Deck 5: Beyond Comparative Advantage

Question 1

Intraindustry trade refers to

A)international trade in products made within the same industry.
B)international trade in products made across different industries.
C)trade that occurs as a result of comparative advantage.
D)the exchange of dissimilar items.

Answer 1

A

Question 2

Which of the following is true about monopolistic competition?

A)One firm serves as the entire industry.
B)A small number of firms serve the entire market.
C)It is competition among many firms producing similar but differentiated products.
D)Firms do not have economies of scale.

Answer 2

C

Question 3

Intraindustry trade relies on

A)economies of scale.
B)the product cycle.
C)differences in factor endowments.
D)monopoly pricing.

Answer 3

A

Question 4

Which of the following is an example of intraindustry trade?

A)Trading peanut oil for tractors
B)Trading crude oil for automobiles
C)Trading Nokia smartphones for Apple iPhones
D)Trading jeans for cotton

Question 5

One reason that a large share of the trade between high-income industrial economies is intraindustry trade is because

A)it is more advantageous than interindustry trade.
B)high-income industrial economies produce in the first stage of the product cycle.
C)high-income industrial economies have dissimilar resource endowments in absolute terms.
D)it allows firms to take advantage of internal economies of scale.

Question 6

An internal economies of scale is defined as

A)an industry with costs that fall for all firms.
B)a firm with falling costs over a specific level of output.
C)a firm with falling costs over a relatively large range of output.
D)a firm with falling costs over a relatively large range of output, but definite declining profits.

Question 7

Intraindustry trade is characterized by what two features of the industry and market?

A)Diseconomies of scale and homogeneous products
B)Non-tariff barriers and large-scale foreign investment
C)Quota auctions and low effective rates of protection
D)Economies of scale and differentiated products

Question 8

Which of the following is NOT an example of intraindustry trade?

A)Trading Jeeps for Toyotas
B)Trading Boeing airplanes for Airbus airplanes
C)Trading Bush beer for Heineken beer
D)Trading oil for trucks

Question 9

Internal economies of scale means that

A)firms are experiencing lower average production costs due to a geographical concentration of firms in their industry that make it cheaper and easier to hire highly specialized workers and inputs.
B)firms will have lower profits after international trade begins, because costs will be higher than when they just focused on the domestic market.
C)consumers will have less choices once trade begins, because firms will be squeezed out of the market.
D)expanding the size of the market the firm serves reduces overall per unit costs, since the firm can spread costs over more output.

Question 10

If trade in a particular good interindustry,the expansion of an industry in one country is likely to lead to the ________ of that industry in the other country.If trade in that good is intraindustry,expansion of the industry in one country is likely to lead to the ________ in the other country.

A)decline, decline
B)decline, expansion
C)expansion, decline
D)expansion, expansion

Question 11

If countries have similar factors of production and similar productivities,most of their trade is likely to be intraindustry.

Question 12

Intraindustry trade can lead to lower prices and job creation in both the exporting and the importing nation.

Question 13

Comparative advantage cannot account for a significant portion of world trade.

Question 14

Economies of scale are an important determinant of comparative advantage-based trade.

Question 15

Which of the following is NOT a likely result of intraindustry trade based on internal economies of scale?

A)Job creation at domestic firms entering international trade
B)Lower prices for the domestic consumers of the product now being traded
C)Increased sales and lower per unit costs for the firm doing the exporting
D)Higher prices for the exported product

Question 16

Comparative advantage has mixed results when it comes to predicting a country's trade patterns.Which of the following is FALSE?

A)There are many potential products an economy might export that use the same comparative advantage.
B)A large share of international trade is not based on comparative advantage.
C)Comparative advantage has proven completely incapable of predicting trade.
D)Comparative advantage is a dynamic concept, which means that the spread of technology, improvement in skills, and learning-by-doing may alter a country's comparative advantage over time.

Question 17

An internal economy means that ________,while an external economy means that ________.

A)firm costs fall as firm output increases, firm costs fall as industry output increases
B)firm costs fall as industry output increases, firm costs fall as firm output increases
C)firm costs fall as firm output increases, firm costs rise as industry output increases
D)firm costs fall as industry output increases, firm costs rise as firm output increases

Question 18

Interindustry trade refers to

A)international trade in products made within the same industry.
B)domestic trade in products made within the same industry.
C)international trade in products made across different industries.
D)the exchange of similar items that are differentiated.

Question 19

Which of the following is FALSE about intraindustry trade?

A)Intraindustry trade creates gains from trade.
B)Intraindustry trade is due to comparative advantage.
C)Intraindustry trade may involve heightened competition and lower prices for consumers.
D)Intraindustry trade increases consumer choice.

Question 20

Interindustry trade is not based on comparative advantage since it consists of the export and import of similar goods.

Question 21

If the United States and Mexico trade Budweiser for Modelo beer,what type of trade does this represent?

Question 22

If countries have similar factor endowments and productivities,what type of trade are they most likely to have?

Question 23

Concentration of industries can lead to external economies for all of the following reasons EXCEPT

A)concentrated industries will not be competitive.
B)concentrated industries will attract a network of input suppliers.
C)concentrated industries will attract a deep pool of skilled labor.
D)concentrated industries will experience knowledge spillovers.

Question 24

Describe the two sources of economies of scale and how these economies of scale lead to intraindustry trade.

Question 25

A substantial amount of trade between industrialized countries is intraindustry or intrafirm trade rather than interindustry trade.

Question 26

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?

A)The product line requires quick turn-around time from or to delivery.
B)The need to manage a just-in-time inventory system
C)Wages are low and the production process is labor intensive.
D)The product is heavy and bulky relative to its final value.

Question 27

Most foreign investment is today is directed towards high-income countries because

A)there are tax breaks and subsidies available.
B)markets are larger, so transportation costs are minimized by producing near the market.
C)high-income countries are politically stable.
D)there are no economies of scale in low-income countries.

Question 28

Which of the following is FALSE?

A)Economies of scale may be internal, external, or both.
B)With internal economies of scale, the gains from trade include a wider selection of consumer choices and lower prices.
C)With external economies of scale, the gains from trade are less certain since, in theory, they can lock in production in a less efficient country and prevent the development of production in a more efficient country.
D)Internal economies of scale lead firms to regionally concentrate their industry.

Question 29

Carefully explain why there are gains from intraindustry trade.

Question 30

Which of the following is a reason why trade and geography are linked?

A)There are high costs of locating in large urban areas.
B)Many industries have no economies of scale.
C)Competition means that all firms want to locate near each other.
D)Some locations give access to pools of skilled labor or special resources.

Question 31

When there are external economies of scale in an industry

A)firm costs decrease as individual firms expand output.
B)firm costs decrease as the industry expands in size.
C)firms will generally increase their size.
D)firms must be located in different regions.

Question 32

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

A)an initial head start gives a scale advantage to already existing firms in one country.
B)diseconomies of scale make it impossible for new firms to enter the market.
C)a location has a better-developed linkage between suppliers and producers, giving it a cost advantage.
D)a historical accident, such as the shifting of airplane production to the United States to avoid World War II bombings, causes firms in one location to have a competitive advantage.

Question 33

If countries have similar factor endowments and productivities,their trade is likely to be interindustry.

Question 34

Trading French wine for California wine is an example of intraindustry trade.

Question 35

Intraindustry trade tends to be more controversial than interindustry trade.

Question 36

Intraindustry trade is characterized by what two features?

Question 37

Which of the following is FALSE?

A)Most of the maquiladora industry is located in the states of Mexico that border the United States.
B)The maquiladora industry has not created much employment in Mexico because most of the production is capital intensive.
C)The maquiladora industry accounts for more than half of Mexico's exports today.
D)Growth in Mexico's northern border cities , such as Tijuana and Ciudad Juarez, took off almost a decade before NAFTA because of the maquiladora industry.

Question 38

In an industry where transportation costs are high and there are limited scale economies,

A)firms will locate close to the market.
B)firms will locate close to their input sources.
C)firms might locate in either area.
D)firms will locate where policy makers decide.

Question 39

Which industry was first covered by a free trade agreement between Canada and the United States?

Question 40

If the United States and Canada trade hydro-powered electricity for Hollywood films,what type of trade does this represent?

Question 41

Is it possible that trade could prevent the development of new and more efficient industries?

Question 42

The geographical distribution of resources such as skilled labor has little effect on firm location decisions.

Question 43

Trade can stifle the development of industries than might be more efficient than existing ones.

Question 44

To minimize costs,firms should have plants close to every market.

Question 45

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

A)allowed as long as the subsidies are a small percent of the total cost.
B)allowed as long as the subsidies do not involve a direct payment to the industry.
C)not allowed.
D)allowed as long as the subsidies do not succeed in creating a new product.

Question 46

Explain how concentration of industries in a particular region can lead to external economies.

Question 47

Concentration of firms in a particular region is likely to attract skilled labor to that area.

Question 48

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

A)allowed as long as the subsidies are a small percent of the total cost.
B)allowed as long as the subsidies do not involve a direct payment to the industry.
C)not allowed.
D)allowed as long as the subsidies are for developing a "precompetitive" technology.

Question 49

Free market economies underproduce goods with positive externalities because

A)there are no benefits to the production of these goods.
B)the additional social benefits are not taken into account by the marketplace.
C)the additional social benefits cannot be measured.
D)the additional social benefits are too small to matter.

Question 50

Market failures are less likely to occur whenever

A)private returns are greater than social returns.
B)social returns are greater than private returns.
C)the free market produces less than what is socially optimal.
D)new firms can easily attract start-up capital.

Question 51

If social returns to the production of a good are less than private returns,then we can conclude that relative to the social optimum,the good will be

A)overproduced and underpriced.
B)underproduced and overpriced.
C)overproduced and overpriced.
D)underproduced and underpriced.

Question 52

WTO rules allow subsides

A)when there are external economies.
B)of "precompetitive" activities such as research.
C)when there are internal economies.
D)when there are positive externalities in production.

Question 53

Describe how Mexico's manufacturing has changed location and type over time.

Question 54

How can regional concentration of firms in an industry lead to external economies of scale? Give examples of these types of industrial clusters in the United States.Are they always beneficial?

Question 55

Which of the following is NOT a reason social returns might be greater than private returns?

A)Excess competition between firms
B)Knowledge spillovers
C)Spillovers from research and development
D)Capital market imperfections

Question 56

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

A)overproduced and underpriced.
B)underproduced and overpriced.
C)overproduced and overpriced.
D)underproduced and underpriced.

Question 57

Which of the following is NOT a problem in the implementation of industrial policies?

A)Choosing the industry to target
B)Knowing the optimum amount of resources to provide the targeted industry
C)The encouragement of rent seeking by firms in other industries
D)The benefits are captured only by domestic firms.

Question 58

Which of the following is NOT a true statement about industrial policies?

A)Industrial policies can lead to the development of successful industries.
B)Not all industrial policies are successful.
C)Not all industrial policies are the best use of a nation's resources.
D)Most industrial policies are legal under WTO rules.

Question 59

Most trade between Mexico and the United States is intrafirm.

Question 60

Paul Krugman has stated that international trade is really about geography.

Question 61

Sound macroeconomic policies are less important than industrial policies in promoting growth.

Question 62

Explain what rent seeking is and how it may reduce the benefits of industrial policies.

Question 63

One problem with industrial policies is that

A)R&D only benefits the firm that conducts it.
B)governments usually target the wrong industries.
C)it is difficult to measure the extent of market failure.
D)it is not politically popular to support industries.

Question 64

The United States does not use subsidies as part of its policies.

Question 65

Benefits of R&D spending to foreigners may be as much as 1/4 of the total value of the spending.

Question 66

Japan and Korea use or have used many industrial policies,and they are both considered to be countries that have developed successfully.Does that mean that the industrial policies caused their successful development?

Question 67

Explain why industrial policies are controversial.

Question 68

Industrial policies have not been effective in encouraging investment in clean energy.