Deck 5: Intra-Industry Trade

Question 1

Intra-industry trade:

A) occurs when a country simultaneously exports and imports the same product.
B) cannot be adequately explained using the factor-proportions theory of international trade.
C) is measured using the intra-industry trade index.
D) All of the above
E) None of the above

Answer 1

occurs when a country simultaneously exports and imports the same product.
All of the above

Question 2

The simultaneous export and import of beer by the U.S. is an example of:

A) interindustry trade.
B) perfect competition.
C) constant returns to scale.
D) intra-industry trade.
E) comparative advantage trade.

Answer 2

intra-industry trade.

Question 3

Intra-industry trade:

A) can be explained in the same way we explain trade in wheat or textiles.
B) cannot happen if the products in question are differentiated.
C) cannot occur if the market is characterized by monopolistic competition.
D) All of the above
E) None of the above

Answer 3

can be explained in the same way we explain trade in wheat or textiles.

Question 4

A large amount of international trade:

A) involves differentiated products.
B) is intra-industry trade.
C) is based on imperfect competition.
D) All of the above
E) None of the above

Question 5

A relatively large amount of intra-industry trade would be associated with:

A) an index of intra-industry trade close to zero.
B) an index of intra-industry trade of .20.
C) a large amount of imports in a product category with few exports in the same product category.
D) an index of intra-industry trade close to 1.0.
E) an index of intra-industry trade of 2.0.

Question 6

The growth of automobile trade among developed countries is an example of:

A) intra-industry trade.
B) interindustry trade.
C) the factor-proportions theory.
D) the Leontief paradox.
E) FDI.

Question 7

When there is balanced (exports equal imports) intra-industry trade in a certain product, the index of intra-industry trade is:

A) 0.00.
B) 0.25.
C) 0.50.
D) 1.00.
E) 2.00.

Question 8

If in 2002, U.S. automobile exports were $100 billion and imports were $300 billion, the index of intra-industry trade would be:

A) 0.25.
B) 0.75.
C) 0.50.
D) 1.00.
E) 1.50.

Question 9

A problem associated with measuring intra-industry trade is:

A) the industry or product groups are well defined.
B) the industries do not have the data to measure trade.
C) the trade is two-way trade.
D) the products are not counted as exports or imports.
E) entrepot trade.

Question 10

The intra-industry trade index:

A) ranges from 0 to 1.
B) is 0 when all trade in the industry or product group is intra-industry trade.
C) is 1 when all trade in the industry or product group is interindustry trade.
D) is calculated by subtracting total imports from total exports.
E) cannot be accurately calculated.

Question 11

If a country is importing 20 units of a product and exporting 10 units, then the IIT index would be approximately:

A) 0.0.
B) 1.0.
C) 0.67.
D) 0.1.
E) 2.48.

Question 12

Country A imports $60 in shirts and exports $40 in shirts. Its intra-industry trade index for shirts is:

A) .8.
B) .2.
C) $10.
D) $90.
E) None of the above

Question 13

Country A imports $50 in shirts and exports $50 in shirts. Its intra-industry trade index for shirts is:

A) 0.
B) 1.
C) .50.
D) $100.
E) None of the above

Question 14

The intra-industry trade index is computed using the following formula:

A) (X - M).
B) (X - M)/(X + M).
C) |X - M|/(X + M).
D) 1 - |X - M|/(X + M).
E) (X + M)/(X - M).

Question 15

Intra-industry trade is most common in:

A) Latin America.
B) developing countries.
C) developed countries of Europe.
D) all countries.
E) None of the above

Question 16

Intra-industry trade in homogeneous products occurs because:

A) foreign products are more expensive.
B) tariffs make domestic good affordable.
C) seasonal fluctuations.
D) lower domestic communication costs.
E) FDI.

Question 17

Which of following is not a reason for intra-industry trade in homogeneous products?

A) identical and bulky materials
B) joint production of certain kinds of services
C) entrepot trade
D) product differentiation
E) None of the above

Question 18

Which of the following is not an explanation of intra-industry trade in homogeneous products?

A) Foreign suppliers may be closer along the borders of a country than domestic suppliers.
B) Entrepot and re-export trade
C) Seasonal fluctuations in output or demand
D) Lack of resources to make a product domestically
E) None of the above

Question 19

Which of the following is not a reason for IIT in homogeneous products?

A) border trade
B) seasonal trade
C) trade in homogeneous services
D) product differentiation
E) All of the above

Question 20

Horizontally differentiated products are products where:

A) the prices are similar but the products differ slightly in some perceived manner.
B) both the physical characteristics and the prices of the products differ.
C) the physical characteristics of the product are identical but product prices differ.
D) the physical characteristics and product prices are identical.
E) price is the most important characteristic.

Question 21

Vertically differentiated products are products where:

A) the prices are similar but the products differ slightly in some perceived manner.
B) both the physical characteristics and the prices of the products differ.
C) the physical characteristics of the product are identical but the prices differ.
D) the physical characteristics and the prices are identical.
E) trade rarely occurs.

Question 22

Which of the following characterizes monopolistic competition?

A) price collusion
B) price discrimination
C) product differentiation
D) price controls
E) perfectly elastic supply.

Question 23

Intra-industry trade:

A) tends to be associated with differentiated products.
B) is never associated with vertically differentiated products.
C) rarely occurs between developed and developing countries.
D) can be dismissed as a data issue.
E) does not occur among developed countries.

Question 24

Firms in imperfectly competitive markets:

A) are not able to influence the price of the product.
B) can influence the price of the product by changing the quantity offered for sale.
C) are not able to differentiate the products within the industry.
D) have alliances with foreign countries to avoid double taxation.
E) have absolutely no market power.

Question 25

The essential characteristic of a competitive firm is that:

A) it is a price maker.
B) it is a price taker.
C) the market demand for the product does not exist.
D) firms produce differentiated products.
E) it is the only producer.

Question 26

A competitive firm is one:

A) that has a large advertising budget.
B) that has monopoly power.
C) that has no effect on the market price.
D) that can raise prices to increase profits.
E) that never lowers prices.

Question 27

A monopolist has market power because:

A) it is a price maker.
B) it produces a unique product.
C) it has the ability to alter the market price of the product.
D) All of the above
E) None of the above

Question 28

Which market structure is characterized by only a few firms?

A) monopolistic competition
B) oligopoly
C) monopoly
D) perfect competition
E) limited competition.

Question 29

Which of the following factors could potentially cause intra-industry trade?

A) the existence of significant economies of scale
B) R&D being an important input into the production process
C) the operation of the sunspot cycle
D) both A and B
E) both B and C

Question 30

Which of the following is one of the most important determinants of intra-industry trade?

A) physical capital
B) human capital
C) unskilled labor
D) economies of scale
E) perfect competition

Question 31

Economies of scale:

A) are known as decreasing costs or increasing returns to scale.
B) are internal to the firm if the expansion of the size of the firm itself is the basis from the decline in its average costs.
C) are external to the firm when a firm's average costs fall as the output of the entire industry rises.
D) are unrelated to intra-industry trade.
E) All of the above

Question 32

Economies of scale:

A) contribute to the existence of intra-industry trade.
B) refers to the tendency for per unit costs to rise with the level of output.
C) do not contribute to the existence of intra-industry trade in differentiated products.
D) never occur in the production of homogeneous products.
E) are unrelated to intra-industry trade.

Question 33

A decline in average costs caused by the expansion of a firm is a form of:

A) external economies of scale.
B) internal economies of scale.
C) expansionist economies of scale.
D) fixed economies of scale.
E) final economies of scale.

Question 34

A decline in average costs caused by the expansion of an industry is a form of:

A) external economies of scale.
B) internal economies of scale.
C) expansionist economies of scale.
D) industry economies of scale.
E) zero economies of scale.

Question 35

If the cost of producing a product declines dramatically with increases in the level of output then:

A) economies of scale (EOS) may be a source of comparative advantage.
B) countries with a large internal market may be more likely to have a comparative advantage in the production of this product.
C) the level of output and comparative advantage are unrelated.
D) both a and b
E) both b and c

Question 36

The product cycle refers to:

A) the changing location of production of a particular good over time.
B) the changing of the marketing strategy for a particular good over time.
C) the changing nature of a particular good over time.
D) the changing pattern of comparative advantage over time.
E) trade in commodities.

Question 37

The basic idea that certain countries specialize in producing new products based on technological innovation while other countries specialize in producing already well-established products is called:

A) economies of scale.
B) primary and secondary markets.
C) product cycle.
D) production cost theory.
E) diseconomies of scale.

Question 38

Which of the following products would the product cycle least likely be applied to?

A) TVs
B) Calculators
C) VCRs
D) Crude oil
E) limes.

Question 39

Which of the following products would the product cycle most likely be applied to?

A) computers
B) coffee
C) crude oil
D) seasonal fruits
E) mangoes.

Question 40

The product cycle follows which of the following production strategies?

A) high-income domestic market, high-income non-domestic market, developing country market
B) developing country market, moderate-income market, high-income domestic market
C) high-income domestic market, moderate-income market, developing country market
D) high-income domestic market, developing country market
E) None of the above

Question 41

A high-income country is more likely to trade with:

A) underdeveloped countries.
B) high-income countries.
C) high population countries.
D) developing countries.
E) Latin America.

Question 42

In a high-income country which of the following statements is true with respect to the product cycle?

A) The country would tend to export low-priced versions of goods.
B) The country would tend to import high-priced versions of goods.
C) R&D for high-priced versions of goods would be done in low-income countries where labor is cheaper.
D) The country would tend to import low-priced versions and export high- priced versions of goods.
E) It is unrelated to economies of scale.

Question 43

Intra-industry trade (IIT):

A) is nothing but a trivial data problem.
B) can be analyzed in exactly the same way we analyzed interindustry trade.
C) has nothing to do with trade in differentiated products.
D) can be related to the existence of overlapping demands.
E) does not occur between developed and developing countries.

Question 44

Which of the following has not been known to lead to intra-industry trade?

A) Overlapping demands
B) EOS
C) Vertical product differentiation
D) Transfer pricing
E) Vertical pricing.

Question 45

The theory of overlapping demands states that:

A) average income levels determine the tastes and preferences of consumers within a country.
B) countries with a low average income are more likely to trade with countries with a high average income.
C) countries are likely to trade with other countries that have similar income levels.
D) both a and c
E) both b and c

Question 46

Linder's hypothesis that consumers prefer to choose from a variety of goods with slightly different characteristics:

A) can explain intra-industry trade.
B) means that countries with different standards of living will tend to trade iron for pharmaceuticals.
C) is an explanation for factor-price equalization.
D) is an explanation for differences in the cost of production among countries.
E) has been empirically shown to be incorrect.

Question 47

In the theory of overlapping demands, the gains from intra-industry trade are a result of:

A) a greater variety of products.
B) increasing return to scale.
C) imperfect competition.
D) re-export trade.
E) entrepot trade.

Question 48

Linder's hypothesis provides an explanation for:

A) interindustry trade.
B) intra-industry trade.
C) constant returns to scale.
D) imperfect competition.
E) comparative advantage.

Question 49

Which of the following would be an example of intra-industry trade based on overlapping demands?

A) bourbon
B) beer
C) Volvos
D) movies
E) all of the above

Question 50

Which of the following is not an explanation of intra-industry trade?

A) economies of scale
B) the product cycle
C) overlapping demands
D) factor proportions
E) All of the above

Question 51

Which gives consumers more product choices?

A) no international trade
B) interindustry trade
C) intra-industry trade
D) autarky
E) all of the above

Question 52

Which of the following would be an example of vertical product differentiation?

A) rice
B) steel
C) cars
D) insurance
E) none of the above

Question 53

Which of the following industries would be associated with an IIT index close to zero?

A) perfume
B) cars
C) beer
D) all of the above
E) none of the above

Question 54

Interindustry trade cannot be explained by the factor-proportions theory.

Question 55

Intra-industry trade can be defined as trade between countries in very dissimilar goods, e.g., steel and wheat.

Question 56

The factor-proportions theory adequately explains why countries engage in intra-industry trade.

Question 57

Intra-industry trade is the situation where a country is both importing and exporting in the same industry.

Question 58

The exchange of automobiles between developed countries is an example of interindustry trade.

Question 59

The fact that the U.S. both imports tequila from Mexico and exports bourbon to Mexico is an example of interindustry trade.

Question 60

Interindustry trade is the situation where a country is both importing and exporting the same product.

Question 61

The intra-industry trade index can never be zero.

Question 62

Intra-industry trade in the world economy is not growing.

Question 63

IIT is more important for developing countries than it is for developed countries.

Question 64

If the intra-industry trade index is close to one for a particular industry this means that there is a lot of intra-industry trade in that industry.

Question 65

Interindustry trade occurs when a country simultaneously exports and imports the same good.

Question 66

The most commonly used measure of intra-industry trade is the foreign trade index.

Question 67

An intra-industry trade index of 0 indicates that 100% of the trade is interindustry trade.

Question 68

If the IIT index for a product category is .93 then there is very little intra-industry trade occurring in this product category.

Question 69

Intra-industry trade only occurs in differentiated goods.

Question 70

Entrepot trade occurs when a good is imported into a country and the same good is later exported to another country.

Question 71

Intra-industry trade never occurs in homogeneous products.

Question 72

Intra-industry trade in homogeneous goods could occur because of cross-border trade in goods with a low value/weight ratio such as cement.

Question 73

Intra-industry trade occurs mostly in differentiated products.

Question 74

Intra-industry trade occurs only in vertically differentiated products.

Question 75

Horizontal product differentiation is the situation where the prices and quality of competing products are similar.

Question 76

The difference between a Ford and a Chevrolet is an example of horizontal product differentiation.

Question 77

The difference between a Rolls Royce and a Chevrolet is an example of vertical product differentiation.

Question 78

Vertical product differentiation only occurs in homogeneous products.

Question 79

In perfect competition, firms have little to no influence over the price of the product they produce.

Question 80

A critical distinction between imperfect competition and perfect competition is the number of individual firms in the marketplace.