Econ 190 Chapter 6

Front 1

When defining comparative advantage, the Ricardian model and the Heckscher-Ohlin model both assume

Back 1

constant returns to scale

Front 2

If all factors of production are doubled then output will

Back 2

Also Double

Front 3

External economies of scale occur when

Back 3

cost per unit of output depends on the size of the industry. Silicon Valley

Front 4

Internal economies of scale occur when

Back 4

the cost per unit of output depends on the size of a firm.

Front 5

External economies of scale may result if a larger industry

Back 5

"allows for more efficient provision of services or equipment to firms in the industry.

Front 6

Internal economies of scale result when

Back 6

large firms have a cost advantage over small firms, which leads to an imperfectly competitive market.

Front 7

An oligopoly is an industry with

Back 7

only a few firms

Front 8

A characteristic of a monopoly (and to some degree an oligopoly) is that marginal revenue generated from selling an additional unit of output is

Back 8

Lower than the price of output.

Front 9

The marginal revenue curve lies

Back 9

Below the Demand Curve

Front 10

Monopolistic competition is a model of an imperfectly competitive industry which assumes that

Back 10

"Each firm can differentiate its product from the product of competitors.

Front 11

A firm in a monopolistically competitive industry is expected

Back 11

"to sell More the larger the total sales of the industry and the higher the prices charged by its rivals. And to sell less the larger the number of firms in the industry and the higher its own price.

Front 12

Because trade increases market size, trade is predicted to _______ average cost in an industry described by monopolistic competition.

Back 12

Decrease

Front 13

Because trade increases the variety of goods that consumers can buy under monopolistic competition, it________ the welfare of consumers

Back 13

Increases

Front 14

As a result of trade, the number of firms in a new international industry is predicted to______ relative to each national market.

Back 14

Increase

Front 15

According to the Heckscher-Ohlin model or Ricardian model, countries specialize

Back 15

Production

Front 16

inter-industry trade

Back 16

When trade only occurs between industries.

Front 17

In a Heckscher-Ohlin model suppose that

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"The capital abundant domestic economy specializes in the production of capital intensive cloth, which is imported by the foreign economy.

Front 18

Intra-Industry trade

Back 18

When trade only occurs within an industry

Front 19

If domestic country is capital abundant, it still has a comparative advantage in cloth, It should therefore____ more cloth than it_____

Back 19

It should therefore export more cloth than it imports

Front 20

Gains from inter-industry trade reflect

Back 20

Comparative advantage

Front 21

Gains from intra-industry trade reflect

Back 21

Economies of Scale (lower Costs) and wider consumer choices

Front 22

The monopolistic competition model does not predict in which country firms locate, but a comparative advantage in producing the differentiated good will likely cause

Back 22

a country to export more of that good than it imports

Front 23

Countries with similar relative amounts of factors of production are predicted to have

Back 23

Intra-Industry trade

Front 24

Countries with different relative amounts of factors of production are predicted to have

Back 24

Inter-Industry trade

Front 25

About ____% of world trade is intra-industry trade according to standard industrial classifications.

Back 25

25%

Front 26

Dumping

Back 26

is the practice of charging a lower price for exported goods than for goods sold domestically

Front 27

Dumping is an example of

Back 27

Price Discrimination: The practice of charging different customers different prices

Front 28

Price discrimination and dumping may occur only if

Back 28

¨imperfect competition exists: firms are able to influence market prices.markets are segmented so that goods are not easily bought in one market and resold in another

Front 29

Dumping may be a profit maximizing strategy because

Back 29

differences in foreign and domestic markets

Front 30

One difference is that domestic firms usually have a _______ share of the domestic market than they do of foreign markets

Back 30

Larger

Front 31

Because of less market dominance and more competition in foreign markets, foreign sales are usually ______ responsive to price changes than domestic sales.

Back 31

more

Front 32

Domestic firms may be able to charge a high price in the domestic market but must charge a low price on exports if foreign consumers are _____ responsive to price changes.

Back 32

more

Front 33

Because the firm is a monopolist in the domestic market, the domestic market demand curve is _______ sloping, and the marginal revenue curve lies below that demand curve.

Back 33

Downward

Front 34

Because the firm is a small competitive firm in foreign markets, the foreign market demand curve is _______, representing the fact that exports are very responsive to small price changes

Back 34

Horizontal

Front 35

To maximize profits, the firm will sell a low amount in the domestic market at a ____ price PDOM , but sell in foreign markets at a ____ price PFOR.

Back 35

High price domestic, Low price Foreign.

Front 36

Dumping (as well as price discrimination in domestic markets) is widely regarded as _______

Back 36

Unfair

Front 37

If external economies exist, a country that has a large industry will have ____costs of producing that industry’s good or service

Back 37

Low

Front 38

An example of ______________ is that Specialized equipment or services maybe needed for the industry, but are only supplied by other firms if the industry is large and concentrated

Back 38

External Economies of scale

Front 39

Labor pooling

Back 39

a large and concentrated industry may attract a pool of workers, reducing employee search and hiring costs for each firm.

Front 40

Knowledge spillovers

Back 40

workers from different firms may more easily share ideas that benefit each firm when a large and concentrated industry exists

Front 41

Trade based on external economies has an ambiguous effect on national welfare.

Back 41

"There may be gains to the world economy by concentrating production of industries with external economies.

Front 42

Dynamic external economies of scale (dynamic increasing returns to scale)

Back 42

exist if average costs fall as cumulative output over time rises.

Front 43

Dynamic increasing returns to scale could arise if the cost of production depends

Back 43

"on the accumulation of knowledge and experience, which depend on the production process over time.

Front 44

A graphical representation of dynamic increasing returns to scale is called a

Back 44

A learning Curve

Front 45

A way to look at the advantage that an industry has or "head start"

Back 45

Dynamic Increasing returns to scale

Front 46

Dynamic increasing returns to scale has been used to justify what

Back 46

Protectionism.

Front 47

External economies of scale refer to

Back 47

the amount of output by an industry.

Front 48

Internal economies of scale refer to

Back 48

The amount of output by a firm.

Front 49

With monopolistic competition, each firm has some monopoly power due to product differentiation but must compete with

Back 49

other firms whose prices are believed to be unaffected by each firm’s actions

Front 50

Monopolistic competition allows for gains from trade through ____ costs and prices, as well as through _____ consumer choice.

Back 50

Monopolistic competition allows for gains from trade through lower costs and prices, as well as through wider consumer choice.

Front 51

Monopolistic competition predicts intra-industry trade, and does not predict changes

Back 51

in income distribution within a country

Front 52

Location of firms under monopolistic competition is __________, but countries with ________ relative factors are predicted to engage in intra-industry trade.

Back 52

Location of firms under monopolistic competition is unpredictable, but countries with similar relative factors are predicted to engage in intra-industry trade.

Front 53

Dumping may be a profitable strategy when a firm faces______ competition in its domestic market and faces______ competition in foreign markets.

Back 53

Dumping may be a profitable strategy when a firm faces little competition in its domestic market and faces heavy competition in foreign markets.

Front 54

Trade based on external economies of scale may increase or decrease national welfare, and countries may benefit from temporary protectionism if their industries exhibit external economies of scale either at a point in time or over time.