ECON 270 chapter 5

a situation in which markets do not produce the most beneficial economic outcome

market failure

Trade models built exclusively on the idea of comparative advantage have a ▼ (100% accurate, mixed) record when it comes to predicting a​ country's trade patterns.

mixed

new approach to modeling international trade that began in the 1980s. This theory drops the assumption of constant or decreasing returns to scale (increasing costs) and introduces economies of scale that are either internal or external to the firm but internal to the industry

new trade theory

the value of all private benefits minus all private costs, property adjusted to take into account that some costs and benefits are in the future and must be discounted to show their value in today's dollars

private returns

two producers that serve similar purposes but are different in one or more dimensions. Most consumer goods are differentiated products

product differentiation

any activity by firms, individuals, or special interests that is designed to alter the distribution of income to their favor ex: political lobbying, legal characteristics, bribery

rent seeking

private returns, but they add costs and benefits to the elements of society that are not taken into consideration in the private returns

social returns

a business that is owned by a national, state, or local government

state-owned enterprise

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

comparative

Why does Germany and the U.S trade even though they both have skilled resources or factor endowments?

- consumer taste and preferences - over lapping demands (U.S has similar tastes as someone my age in France or Germany) - this idea is by Gerber

ex: We could grow blueberries with technology all year if we really wanted to but it would be so expensive for the U.S and we would have to pull resources from other places so in the winter we get from South America because it's summer there

- niche markets - geographic differences

Intra trade index

1- IX-MI / X+M X=exports M=imports

Question content area Part 1 With respect to the size of​ firms, external and internal economies of scale have Part 2 A. ambiguous​ implications; large firms are as likely to emerge as small firms. B. differing​ implications; with internal​ economies, small firms are likely to emerge while external economies tend to yield larger firms. C. differing​ implications; with internal​ economies, large firms are likely to emerge while external economies tend to yield​ smaller-sized firms. D. no discernable effect. An industry in which economies of scale are predominantly internal will tend toward the market structures known as When it comes to the gains from​ trade, economies of scale that are internal tend to produce A. benefits that do not differ from those associated with external economies of scale. B.results that are uncertain and even potentially harmful. nothing results that are uncertain and even potentially harmful. C. equal gains to the trading countries. D.benefits that accrue to consumers in the form of lower prices and greater choices. benefits that accrue to consumers in the form of lower

1. C. differing​ implications; with internal​ economies, large firms are likely to emerge while external economies tend to yield​ smaller-sized firms. 2. oligopoly and monopolistic competition 3.D.benefits that accrue to consumers in the form of lower prices and greater choices. benefits that accrue to consumers in the form of lower

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

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

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. International trade occurs because economies of scale transfer knowledge across countries. D. Economies of scale enhance resource differences between countries. These economies of scale are BLANK economies of scale.

1. International trade occurs because economies of scale make a comparative advantage. 2. internal

International trade in products made within the same industry is known as BLANK trade. On the other​ hand, international trade in products made between different industries is called BLANK trade. One of the distinguishing features of intraindustry trade is the presence of BLANK economies of scale. 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.

1.intraindustry 2. interindustry 3. internal 4. D. all of the above.

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

A. Large firms have cost advantages over small firms.

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. The majority of U.S. and European trade is​ intra-industry trade.

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

A. increasing returns to scale.

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. B. lead to fewer firms producing and selling in that market and raise the price per unit. C. decrease the number of firms and leave the price per unit unchanged. D. lead to more firms producing and selling in that market and raise the price per unit.

A. lead to more firms producing and selling in that market and lower the price per unit.

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

C. intraindustry trade.

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

B. Finding an industry willing to accept government support.

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 generation of knowledge spillovers. B. The presence of specialized suppliers of inputs. C. The ability to control the local government. D. The presence of a large pool of skilled labor.

C. The ability to control the local government.

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

C. firm costs decline as the industry grows in size.

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

C. increasing returns to scale.

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. A and B only.

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. All of 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: 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. All of the above.

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

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

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

D. Large firms have cost advantages over small firms.

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. all of the above

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

D. an export processing zone.

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

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

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. A and C only.

What​ factor(s) can cause private returns from production to be smaller than social returns of​ production? A. Capital market​ imperfections, where firms with new and sound ideas are unable to attract financing. B. Knowledge​ spillovers, where firms learn from each other. 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. All of the above.

geographical region in which firms are free from tariffs as long as they export the goods that are made from imports. Different in each country but all of them are aimed at encouraging exports, often through encouragement given to investment

Export processing zone(EPZ)

U.S is a big computer chip producer, cars and pharmaceuticals but the U.S. imports AND exports all of these items, what is this called?

Intra industry trade- refers to the relatively similar factor endowments

Mexican manufacturing firms, mostly along the U.S-Mexico border, that are receive special tax breaks

Maquiladora

competition between differentiated products, combining elements of perfect competition and monopoly

Monopolistic competition

- we are relaxing the ideas that some firm might have some power in that market - unlike how in the HO model the price of the traded good went up but in this case the price of the traded good goes down

New trade theory

a market with so few producers that each firm can influence the market price

Oligopoly

output doesn't change just the price per unit goes down - shifts LRAC downward

external economies of scale

scale economies that are external to a firm but internal to an industry. All the firms in an industry experience declining average costs as the size of the industry decreases - as production increases, total costs rise, but per unit cost falls- bigger firms are more efficient than smaller firms

external economies of scale

a divergence between social and private returns

externality

ex: Mr. Horn's Germany friends have similar things in his house vs. theirs in Germany (T.V, computers, couch, etc.)

has to do with countries trading that produce the same items

policy designed to create new industries or to provide support for existing ones

industrial policy

trade that involves exports and imports of goods that are produced in different industries

interindustry trade

the idea that an individual firm experiences a decline in its average cost of production as it increases the number of units produced

internal economies of scale

when you trade as you get bigger you can take advantage of lower costs per unit and this is called - shifts along the LRAC

internal economies of scale

exports and imports of the same category of goods and services

intraindustry trade

"like" with "like" is what

usually goes with intra industry trade vs. inter industry trade