HW5/Quiz5

Mexican manufacturing trade has a number of interesting characteristics. They include

maquiladora zones which allow firms to produce goods for export without paying tariffs on imported parts and materials that are used in production. AND the fact that​ 2/3 of​ US-Mexico trade is​ intra-firm.

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.

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

mixed

With respect to the size of​ firms, external and internal economies of scale have An industry in which economies of scale are predominantly external will tend toward a market structure known as When it comes to the gains from​ trade, economies of scale that are external tend to produce

differing​ implications; with internal​ economies, large firms are likely to emerge while external economies tend to yield​ smaller-sized firms. (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.) Agglomerations (The development of regional agglomerations occurs with external economies while either oligopolies or monopolistically competitive structures usually emerge when scale economies are internal.) results that are uncertain and even potentially harmful.

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

Comparative

The implementation of industrial policies is plagued with a variety of difficulties. Which of the following is not one of these​ problems?

Finding an industry willing to accept government support. One difficulty unlikely to ever hinder the implementation of an industrial policy is the inability to find any takers of government support. Next Question

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. Half of the​ world's large jet aircraft are assembled in Seattle. Most semiconductors are manufactured in either the United States or Japan. Most Scotch whiskey comes from Scotland. Much of the​ world's best wine comes from France.

Economies of scale. Economies of scale. Economies of scale. Comparative advantage. Comparative advantage.

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:

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. AND 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. AND 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. (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.)

How do economies of scale give rise to international​ trade? These economies of scale are --- economies of scale.

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

International trade in products made within the same industry is known as --- trade. On the other​ hand, international trade in products made between different industries is called --- trade. One of the distinguishing features of intraindustry trade is the presence of --- economies of scale. The gains from intraindustry trade differ from the gains associated with comparative​ advantage-based trade because

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.) Interindustry Internal intraindustry trade is usually perceived as less threatening to jobs and firms than comparative​ advantage-based trade. AND intraindustry trade generally gives consumers more choices. AND the prices of export goods fall with intraindustry trade but not with comparative​ advantage-based trade. (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?

Knowledge​ spillovers, where firms learn from each other. AND Capital market​ imperfections, where firms with new and sound ideas are unable to attract financing. AND The inability to coordinate activities between​ firms, when the success of an industry requires multiple players to enter simultaneously.

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

Large firms have cost advantages over small firms.

When the social returns from production are larger than the private returns from production

Market output is below the social optimum. AND Prices are too high.

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?

The ability to control the local government. 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

Which of the following are true statements about​ intra-industry trade?

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

The creation of an integrated market as a result of international trade results in

a wider range of choices for consumers. AND more​ firms, each operating at a larger scale. AND lower prices. ​Clearly, everyone is better off as a result of integration. Next Question

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

increasing returns to scale.

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

intraindustry trade.

Where there are economies of​ scale, an increase in the size of the market will

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