Chapter 7 Quiz Questions

Which of the following is the most important determinant of the location of tradable industries within a​ country? A. External economies. B. Labor and capital availability. C. Natural resource abundance. D. Political influence.

A. External economies.

How do economies of scale give rise to international​ trade? A. International trade occurs because it increases the market size. B. They enhance resource differences between countries. C. International trade occurs because economies of scale transfer knowledge across countries. D. International trade occurs because of​ multi-national corporations.

A. International trade occurs because it increases the market size.

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. B. the size of that country. C. the aggregate size of all trading partner countries. D. the size of the domestic market.

A. the combined size of the domestic and foreign market.

External economies of scale occur when average costs A. remain constant. B. fall as the industry grows larger but rise as the representative firm grows larger. C. rise as the industry grows larger. D. fall as the representative firm and industry grows larger.

B. fall as the industry grows larger but rise as the representative firm grows larger.

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

B. increasing returns to scale.

Internal economies of scale A. can never form the basis for international trade. B. may be associated with an imperfectly competitive industry. C. are associated only with​ high-tech or complex products such as robotics. D. may be associated with a perfectly competitive industry.

B. may be associated with an imperfectly competitive industry.

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

C. Large firms have cost advantages over small firms.

External economies of scale A. lead to the creation of a single large monopoly. B. cannot be associated with a perfectly competitive industry. C. are more likely to be associated with a perfectly competitive industry. D. tend to result in large profits for each firm and an industry with relatively few firms.

C. are more likely to be associated with a perfectly competitive industry.