Question 1

Has the United States gained or lost from NAFTA?

Accepted Answer

The impact of the North American Free Trade Agreement (NAFTA), which was implemented in 1994 and later replaced by the United States-Mexico-Canada Agreement (USMCA) in 2020, on the United States has been a subject of extensive debate among economists, policymakers, and the public. The effects of NAFTA on the U.S. economy are multifaceted and can be assessed from various perspectives, including trade balances, job creation or loss, wage levels, and economic growth.

**Trade Balances:**
NAFTA created one of the world's largest free trade zones, which led to an increase in cross-border trade between the U.S., Canada, and Mexico. While the U.S. trade deficit with Mexico widened following the agreement, this is not necessarily a straightforward indicator of "loss," as trade deficits can occur for a variety of reasons, including strong consumer demand. Moreover, trade with Canada and Mexico supports millions of U.S. jobs, and the increased trade has contributed to economic growth.

**Job Creation and Loss:**
The impact of NAFTA on jobs in the United States is complex. Some industries, particularly manufacturing, experienced job losses due to factories relocating to Mexico where labor costs were lower. However, other sectors, such as services, agriculture, and high-tech industries, benefited from the increased market access and saw job growth. The net effect on jobs is contested, with some estimates indicating net job losses and others suggesting modest job gains.

**Wages and Labor Standards:**
There is evidence that NAFTA put downward pressure on wages for certain low-skilled labor sectors in the U.S., as competition with Mexican labor increased. However, it also may have contributed to wage increases in other sectors due to expanded trade opportunities. NAFTA initially lacked strong labor protections, which was a point of criticism, but the USMCA includes more robust labor provisions.

**Economic Growth:**
NAFTA has generally been seen as positive for overall economic growth in the United States. By eliminating tariffs and reducing trade barriers, the agreement helped increase the efficiency of supply chains and reduced costs for consumers and businesses. This has contributed to economic expansion, although the precise impact of NAFTA relative to other economic factors can be difficult to isolate.

**Investment:**
The agreement also led to increased foreign direct investment (FDI) among the three countries. For the U.S., this meant both an increase in American companies investing in Mexico and Canada, and also an increase in Mexican and Canadian companies investing in the U.S., which can create jobs and contribute to economic growth.

In conclusion, whether the United States has gained or lost from NAFTA is not a simple question to answer. The agreement has had both positive and negative effects, and its impact varies across different regions, industries, and groups of workers. While NAFTA has certainly facilitated trade and economic integration among the three countries, the distribution of benefits and costs has not been even, leading to ongoing debates about the merits of the agreement and its renegotiation into the USMCA.

Question 2

When average costs of production are falling, average cost:

Accepted Answer

A)  is higher than marginal cost. 
B)  is equal to price. 
C)  is negative. 
D)  is less than marginal cost. 
A)  is higher than marginal cost. 
B)  is equal to price. 
C)  is negative. 
D)  is less than marginal cost. A

Question 3

Which of the following is NOT an assumption for monopolistic competition?

Accepted Answer

A)  Firms produce goods using a technology with increasing returns to scale. 
B)  There are many firms in the industry. 
C)  Firms are price takers. 
D)  Each firm produces a good that is similar to, but differentiated from, the goods that other firms in the industry produce. 
A)  Firms produce goods using a technology with increasing returns to scale. 
B)  There are many firms in the industry. 
C)  Firms are price takers. 
D)  Each firm produces a good that is similar to, but differentiated from, the goods that other firms in the industry produce. C

Question 4

In the short run, in equilibrium, firms that operate in a monopolistically competitive market face a downward sloping demand curve and will charge a price where _____ and ______.

Accepted Answer

A)  quantity produced is maximized; costs are minimized 
B)  sales revenue is maximized; costs are falling 
C)  MR = MC; P > average cost 
D)  average costs are rising; sales are rising 
A)  quantity produced is maximized; costs are minimized 
B)  sales revenue is maximized; costs are falling 
C)  MR = MC; P > average cost 
D)  average costs are rising; sales are rising

Question 5

A monopolistic competitor has fixed costs of $100 and marginal costs of $10 per unit. What is its average cost of producing 100 units?

Accepted Answer

A)  $10 
B)  $11 
C)  $1,100 
D)  $2,000 
A)  $10 
B)  $11 
C)  $1,100 
D)  $2,000

Question 6

With increasing returns (falling average costs), international trade will cause the demand curves of monopolistically competitive firms to become _______________ because of foreign competition and firms must _______________to meet foreign competition.

Accepted Answer

A)  steeper; raise prices 
B)  flatter; lower prices 
C)  flatter; raise prices 
D)  steeper; lower prices 
A)  steeper; raise prices 
B)  flatter; lower prices 
C)  flatter; raise prices 
D)  steeper; lower prices

Question 7

The fall in real wages for the maquiladora workers during the 1990s was likely due to what?

Accepted Answer

The fall in real wages for maquiladora w

Question 8

Since NAFTA was signed, Mexico saw the productivity of its firms:

Accepted Answer

A)  decrease in the nonmaquiladora plants. 
B)  decrease in the maquiladora plants. 
C)  increase in the maquiladora plants at a faster pace than in the nonmaquiladora plants. 
D)  increase in the maquiladora plants at a slower pace than in the nonmaquiladora plants. 
A)  decrease in the nonmaquiladora plants. 
B)  decrease in the maquiladora plants. 
C)  increase in the maquiladora plants at a faster pace than in the nonmaquiladora plants. 
D)  increase in the maquiladora plants at a slower pace than in the nonmaquiladora plants.

Question 9

A feature of imperfect competition is _________, which means that as the firm expands its production, average costs of production fall. Therefore, the firm can _______ its costs of production by selling internationally.

Accepted Answer

A)  increasing returns to scale; decrease 
B)  increasing returns to scale; increase 
C)  decreasing returns to scale; decrease 
D)  decreasing returns to scale; increase 
A)  increasing returns to scale; decrease 
B)  increasing returns to scale; increase 
C)  decreasing returns to scale; decrease 
D)  decreasing returns to scale; increase

Question 10

At its current production level, a monopolist's marginal revenue is $20 and its marginal cost is $10. Which of the following is correct?

Accepted Answer

A)  The monopolist should produce and sell more output. 
B)  The monopolist should produce and sell less output. 
C)  The monopolist is maximizing its profits at its current level of output. 
D)  The monopolist should cease production. 
A)  The monopolist should produce and sell more output. 
B)  The monopolist should produce and sell less output. 
C)  The monopolist is maximizing its profits at its current level of output. 
D)  The monopolist should cease production.

Question 11

Other things equal, the gravity equation predicts that the United States will have more trade with __________ than with _________.

Accepted Answer

A)  Bangladesh; Japan 
B)  Russia; Japan 
C)  Canada; Bangladesh 
D)  Russia; Canada 
A)  Bangladesh; Japan 
B)  Russia; Japan 
C)  Canada; Bangladesh 
D)  Russia; Canada

Question 12

Which of the following will NOT cause increasing returns to scale and declining average costs?

Accepted Answer

A)  focusing on a single product line and specializing 
B)  exporting goods to other countries 
C)  selling more in their home market 
D)  hiring more workers at the existing plant 
A)  focusing on a single product line and specializing 
B)  exporting goods to other countries 
C)  selling more in their home market 
D)  hiring more workers at the existing plant

Question 13

(Table: Imports and Exports of Commodities Within U.S. Industries) In the table, which industry has the lowest intra-industry trade index?

Accepted Answer

A)  large passenger aircraft 
B)  fax machines 
C)  golf clubs 
D)  men's shorts 
A)  large passenger aircraft 
B)  fax machines 
C)  golf clubs 
D)  men's shorts

Question 14

What is the value of the intra-industry trade index for an industry in which exports are $200 million and imports are $20 million?

Accepted Answer

A)  2.00 
B)  (200 + 20)/20 = 11.00 
C)  20/[1/2 · (200 + 20)] = 0.18 
D)  (200 - 20)/200 = 0.90 
A)  2.00 
B)  (200 + 20)/20 = 11.00 
C)  20/[1/2 · (200 + 20)] = 0.18 
D)  (200 - 20)/200 = 0.90

Question 15

ABC Corporation is a monopolistic competitor. It has fixed costs of $5,000 and a constant marginal cost of $500 per unit of production. It faces a demand curve described by this equation:
P = 1,000 - 10Q.
I. Find ABC's equilibrium price and quantity.
II. Will it earn monopoly profits at this equilibrium?
III. What will happen to ABC's price, quantity, and monopoly profits in the long run?

Accepted Answer

To find ABC Corporation's equilibrium pr

Question 16

Use this information to answer the following questions: The GDPs of countries A, B, and C are $100, $200, and $300, respectively. There are 1,000 miles between country A and countries B and C. Assume that their markets are monopolistically competitive. Does the gravity equation predict that there will be more trade between A and B or between A and C?

Accepted Answer

The gravity equation in international tr

Question 17

Which of the following is NOT a characteristic of monopolistic competition?

Accepted Answer

A)  Firms have some control over their markets. 
B)  Firms produce an identical product. 
C)  Firms retain some ability to control prices. 
D)  The average cost for firms declines as they produce more output. 
A)  Firms have some control over their markets. 
B)  Firms produce an identical product. 
C)  Firms retain some ability to control prices. 
D)  The average cost for firms declines as they produce more output.

Question 18

In the long run, profits in a monopolistically competitive market are zero because:

Accepted Answer

A)  of government regulations. 
B)  of collusion. 
C)  firms are free to enter and exit the market. 
D)  firms produce a differentiated product. 
A)  of government regulations. 
B)  of collusion. 
C)  firms are free to enter and exit the market. 
D)  firms produce a differentiated product.

Question 19

Studies of NAFTA have concluded that from 1994 to 2003, free trade caused ______________in the productivity of Mexican maquiladora firms producing for export than for Mexican firms mainly producing for the Mexican domestic market.

Accepted Answer

A)  larger increases 
B)  smaller increases 
C)  identical increases 
D)  no change 
A)  larger increases 
B)  smaller increases 
C)  identical increases 
D)  no change

Question 20

A monopolistic competitive firm:

Accepted Answer

A)  will always earn monopoly profits. 
B)  will never earn monopoly profits. 
C)  may earn monopoly profits in the short run. 
D)  may earn monopoly profits in the long run. 
A)  will always earn monopoly profits. 
B)  will never earn monopoly profits. 
C)  may earn monopoly profits in the short run. 
D)  may earn monopoly profits in the long run.

Has the United States gained or lost from NAFTA?

When average costs of production are falling, average cost:

Which of the following is NOT an assumption for monopolistic competition?

In the short run, in equilibrium, firms that operate in a monopolistically competitive market face a downward sloping demand curve and will charge a price where _ and __.

A monopolistic competitor has fixed costs of $100 and marginal costs of $10 per unit. What is its average cost of producing 100 units?

With increasing returns (falling average costs), international trade will cause the demand curves of monopolistically competitive firms to become _ because of foreign competition and firms must _to meet foreign competition.

The fall in real wages for the maquiladora workers during the 1990s was likely due to what?

Since NAFTA was signed, Mexico saw the productivity of its firms:

A feature of imperfect competition is ___, which means that as the firm expands its production, average costs of production fall. Therefore, the firm can _ its costs of production by selling internationally.

At its current production level, a monopolist's marginal revenue is $20 and its marginal cost is $10. Which of the following is correct?

Other things equal, the gravity equation predicts that the United States will have more trade with __ than with _.

Which of the following will NOT cause increasing returns to scale and declining average costs?

(Table: Imports and Exports of Commodities Within U.S. Industries) In the table, which industry has the lowest intra-industry trade index?

What is the value of the intra-industry trade index for an industry in which exports are $200 million and imports are $20 million?

Which of the following is NOT a characteristic of monopolistic competition?

In the long run, profits in a monopolistically competitive market are zero because:

Studies of NAFTA have concluded that from 1994 to 2003, free trade caused ______________in the productivity of Mexican maquiladora firms producing for export than for Mexican firms mainly producing for the Mexican domestic market.

A monopolistic competitive firm:

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Gains and Losses From Trade in the Specific-Factors Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

The Global Macroeconomy

Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

Filters

Exam 6: Increasing Returns to Scale and Monopolistic Competition

Has the United States gained or lost from NAFTA?

When average costs of production are falling, average cost:

Which of the following is NOT an assumption for monopolistic competition?

In the short run, in equilibrium, firms that operate in a monopolistically competitive market face a downward sloping demand curve and will charge a price where _____ and ______.

A monopolistic competitor has fixed costs of $100 and marginal costs of $10 per unit. What is its average cost of producing 100 units?

With increasing returns (falling average costs), international trade will cause the demand curves of monopolistically competitive firms to become _______________ because of foreign competition and firms must _______________to meet foreign competition.

The fall in real wages for the maquiladora workers during the 1990s was likely due to what?

Since NAFTA was signed, Mexico saw the productivity of its firms:

A feature of imperfect competition is _________, which means that as the firm expands its production, average costs of production fall. Therefore, the firm can _______ its costs of production by selling internationally.

At its current production level, a monopolist's marginal revenue is $20 and its marginal cost is $10. Which of the following is correct?

Other things equal, the gravity equation predicts that the United States will have more trade with __________ than with _________.

Which of the following will NOT cause increasing returns to scale and declining average costs?

(Table: Imports and Exports of Commodities Within U.S. Industries) In the table, which industry has the lowest intra-industry trade index?

What is the value of the intra-industry trade index for an industry in which exports are $200 million and imports are $20 million?

Which of the following is NOT a characteristic of monopolistic competition?

In the long run, profits in a monopolistically competitive market are zero because:

Studies of NAFTA have concluded that from 1994 to 2003, free trade caused ______________in the productivity of Mexican maquiladora firms producing for export than for Mexican firms mainly producing for the Mexican domestic market.

A monopolistic competitive firm:

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Gains and Losses From Trade in the Specific-Factors Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

The Global Macroeconomy

Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

Filters

In the short run, in equilibrium, firms that operate in a monopolistically competitive market face a downward sloping demand curve and will charge a price where _ and __.

With increasing returns (falling average costs), international trade will cause the demand curves of monopolistically competitive firms to become _ because of foreign competition and firms must _to meet foreign competition.

A feature of imperfect competition is ___, which means that as the firm expands its production, average costs of production fall. Therefore, the firm can _ its costs of production by selling internationally.

Other things equal, the gravity equation predicts that the United States will have more trade with __ than with _.