Chapter 5 test
Suppose that by 1999, the United States exported $17.3 billion of motor vehicle parts and imported $34.2 billion of motor vehicle parts. If so, the trade balance in 1999 was
$16.9 billion.
Market failures occur whenever
- private returns may be greater than social returns. - social returns may be greater than private returns. -the free market produces less than what is socially optimal. -monopolies exist in a market.
Which of the following is NOT a problem in the implementation of industrial policies?
-Choosing the industry to target -Knowing the optimum amount of resources to provide the targeted industry -The encouragement of rent seeking by firms in other industries -The benefits are partly captured by foreign firms.
Which of the following industries would be the best example of U.S. industrial support?
Agriculture.
Suppose that by 1999, the United States exported $17.3 billion of motor vehicle parts and imported $34.2 billion of motor vehicle parts. If so, the Grubel-Lloyd index in this industry was
C) 67.18%.
Comparative advantage has mixed results when it comes to predicting a country's trade patterns. Which of the following is FALSE?
Comparative advantage has proven completely incapable of predicting trade.
Based on Table 5.1, if the governments of the European Union offer a subsidy of 30 to EU Supercomputers, then the equilibrium outcome is
EU Supercomputers produces, U.S. Supercomputers does not
Intraindustry trade is characterized by what two features of the industry and market?
Economies of scale and differentiated products
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 NOT a likely result of intraindustry trade based on internal economies of scale?
Higher prices for the exported product
Which of the following is NOT true about the Grubel-Lloyd (GL) index given by the equation: GLi = 1- |Xi-Mi| /X + M ?
If either X < M or M < X , then this necessarily implies that GL> 1.
Which of the following is FALSE?
Internal economies of scale lead firms to regionally concentrate their industry.
Which of the following is TRUE about monopolistic competition?
It is competition among many firms producing similar but differentiated products
Which of the following is FALSE about intraindustry trade?
It is due to comparative advantage.
The federal law that gave states the land to establish agricultural colleges is called the
Morrill Act.
Which of the following is a measurement for the amount of intraindustry trade?
The Grubel-Lloyd Index
Which of the following is FALSE?
The maquiladora industry has not created much employment in Mexico because most of the production is capital intensive.
Which of the following is an example of intraindustry trade?
Trading Nokia smartphone for Apple iPhones
Which of the following does NOT indicate intraindustry trade?
Trading oil for trucks
Based on Table 5.1, U.S. Supercomputers is already in the market, and EU Supercomputers is thinking of entering. If no subsidy is provided, the equilibrium outcome is
U.S. Supercomputers produces, EU Supercomputers does not
Based on Table 5.1, if the governments of the European Union offer a subsidy of 10 to EU Supercomputers, then the equilibrium outcome is
U.S. Supercomputers produces, EU Supercomputers does not.
Which of the following is NOT a situation providing a potential advantage for Mexico that makes it competitive compared to China in trade with the United States?
Wages are low and the production process is labor intensive.
Two areas where the United States maintains considerable industrial support are
agriculture and defense
Suppose that the United States decided to subsidize a major research and development effort by U.S. firms in the semiconductor industry. Under the current rules of the WTO and GATT, the U.S. effort is
allowed as long as the subsidies are for developing a "precompetitive" technology.
Strategic trade policy is concerned with
capturing excess profits from foreign producers
Under some circumstances, trade could stifle the development of new industries and reduce global efficiency. All of the following describe conditions that could lead to that situation except
diseconomies of scale make it impossible for new firms to enter the market.
Intraindustry trade relies on
economies of scale
Interindustry trade refers to
international trade of products made across different industries.
Intraindustry trade refers to
international trade of products made within the same industry
One reason that a large share of the trade between high-income industrial economies is intraindustry trade is because
it allows firms to take advantage of internal economies of scale
Suppose that the United States decided to subsidize a major competitive effort by the semiconductor industry to bring to market the next generation computer chip. Under the current rules of the WTO and GATT, the U.S. effort is
not allowed.
An internal economies of scale is defined as
one with falling costs over a relatively large range of output.
Internal economies of scale means that
simply expanding the size of the market the firm serves reduces overall per unit costs, since the firm can spread costs over more output.
The main reason why strategic trade policies are not put into practice more often is because
the information requirements are too great.
In the United States, the most recent public debate over the desirability of industrial policies occurred largely in response to
the penetration of U.S. markets by Japanese firms in the 1970s and 1980s.
If social returns to the production of a good are greater than private returns, then we can conclude that relative to the social optimum, the good will be
under produced and over priced.
