If a firm's output more than doubles when all inputs are doubled, production is said to occur under conditions of
A. intra-industry equilibrium.
B. increasing returns to scale.
C. imperfect competition.
D. constant returns to scale
E. decreasing returns t
b
If a firm's output doubles when all inputs are doubled, production is said to occur under conditions of
A. intra-industry equilibrium.
B. constant returns to scale.
C. increasing returns to scale.
D. imperfect competition.
E. decreasing returns to scale.
b
When there are external economies of scale, an increase in the size of the market will
A. not affect the number of firms, but will lower the price per unit.
B. decrease the number of firms and raise the price per unit.
C. increase the number of firms and
d
External economies of scale arise when the cost per unit
A. falls as the industry and the average firm grows larger.
B. rises as the industry and the average firm grows larger.
C. rises as the industry grows larger and falls as the average firm grows larg
d
Internal economies of scale arise when the cost per unit
A. remains constant over a broad range of output.
B. falls as the average firm grows larger.
C. rises as the industry grows larger.
D. falls as the industry grows larger.
E. rises as the average fir
b
External economies of scale often arise because similar firms
A. agree to cooperate to expand global trade.
B. have economies of scale in production.
C. have excellent internal logistics.
D. locate in the same geographic region.
E. collude to fix prices a
d
The Internet has made transactions between businesses (B2B trading) fast and easy. Any business in any location can access specialized knowledge, labor, and materials. It is likely that these virtual economic communities will result in
A. consolidation of
b
Internal economies of scale explain how the production cost per unit of output depends on the size of the __________ but not necessarily on the size of the __________.
A. capital, labor
B. individual firm, industry
C. industry, individual firm
D. wage, re
b
In external economies of scale, cost per unit depends on the size of the __________ but not necessarily on the size of the __________,
A. rental rate, wage
B. industry, firm
C. firm, industry
D. labor, capital
b
In previous chapters, trade among nations was motivated by their differences in factor productivity or relative factor endowments. The type of trade that occurred, for example of food for manufactures, is based on comparative advantage and is called inter
b
Under the model of monopolistic competition, a(an) ________ in the number of firms in the industry will cause ________ to ________.
A. decrease; markup; decrease
B. increase; average price; decrease
C. increase; average price; increase
D. increase; margin
b
An industry is characterized by scale economies, and exists in two countries. Should these two countries engage in trade such that the combined market is supplied by one country's industry, then
A. consumers in both countries would have fewer varieties at
c
If the market for products produced by firms in a monopolistically competitive industry becomes larger, then there will be ________ firms and each firm will produce ________ output and charge a ________ price.
A. fewer; more; higher
B. more; less; higher
c
In the model of monopolistic competition, if firms have ________ average cost curves, then opening trade will cause ________ firms to ________ the industry.
A. symmetric; less efficient; enter
B. symmetric; less efficient; exit
C. different; more efficien
d
The optimum tariff is most likely to apply to
A.
a small tariff imposed by a large country.
B.
a large tariff imposed by a large country.
C.
an ad valorem tariff on a small country.
D.
a large tariff imposed by a small country.
E.
a small tariff imposed b
a
When the U.S. placed tariffs on French wine, France placed high tariffs on U.S. chickens. This is an example of
A.
a trade war.
B.
multilateral negotiations.
C.
international market failures.
D.
deadweight losses.
E.
bilateral trade negotiations.
a
The prohibitive tariff is a tariff that
A.
is so high that it eliminates imports.
B.
is so low that the government prohibits its use since it would lose an important revenue source.
C.
is so high that it causes undue harm to trade-partner economies.
D.
is
a
The strongest political pressure for a trade policy that results in higher protectionism comes from
A.
domestic workers lobbying for import restrictions.
B.
domestic workers lobbying for export restrictions.
C.
domestic consumers lobbying for import restr
a
The fact that trade policy often imposes harm on large numbers of people, and benefits only a few may be explained by
A.
a cycle of political corruption.
B.
the lack of political involvement of the public.
C.
the basic impossibility of the democratic syst
e
The infant industry argument was an important theoretical basis for
A.
import-substituting industrialization.
B.
historiography of the industrial revolution in Western Europe.
C.
neo-colonialist theory of international exploitation.
D.
the East-Asian mira
a
The infant industry argument is that
A.
comparative advantage is irrelevant to economic growth.
B.
developing countries have no chance to compete with industrialized countries.
C.
developing countries have a comparative advantage in manufacturing.
D.
deve
e
Import substitution policies make use of
A.
production facilities provided by industrialized countries.
B.
quotas applied to goods that are shipped abroad.
C.
tariffs that discourage goods from entering a country.
D.
tax breaks granted to industries with
c
The infant industry argument calls for active government involvement
A.
only if the industry has a high value added.
B.
only if the industry is independently able to earn high returns.
C.
only if some market failure can be identified.
D.
only if the gover
c
The disappointment with import-substitution policies is in part because
A.
of the financial investment lost by the U.S.
B.
this policy tended to create world-class industrial competitors.
C.
many countries pursuing this strategy experienced stagnation in
c
Statistical evidence suggests that
A.
import substitution proved to be the most effective aid for developing countries before 1970.
B.
import substituting policies tend to promote effective exploitation of scale economies.
C.
free trade policies promote e
c
In the Brander-Spencer model the subsidy raises profits by more than the subsidy because of
A.
the military-industrial complex.
B.
the deterrent effect of the subsidy on foreign competition.
C.
the economies of scale once the company enters the market.
D.
b
It is argued that high-tech industries typically generate new technologies but cannot fully appropriate the commercial benefits associated with their inventions or discoveries. If this is true then in order to maximize a country's real income, the governm
c
The reason Airbus succeeded in the Brander Spencer example is that
A) the European government made an explicit subsidy offer, but the U.S. government did not.
B) Airbus' prices were better when adjusted for quality and warranty services.
C) Boeing traditi
a
In an open economy, private saving,S^P, is equal to
A.
I - CA - (G - T).
B.
I + CA - (G - T).
C.
I - CA + (G - T).
D.
I + CA + (G - T).
E.
I + CA + (G + T).
d
How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.50 dollars per British pound?
A.
10 British pounds
B.
30 British pounds
C.
25 British pounds
D.
20 British pounds
E.
35 British pounds
b
A country's gross national product (GNP) is
A.
the value of all intermediate goods and services produced by its factors of production and sold on the market in a given time period.
B.
the value of all final goods and services produced by its factors of pr
d
The highest component of GNP is
A.
consumption.
B.
government purchases.
C.
the current account.
D.
investment.
E.
trade.
a
When a country's currency depreciates
A.
foreigners find that its exports are cheaper; however, domestic residents are not affected.
B.
foreigners find that its exports are more expensive, and domestic residents find that imports from abroad are cheaper.
d
An open economy
A.
can save either by building up its capital stock or by acquiring foreign wealth.
B.
cannot save either by building up its capital stock or by acquiring foreign wealth.
C.
can save only by building up its capital stock.
D.
can save by av
a
For each of the following examples, explain whether it is a case of external or internal economies of scale:
a. A number of firms doing contract research for the drug industry are concentrated in southeastern South Carolina.
This case represents external economies of scale as industry production is concentrated in a just a few locations. The benefits of geographical clustering include a greater variety of specialized services to support industry operations, access to a larger
For each of the following examples, explain whether it is a case of external or internal economies of scale:
b. All Hondas produced in the United States come from plants in Ohio, Indiana, or Alabama.
This case represents internal economies of scale because a single firm/plant is producing the output for the whole industry. As the output of a single firm increases, average costs will fall. This can lead to imperfect competition as it supports a limited
For each of the following examples, explain whether it is a case of external or internal economies of scale:
c. All airframes for Airbus, Europe's only producer of large aircraft, are assembled in Toulouse, France.
This case represents internal economies of scale because a single firm/plant is producing the output for the whole industry. As the output of a single firm increases, average costs will fall. This can lead to imperfect competition as it supports a limited
For each of the following examples, explain whether it is a case of external or internal economies of scale:
d. Cranbury, New Jersey, is the artificial flavor capital of the United States.
This case represents external economies of scale as industry production is concentrated in a just a few locations. The benefits of geographical clustering include a greater variety of specialized services to support industry operations, access to a larger
Which of the following goods or services would most likely be subject to external economies of scale and dynamic increasing returns? Explain your answers.
a. Software tech-support services (on review)
External economies of scale are likely due to the need to have a common pool of labor with technical skills. Dynamic increasing returns may be likely due to the need for continual innovation and learning.
Which of the following goods or services would most likely be subject to external economies of scale and dynamic increasing returns? Explain your answers.
b. production of asphalt/concrete (on review)
External economies are unlikely because it is difficult to see how the costs of a single firm would fall if other firms are present in the asphalt industry. Dynamic increasing returns are also unlikely as the asphalt industry is pretty well established an
Which of the following goods or services would most likely be subject to external economies of scale and dynamic increasing returns? Explain your answers.
c. motion pictures (on review)
External economies are highly likely because having a great number of support firms and an available pool of skilled labor in filmmaking are critical to film production. Dynamic returns are also likely because filmmaking is an industry in which learning i
Which of the following goods or services would most likely be subject to external economies of scale and dynamic increasing returns? Explain your answers.
d. cancer research (on review)
External economies are somewhat likely in that it may be advantageous to have other researchers nearby. Dynamic returns are highly likely because such research builds on itself through a learning by-doing process.
Which of the following goods or services would most likely be subject to external economies of scale and dynamic increasing returns? Explain your answers.
e. timber harvesting (on review)
External economies are somewhat likely if there are a set of skills unique to the timber industry that would lead to a clustering of timber firms and timber workers. Dynamic returns are unlikely as the technology used in timber harvesting is relatively st
In perfect competition, firms set price equal to marginal cost. Why can't firms do this when there are internal economies of scale?
With internal economies of scale, there is imperfect competition, and firms set marginal revenue equal to marginal cost. Unlike the case of perfectly competitive markets, under monopoly, marginal revenue is not equal to price. Marginal revenue is always l
If there are internal economies of scale, why would it ever make sense for a firm to produce the same good in more than one production facility? (on review)
Even with internal economies of scale, there may still be an advantage to producing the same good in multiple production facilities. This is an example of the proximity-concentration trade-off. The advantage of producing in only one location is that econo
Use your knowledge about trade policy to evaluate each of the following statements:
a. "An excellent way to reduce unemployment is to enact tariffs on imported goods." (on review)
False, unemployment has more to do with labor market issues and the business cycle than with tariff policy. Empirical estimates suggest that the cost to society of jobs saved through tariffs is exorbitantly high, and tariffs may actually increase unemploy
Use your knowledge about trade policy to evaluate each of the following statements:
b. "Tariffs have a more negative effect on welfare in large countries than in small countries." (on review)
False, the opposite is true because tariffs by large countries can actually reduce world prices, which helps offset their effects on consumers.
Use your knowledge about trade policy to evaluate each of the following statements:
c. "Automobile manufacturing jobs are heading to Mexico because wages are so much lower there than they are in the United States. As a result, we should implement tariffs
This kind of policy might reduce automobile production and Mexico but also would increase the price of automobiles in the United States and would result in the same welfare loss associated with any quota.
For a small country like the Philippines, a move to free trade would have huge advantages. It would let consumers and producers make their choices based on the real costs of goods, not artificial prices determined by government policy; it would allow esc
� Free trade allows consumers and producers to make decisions based upon the marginal cost and benefits associated with a good when costs and prices are undistorted by government policy.
� The Philippines is "small," so it will have little scope for influ
Consider the hyperinflation in Zimbabwe described on page 400 (and hyperinflations in general).
A. What was the cause of hyperinflation? i.e. do hyperinflations occur "naturally"?
B. What happened to the Zimbabwean dollar to U.S. dollar exchange rate?
Cause- change in the money supply (controlled by government/central bank) correlated to changes in price, do not occur naturally, exchange rate- price of zim dollar over u.s. Dollar, zim dollar value goes down, depreciation
We solved a trade model for an optimal tariff, but we saw that there is a limit to how high we can set the tariff. Why must the optimal tariff be small in order to increase national welfare?
If it is too high then it makes products way too expensive, when low it still hurts but way more reasonable
Discuss the state of credit/debt to GDP in China and explain what this may indicate
Possibility of market crash. China debts and credits have been continually increasing and hasn't hit a peak yet so could indicate a bubble in the market, surpassed us level, could indicate a market crash in the future
(extra prob) Which countries appear to have benefited the most from international trade during the last few decades? What policies do these countries seem to have in common? Does their experience lend support for the infant industry argument or help to ar
developing countries
policies in common- development of domestic manufacturing industries, desire to foster economic growth, improve living standards
help argue against it because the argument didn't hold good all the time, could not make young industries
(extra prob) What are the disadvantages of engaging in strategic trade policy even in cases in which it can be shown to yield an increase in a country's welfare?
Suppose the U.S. government were able to determine which industries will grow most rapidly ov
main disadvantage is that it can lead of both rent-seeking and beggar-thy-neighbor policies which can increase one country's welfare at the other country's expense. can lead to trade war where everyone is worse off. difficult to identify which industries
(extra prob) In Munich, a bratwurst costs 5 euros; a hot dog costs $4 at Boston's Fenway ark. At an exchange rate of $1.05/per euro, what is the price of a bratwurst in terms of a hot dog? All else equal, how does this relative price change if the dollar
price of one bratwast= 5 euros x $1.05 = $5.25
price of bratwurst in terms of hot dog = 5.25/4 = 1.3125
so one bratwurst is equal to 1.3 hotdogs. so relative price of bratwurst to hotdog=1.3
5 euros x $1.25 = 6.25
6.25/4=1.5625
relative price of bratwurst
(extra prob) The equation relating private savings, the current account, and the government budget deficit shows that to reduce a current account deficit, a country must increase its private saving, reduce domestic investment, or cut its government budget
equation rewritten implies that deficit in current account is balanced by an increase in private savings, decrease in domestic investment, and a cut in government budget deficit
(extra prob) In 1984 and 1985, the small Latin American country of Bolivia experienced hyperinflation. Consider key macroeconomic data from those years like the Money Supply, Price Level, and Exchange Rate. Do the money supply, price level, and exchange r
price level rises consistently with the increase in the bolivian money supply. increase in money supply should cause prices to rise. an increase in money supply and the price level should in turn cause bolivian peso to depreciate against the dollar
the st