Econ Test #2 Material

The​ Grubel-Lloyd (GL) index for a single industry is computed​ using:

Industry Exports Imports Alpha ​$30 billion ​$50 billion

How do economies of scale give rise to international​ trade?

International trade occurs because economies of scale make a comparative advantage.

An industry in which economies of scale are predominantly externalexternal will tend toward aa market structurestructure known as

agglomerations

Internal economies of​ scale:

are more likely to be associated with an imperfectly competitive industry.

With respect to the size of​ firms, external and internal economies of scale have

differing​ implications; with internal​ economies, large firms are likely to emerge while external economies tend to yield​ smaller-sized firms.

External economies of scale occur when average costs of a​ firm:

fall as the industry grows​ larger, but may or may not rise as the representative firm grows larger.

Internal economies of scale occur when the average costs of the​ firm:

fall as the representative firm grows larger.

A country that imports goods produced under conditions of external economies of scale may suffer if

trade stifles the development of new industries that could be more efficient than the existing ones.

According to this​ figure, economic efficiency considerations would ideally have hockey puckhockey puck production located in A. the Slovak Republicthe Slovak Republic Your answer is correct.B. CanadaCanada C. both countries to prevent national monopolies ​Suppose, however, that hockey puckhockey puck production is first established in CanadaCanada​, where the game of hockeyhockey is said to have originated. In this case Canada'sCanada's producers will effectively block the entry of new SlovakSlovak producers because A. to​ buyers, tradition matters more than cost. B. their vast experience makes their puckspucks better. C. their prevailing price is below the average cost for a SlovakSlovak ​start-up firm. Your answer is correct.D. they will own critical patents.

A, C

Where there are economies of​ scale, an increase in the size of the market will A. lead to more firms producing and selling in that market and lower the price per unit. Your answer is correct.B. decrease the number of firms and leave the price per unit unchanged. C. lead to more firms producing and selling in that market and raise the price per unit. D. lead to fewer firms producing and selling in that market and raise the price per unit

A.

Where there are economies of​ scale, the scale of production possible in a country is constrained​ by: A. the combined size of the domestic and foreign market. Your answer is correct.B. the size of the domestic market. C. the size of that country. D. the aggregate size of all trading partner countries.

A.

The gains from intraindustry trade differ from the gains associated with comparative​ advantage-based trade because

All the above

When the United States signed a​ free-trade agreement with Canada​ (1989), no one thought twice about it. When the agreement with Mexico was signed​ (1994), there was significant opposition. The concepts of interindustry and intraindustry trade can explain the differences in opposition to the two trade agreements in the following​ manner:

All the above

The inverse relationship between market size and product price occurs​ because:

An increase in market size allows each firm to produce more and thus have a lower average cost. The resulting economic profit entices new firms to​ enter, putting downward pressure on price.

Consider an oligopolistic​ market, such as the market for laptop computers. If a producer leaves the​ market, A. laptop prices will rise and output per firm will fall. B. laptop prices will rise and output per firm will increase. Your answer is correct.C. output per firm will decrease as firms exploit market power. D. laptop prices will fall.

B

An essential feature of geographical concentration is its​ self-reinforcement. Why does this occur​ mostly? A. Internal economies. B. Agglomeration economies. Your answer is correct.C. Government intervention. D. None of the above.

B.

An example of social costs being greater than private costs is A. police protection. B. vaccines. C. water pollution. Your answer is correct.D. All of the above.

C.

Which of the following is not the reason for external economies of​ scale? A. Specialized suppliers of intermediate goods. B. Knowledge spillovers. C. Large fixed costs. D. Labor market pooling.

C.

External economies of scale happen when A. the presence of a large number of producers in one area helps to create a deep labor market for specialized skills. B. there are knowledge spillovers. C. there is a dense network of input suppliers. D. All of the above.

D

The creation of an integrated market as a result of international trade results in A. lower prices. B. more​ firms, each operating at a larger scale. C. a wider range of choices for consumers. D. all of the above

D.

When the social returns from production are larger than the private returns from production A. Market output is below the social optimum. B. Market output is above the social optimum. C. Prices are too high. D. Prices are too low. E. A and C only. Your answer is correct.F. B and D only.

E

Market failures occur whenever A. social returns may be greater than private returns. B. private returns may be greater than social returns. C. the free market produces less than what is socially optimal. D. monopolies exist in a market. E. All of the above.

E.

What​ factor(s) can cause private returns from production to be smaller than social returns of​ production? A. Knowledge​ spillovers, where firms learn from each other. B. Capital market​ imperfections, where firms with new and sound ideas are unable to attract financing. C. The inability to coordinate activities between​ firms, when the success of an industry requires multiple players to enter simultaneously. D. A and B only. E. All of the above

E.

Which of the following is NOT a reason social returns might be greater than private​ returns?

Excess competition between firms

Which of the following is TRUE about monopolistic​ competition?

It is competition among many firms producing similar but differentiated products.

Why do internal economies of scale lead to imperfectly competitive​ industries?

Large firms have cost advantages over small firms.

Evaluate the relative importance of economies of scale and comparative advantage in causing the following. ​ Specifically, for each​ outcome, state whether it was primarily the result of comparative advantage or economies of scale.

Most of the​ world's aluminum is smelted in Norway or Canada. Economies of scale Half of the​ world's large jet aircraft are assembled in Seattle. Economies of scale Most semiconductors are manufactured in either the United States or Japan. Economies of scale Most Scotch whiskey comes from Scotland. Comparative advantage Much of the​ world's best wine comes from France. Comparative advantage

International trade in products made within the same industry is known as intraindustry trade.

On the other​ hand, international trade in products made between different industries is called interindustry trade.

Comparative advantage is the foundation of our understanding of the gains from trade and the potential income distribution effects of trade.

Trade models built exclusively on the idea of comparative advantage have a mixed record when it comes to predicting a​ country's trade patterns.

If output more than doubles when all inputs are​ doubled, production is governed​ by:

increasing returns to scale.

Suppose Canada exports cars and imports furniture. This is an example of

inter-industry trade.

The simultaneous export and import of textiles by India is an example​ of:

intraindustry trade.

In the figure to the right the curve labeled P​ shows, for a​ "typical" monopolistically competitive​ market, the relationship between product price and the number of firms. This curve is negatively sloped because

more firms give rise to more intense​ competition, and hence a lower price.

When it comes to the gains from​ trade, economies of scale that are externalexternal tend to produce

results that are uncertain and even potentially harmful.

The basis of trade between the U.S. and Germany​, as revealed​ above, follows from the fact that the two countries have

similar ​productivity, technology, and factor endowments.

A product is produced in a monopolistically competitive industry with economies of scale. If this industry exists in two​ countries, and these two countries engage in trade one with the​ other, then we would​ expect:

that this trade will lead to greater product differentiation.

In the figure to the right the curve labeled AC​ shows, for a​ "typical" monopolistically competitive​ market, the relationship between average cost and the number of firms. This curve is positively sloped because

the more firms there​ are, the less each firm produces.