Chapter 5

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

mixed

An industry in which economies of scale are predominantly internal will tend toward the market structures known as _________

oligopoly and monopolistic competition

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. 1. Most of the​ world's aluminum is smelted in Norway or Canada. 2. Half of the​ world's large jet aircraft are assembled in Seattle. 3. Most semiconductors are manufactured in either the United States or Japan. 4. Most Scotch whiskey comes from Scotland. 5. Much of the​ world's best wine comes from France.

1. Economies of scale 2. Economies of scale 3. Economies of scale 4. Comparative advantage 5. Comparative advantage.

If output more than doubles when all inputs are​ doubled, production is governed​ by: A. increasing returns to scale. B. ​intra-industry trade. C. imperfect competition. D. decreasing returns to scale.

A.

The implementation of industrial policies is plagued with a variety of difficulties. Which of the following is not one of these​ problems? A. Finding an industry willing to accept government support. B. Collecting the information necessary to measure the extent of market failure. C. Containing the external benefits of​ R&D spending within national boundaries. D. Correctly estimating the optimal amount of support to provide. E. The encouragement of​ rent-seeking behavior.

A.

Which of the following are true statements about​ intra-industry trade? A. The majority of U.S. and European trade is​ intra-industry trade. B. ​Intra-industry trade is especially common in agricultural sectors. C. The more broadly an industry is​ defined, the less trade appears to be​ intra-industry. D. All of the above. E. A and C only.

A.

How do economies of scale give rise to international​ trade? A. International trade occurs because​ multi-national corporations have economies of scale. B. International trade occurs because economies of scale make a comparative advantage. C. Economies of scale enhance resource differences between countries. D. International trade occurs because economies of scale transfer knowledge across countries.

B.

If output more than doubles when all inputs are​ doubled, production is governed​ by: A. imperfect competition. B. increasing returns to scale. C. decreasing returns to scale. D. ​intra-industry trade.

B.

The maquiladora industry is an example of A. an import processing zone. B. an export processing zone. C. a low tariff zone. D. a free trade zone.

B.

Why do internal economies of scale lead to imperfectly competitive​ industries? A. Patent laws prevent firms from entering the market. B. Large firms have cost advantages over small firms. C. There are barriers to entry due to large fixed costs. D. This is an observation based on measurable data.

B.

With respect to the size of​ firms, external and internal economies of scale have A. differing​ implications; with internal​ economies, small firms are likely to emerge while external economies tend to yield larger firms. B. differing​ implications; with internal​ economies, large firms are likely to emerge while external economies tend to yield​ smaller-sized firms. C. ambiguous​ implications; large firms are as likely to emerge as small firms. D. no discernable effect.

B. Significant internal economies will tend to produce large firms while external economies may or may not give firms an economic incentive to increase in size.

If an industry is characterized by external economies of scale A. firm costs decline as firms increase in size. B. the market is likely to be served by an oligopoly of firms. C. firm costs decline as the industry grows in size. D. monopolistic competition will follow.

C.

When it comes to the gains from​ trade, economies of scale that are external tend to produce A. benefits that accrue to consumers in the form of lower prices and greater choices. B. benefits that do not differ from those associated with internal economies of scale. C. results that are uncertain and even potentially harmful. D. equal gains to the trading countries.

C.

How do economies of scale give rise to international​ trade? A. Economies of scale enhance resource differences between countries. B. International trade occurs because​ multi-national corporations have economies of scale. C. International trade occurs because economies of scale make a comparative advantage. D. International trade occurs because economies of scale transfer knowledge across countries. These economies of scale are __________ economies of scale.

C. Internal

Which one of the following is not one of the three key incentives for firms in a particular industry to cluster together in a geographical​ region? A. The presence of a large pool of skilled labor. B. The generation of knowledge spillovers. C. The ability to control the local government. D. The presence of specialized suppliers of inputs.

C. An ability to exert influence over a​ local, regional, or even state​ government, may​ occur, but it is not considered a motive for firms to cluster together. Next Question

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

Comparative

External economies of scale occur when average costs of a​ firm: A. fall as the representative firm and industry grows larger. B. remain constant. C. rise as the industry grows larger. D. fall as the industry grows​ larger, but may or may not rise as the representative firm grows larger.

D.

Mexican manufacturing trade has a number of interesting characteristics. They include A. the fact that​ 2/3 of​ US-Mexico trade is​ intra-firm. B. maquiladora zones which allow firms to produce goods for export without paying tariffs on imported parts and materials that are used in production. C. huge Mexican trade deficits arising from maquiladora production. D. A and B only. E. All of the above.

D.

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

D.

The simultaneous export and import of textiles by India is an example​ of: A. imperfect competition. B. interindustry trade. C. increasing returns to scale. D. intraindustry trade.

D.

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: A. Given the​ productivity, technology, and factor endowment similarities between the U.S. and​ Canada, trade between the two is​ intraindustry, and such trade generally yields greater benefits than interindustry trade. B. Substantial​ productivity, technology, and factor endowment differences between the U.S. and Mexico make trade between them​ interindustry, and this type of trade is seen as more threatening to jobs and firms. C. Trade between the U.S. and Mexico is interindustry​ trade, and such trade is comparative​ advantage-based. While consumers get the benefit of lower import prices with such​ trade, they also face the hardship of paying higher prices for export goods. D. All of the above. E. A and B only.

D.

Where there are economies of​ scale, an increase in the size of the market will A. lead to fewer firms producing and selling in that market and raise the price per unit. 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 more firms producing and selling in that market and lower the price per unit.

D.

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: A. Substantial​ productivity, technology, and factor endowment differences between the U.S. and Mexico make trade between them​ interindustry, and this type of trade is seen as more threatening to jobs and firms. B. Given the​ productivity, technology, and factor endowment similarities between the U.S. and​ Canada, trade between the two is​ intraindustry, and such trade generally yields greater benefits than interindustry trade. C. Trade between the U.S. and Mexico is interindustry​ trade, and such trade is comparative​ advantage-based. While consumers get the benefit of lower import prices with such​ trade, they also face the hardship of paying higher prices for export goods. D. All of the above. E. A and B only.

D. Interindustry trade is comparative​ advantage-based trade, and with such trade a​ country's relatively scarce resources endure job losses and reduced incomes. This type of trade describes U.S.​ - Mexican trade.​ Additionally, such trade yields smaller benefits to consumers. On the other​ hand, intraindustry trade is based on economies of​ scale, and this type of​ trade, which typifies U.S.​ - Canadian​ trade, tends to yield smaller job threats and greater benefits than interindustry trade.

The gains from intraindustry trade differ from the gains associated with comparative​ advantage-based trade because A. intraindustry trade generally gives consumers more choices. B. the prices of export goods fall with intraindustry trade but not with comparative​ advantage-based trade. C. intraindustry trade is usually perceived as less threatening to jobs and firms than comparative​ advantage-based trade. D. all of the above.

D. All of the above. Because of the effect of scale​ economies, the prices of goods that are exported will fall​ (as opposed to​ rising, as is the case with comparative​ advantage-based trade).​ Additionally, with intraindustry trade consumers everywhere will benefit from having consumption choices that extend beyond the output of domestic firms.​ Finally, while it is not​ certain, it is usually the case that intraindustry trade is less threatening to jobs and firms than comparative​ advantage-based trade.

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.

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. F. B and D only.

E.

An industry in which economies of scale are predominantly external will tend toward a market structure known as _________

agglomerations

International trade in products made between different industries is called ________ trade

interindustry

One of the distinguishing features of intraindustry trade is the presence of __________ economies of scale.

internal

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

intraindustry The growing importance of intraindustry trade has forced economists to develop a new set of models in order to explain the reasons why countries often export the same goods they import.