Deck 5: Beyond Comparative Advantage

Question 1

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

Answer 1

D

Question 2

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 smartphone for Apple iPhones
D)Trading jeans for cotton

Answer 2

C

Question 3

An internal economies of scale is defined as

A)one whose size or scale effects are not located in the firm,but in the industry.
B)one with falling costs over a specific level of output.
C)one with falling costs over a relatively large range of output.
D)one with falling costs over a relatively large range of output,but definite declining profits.

Answer 3

C

Question 4

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

Question 5

Interindustry trade refers to

A)international trade of products made within the same industry.
B)domestic trade of products made within the same industry.
C)international trade of products made across different industries.
D)the exchange of similar items that are differentiated.
E)None of the above.

Question 6

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)simply expanding the size of the market the firm serves reduces overall per unit costs,since the firm can spread costs over more output.

Question 7

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

Question 8

Which of the following does NOT indicate intraindustry trade?

A)Trading Jeeps for Toyotas
B)Trading Boeing airplanes for Airbus airplanes
C)Trading Bush beer for Heineken beer
D)Trading Japanese-made films for Hollywood-made films
E)Trading oil for trucks

Question 9

Intraindustry trade refers to

A)international trade of products made within the same industry.
B)international trade of products made across different industries.
C)trade that occurs as a result of comparative advantage.
D)the exchange of non-similar items.
E)trade that occurs mostly within developing countries.

Question 10

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

Question 11

Interindustry trade is not based on comparative advantage since it consists of the export and import of similar countries and mostly between countries that have similar productivity,technology,and factor endowments.

Question 12

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

Question 13

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
E)Government subsidies and industrial policy

Question 14

Intraindustry trade tends to be more controversial than interindustry trade.

Question 15

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 are wealthier than developing countries.
D)high-income industrial economies have dissimilar resource endowments in absolute terms.
E)it allows firms to take advantage of internal economies of scale.

Question 16

Which of the following is FALSE about intraindustry trade?

A)Economies of scale allow firms to enjoy lower average costs.
B)It creates gains from trade.
C)It is due to comparative advantage.
D)It may involve heightened competition and lower prices for consumers.
E)It increases consumer choice.

Question 17

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 18

Intraindustry trade relies on

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

Question 19

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)The pattern of production and trade is difficult to predict.
E)It enjoys no economies of scale.

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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)over produced and under priced.
B)under produced and over priced.
C)over produced and over priced.
D)under produced and under priced.
E)None of the above.

Question 26

Market failures occur whenever

A)private returns may be greater than social returns.
B)social returns may be greater than private returns.
C)the free market produces less than what is socially optimal.
D)monopolies exist in a market.
E)All of the above.

Question 27

Most trade between Mexico and the United States is intrafirm.

Question 28

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

Question 29

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 30

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 31

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

Question 32

Describe how Mexico's development strategy changed from the 1950s to today and how that changed the production location decisions of firms.

Question 33

Intraindustry trade is characterized by what two features?

Question 34

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 partly captured by foreign firms.
E)All of the above are problems.

Question 35

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

Question 36

Which type of industry is likely to see more intraindustry trade?

Question 37

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 38

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 39

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 40

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 41

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

Question 42

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)neither allowed nor disallowed.
E)allowed as long as the subsidies are for developing a "precompetitive" technology.

Question 43

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)neither allowed nor disallowed.
E)allowed as long as the subsidies do not succeed in creating a new product.