Question 1

An increase in the size of the market due to the creation of a free trade area

Accepted Answer

The creation of a free trade area typically increases competition and market size, leading to a reduction in equilibrium prices due to increased supply and competition. Additionally, the larger market can support more firms, leading to an increase in the number of firms.

Question 2

Suppose two countries have similar resources, capital, and skilled labor. If they produce more, the cost per unit of production for both goods declines as more goods are produced. The most efficient method to produce the products is for each country to

Accepted Answer

This scenario describes the principle of comparative advantage, where each country specializes in the production of goods for which it has a lower opportunity cost, and then trades with others to obtain goods it does not produce. This leads to more efficient global production and increased overall welfare.

Question 3

When economies of scale exist over wide production ranges for two products,

Accepted Answer

Economies of scale refer to the cost advantages that a firm can achieve by increasing its production. When economies of scale exist over a wide production range for two products, the gain from trade is the reduction in cost per unit. This means that the firm can produce both products at a lower cost per unit and thus increase its profitability. Specialization in production may also occur, as the firm may choose to allocate its resources towards the product in which it has the greatest cost advantage.

Question 4

Consider an industry in which, for each individual firm in the industry, cost per unit of output declines as the individual firm's output increases. As the size of the market increases, the average total cost at each firm

Accepted Answer

In industries with economies of scale, as the output of individual firms increases, the cost per unit of output decreases due to the spreading of fixed costs across a higher number of units. As the size of the market increases, the output of each firm will also increase, leading to a decrease in the average total cost at each firm. Therefore, the correct choice is A.

Question 5

Consider an industry in which, for each individual firm in the industry, cost per unit of output declines as the individual firm's output increases. If there is an increase in the number of firms in this industry whereas the market size stays the same, then the

Accepted Answer

In an industry where cost per unit declines with increased output per firm, if more firms enter the market without an increase in market size, each existing firm will produce less. This leads to higher average total costs per firm due to reduced economies of scale.

Question 6

If price is above cost, then

Accepted Answer

If price is above cost, it means firms are generating a profit. This will attract new firms to enter the industry, leading to increased competition and potentially driving down the price.

Question 7

Suppose there are two countries that are about to begin trading goods; one is labor abundant and one is capital abundant.
 (A) What can be said abaut the type af gooks that each should procuce?
(B) What can be said about how factar prices will change in the twa cauntries after trade?

Accepted Answer

The answer of Suppose there are two countries that are...

Question 8

An increase in the number of firms entering a market causes the

Accepted Answer

An increase in the number of firms entering a market causes an increase in supply, which leads to a decrease in the market price. As firms compete for customers by lowering their prices, the cost per unit may decline as well, but this is not guaranteed.

Question 9

What determines a country's comparative advantage?

Accepted Answer

The answer of What determines a country's comparative advantage?...

Question 10

The figure below shows the relationship between cost per unit and the number of firms producing a particular good. The downward shift in the curve from A to B is best explained by a(n)
a.
increase in the number of firms in the market.
b.
increase in market size.
c.
decrease in the number of firms in the market.
d.
increase in market price.
e.
decrease in the market size.

Accepted Answer

The answer of The figure below shows the relationship between...

Question 11

A long-run equilibrium in an industry exists when

Accepted Answer

In a long-run equilibrium, price equals cost per unit, ensuring that firms are earning normal profits and there are no incentives for new firms to enter or existing firms to exit. This results in a stable market with no pressure on firms to change their production levels or pricing strategies.

Question 12

Trade between countries in goods from different industries is called

Accepted Answer

Interindustry trade refers to the exchange of goods and services between countries that are produced in different industries. This type of trade allows countries to specialize in the production of goods for which they have a comparative advantage, leading to more efficient global production and consumption patterns.

Question 13

When countries create a free trade area and increase market size, the schedule relating

Accepted Answer

The answer of When countries create a free trade area...

Question 14

When countries create a free trade area and increase market size, there will be

Accepted Answer

When countries create a free trade area, they eliminate trade barriers, which leads to an increase in competition and encourages firms to produce products that are different from their competitors. Increased competition promotes innovation and diversity in product offerings, leading to more product variety. Therefore, the correct answer is D.

Question 15

Trade due to comparative advantage tends to be

Accepted Answer

Comparative advantage means that a country specializes in producing and exporting goods that it can produce at a lower opportunity cost than other countries. This often leads to trade between industries, as different countries have different strengths and weaknesses in the production of different goods. Therefore, trade due to comparative advantage is interindustry.

Question 16

Trade due to expanded markets differs from trade due to comparative advantage in that

Accepted Answer

Trade due to expanded markets is driven by an increase in demand for goods and services from new markets, while trade due to comparative advantage is driven by efficiencies in production. Therefore, the gains from trade in expanded markets do not rely on differences in efficiencies.

Question 17

When economies of scale exist over wide production ranges, countries that specialize in one product and trade excess units to other countries can

Accepted Answer

Economies of scale allow for lower average total costs of production as production increases. When a country specializes in one product and trades excess units to other countries, they can take advantage of these economies of scale and lower their overall average costs, making the product more competitive and potentially increasing revenues.

Question 18

Trade between countries in goods from the same or similar industries is called

Accepted Answer

Intraindustry trade refers to trade between countries in goods from the same or similar industries. This type of trade involves a higher level of specialization and differentiation among the products traded, leading to gains from trade such as increased competition and efficiency.

Question 19

When cost per unit of production for two goods declines as more are produced, a country that trades can

Accepted Answer

When cost per unit of production declines with increased production (economies of scale), a country can specialize in producing one of the goods more efficiently and trade for the other, thus expanding production of one product and contracting production of the other to enjoy the benefits of trade.

Question 20

Workers in countries with higher productivity will be paid more than workers with lower productivity, even in countries that trade.

Accepted Answer

This is because employers are willing to pay more for workers who can produce more value. This means that even if countries trade and there is increased competition, workers in countries with higher productivity will still be able to command higher wages.

Quiz 18: International Trade