Question 1

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

Accepted Answer

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Question 2

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

Accepted Answer

The geographical distribution of resources, including skilled labor, can have a significant effect on firm location decisions. Companies often consider factors such as accessibility to markets, availability of resources, and labor costs when selecting a location. Access to skilled labor is particularly important for companies in high-tech and knowledge-intensive industries.

Question 3

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

Accepted Answer

When countries engage in trade, they often prioritize the industries in which they already have a comparative advantage, rather than investing in new industries that may be more efficient. This can lead to a lack of development and innovation in these potentially more efficient industries. Additionally, competition from foreign industries can make it difficult for domestic industries to compete and grow, further stunting development.

Question 4

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

Accepted Answer

Having plants close to every market would increase transportation costs, which is not cost-effective. Firms should strategically locate their plants to minimize transportation costs and take advantage of economies of scale.

Question 5

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

Accepted Answer

The current rules of the WTO and GATT do not allow subsidies that distort international trade and give unfair advantages to domestic companies at the expense of foreign competitors. Subsidizing a major competitive effort by the semiconductor industry would likely be seen as an unfair trade practice and could lead to trade disputes with other countries. Therefore, option C is the correct answer.

Question 6

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

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Question 7

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

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Question 8

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

Accepted Answer

Under the current rules of the World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT), subsidies for research and development efforts are allowed as long as they are for developing "precompetitive" technology. This is designed to encourage innovation and technological advancement without directly distorting competition in the market.

Question 9

Free market economies underproduce goods with positive externalities because

Accepted Answer

In free market economies, production decisions are made based on private costs and benefits. Externalities, such as positive externalities, are not taken into account by the marketplace. Since the additional social benefits are not considered, the market will not produce enough of the goods with positive externalities.

Question 10

Market failures are less likely to occur whenever

Accepted Answer

Market failures are less likely to occur when new firms can easily attract start-up capital because it indicates a competitive market environment where resources can be efficiently allocated to innovative and productive ventures.

Question 11

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

Accepted Answer

When social returns are less than private returns, it indicates a negative externality. This typically leads to overproduction and underpricing relative to the social optimum, as producers do not account for the external costs imposed on society.

Question 12

WTO rules allow subsides

Accepted Answer

WTO rules allow subsidies for "precompetitive" activities such as research, as they are considered to have positive spillover effects on the economy as a whole. Subsidies for other reasons such as external economies, internal economies or positive externalities in production may be subject to certain limitations or restrictions under WTO rules.

Question 13

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

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Question 14

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?

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Question 15

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

Accepted Answer

Excess competition between firms would lead to lower social returns compared to private returns, as each firm would try to outcompete each other in a zero-sum game, which would result in reduced profits and therefore lower returns for society as a whole. The other choices (B, C, and D) are all reasons why social returns might be greater than private returns. Knowledge spillovers, spillovers from research and development, and capital market imperfections all lead to positive externalities that benefit society as a whole beyond the private returns received by individual firms or investors.

Question 16

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

Accepted Answer

If social returns to the production of a good are greater than private returns, it means that the production of the good creates positive externalities that benefit society as a whole, but these benefits are not captured by the producers who only consider private benefits. Therefore, if the good is left to the market forces, it will be underproduced and overpriced since the market only considers private returns. The social optimum, on the other hand, would require more production and lower prices to account for the positive externalities.

Question 17

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

Accepted Answer

The benefits of industrial policy can also be enjoyed by foreign firms operating in the targeted industry, which can result in increased competition and overall improvement in the industry's performance. Therefore, D is not a problem in the implementation of industrial policies. A, B, and C are all valid concerns in industrial policy implementation.

Question 18

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

Accepted Answer

The statement "Most industrial policies are legal under WTO rules" is not true. In fact, some industrial policies may violate WTO rules, particularly those that involve protectionist measures like tariffs or subsidies. WTO rules seek to promote free and fair trade, and may limit the types of industrial policies that member countries can pursue.

Question 19

Most trade between Mexico and the United States is intrafirm.

Accepted Answer

Intrafirm trade refers to trade between different branches or subsidiaries of the same company, and it is a significant portion of trade between Mexico and the United States. Studies estimate that up to 40% of the value of goods traded between these two countries is intrafirm trade.

Question 20

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

Accepted Answer

Paul Krugman's theory of international trade, known as the "New Economic Geography," emphasizes the role of location and proximity in shaping patterns of trade and specialization between countries. Therefore, it can be said that international trade is really about geography, according to Krugman.

Quiz 5: Beyond Comparative Advantage