual firm faces a horizontal demand curve. 
B) New firms are free to enter the market in the long-run. 
C) Each firm produces a perfectly homogeneous product. 
D) The firms earn positive economic profit in the long run.

Exam 6: Scale Economies, Imperfect Competition, and Trade

A large amount of intra-industry trade is not compatible with the comparative-advantage theory of trade.

In an oligopoly market, firms vigorously compete with each other by selling different varieties of the same product.

Which of the following can help explain the rise of intra-industry trade?

Suppose the global market for personal computers is monopolistically competitive. If a country engages in a two-way trade in personal computers, such trade is usually based on _____.

Scale economies are said to be present when:

Suppose the market for personal computers in country A is monopolistically competitive. Country A exports as well as imports personal computers from the rest of the world. After full adjustment to the opening of trade, a firm in this industry which enjoys scale economies will:

The Heckscher-Ohlin theory predicts that trade between similar industrialized countries should:

Carefully explain how, and under what conditions, an increase in foreign markets available to the United States computer producers would lead to an increase in economic well-being for consumers of computers in the United States.

Consumers of the exportable product in the exporting country gain when trade is based on:

Explain the concept of scale economies. Explain the difference between internal and external scale economies. What pattern of trade do we expect to see in industries with substantial external scale economies?

A monopolistically competitive firm:

Which of the following can best explain the clustering of some industries, such as banking and finance in New York City and high-technology computer production in Silicon Valley?

When external scale economies exist in an industry, new trade opportunities will cause:

Scale economies help explain why products are produced in a limited number of varieties in a country.

When firm X doubled its output, it was found that its cost per unit declined by 10%. It can be concluded that:

Intra-industry trade in differentiated products is negligible between countries that are similar in their general production capabilities.

Which of the following features is common to both perfect competition and monopolistic competition?

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

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