International Economics, 8e (Krugman)Chapter 6 Economies of Scale, Imperfect Competition, and International Trade6.1 Economies of Scale and International Trade: An Overview1) External economies of scale arise when the cost per unitA) rises as the industry grows larger.B) falls as the industry grows larger rises as the average firm grows larger.C) falls as the average firm grows larger.D) remains constant.E) None of the above.Answer: B2) Internal economies of scale arise when the cost per unitA) rises as the industry grows larger.B) falls as the industry grows larger.C) rises as the average firm grows larger.D) falls as the average firm grows larger.E) None of the above.Answer: D3) History and accident determine the details of trade involvingA) Ricardian and Classical comparative advantage.B) Heckscher-Ohlin model consideration.C) taste reversals.D) scale economies.E) None of the above.Answer: D4) Why are increasing returns to scale and fixed costs important in models of international trade andmonopolistic competition?Answer: There are many answers. Three of these are(a) Increasing returns to scale, and high fixed costs may be inconsistent with perfect competition.In such a case, the initial autarkic state may be a suboptimal equilibrium. For example, relative pricesmay not equal marginal rates of transformation. It follows from this that a change in outputcompositions associated with trade may result in a national welfare for one or both trading countriesthat is inferior to that associated with the initial autarkic conditions. Hence no "gains from trade."(b) In a case of increasing scale economies at the firm or plant level, the determination of whichproduct will be exported by which country is ex-ante indeterminate. Therefore, deriving clearimplications concerning the effects of trade on income distributions such as may be derived from theSamuelson-Stolper Theorem is no longer generally possible.(c) Market structures containing positive scale economies and imperfect competition may allowfor "two-way trade," or intra-industry trade. As in b. above, the various theorems derivable from theHeckscher-Ohlin model concerning directions of trade and income distributions are no longergenerally applicable.A) may be associated with a perfectly competitive industry.B) cannot be associated with a perfectly competitive industry.C) tends to result in one huge monopoly.D) tends to result in large profits for each firm.E) None of the above.Answer: A6) Internal economies of scaleA) may be associated with a perfectly competitive industry.B) cannot be associated with a perfectly competitive industry.C) are associated only with sophisticated products such as aircraft.D) cannot form the basis for international trade.E) None of the above.Answer: B7) Where there are economies of scale, an increase in the size of the market willA) increase the number of firms and raise the price per unit.B) decrease the number of firms and raise the price per unit.C) increase the number of firms and lower the price per unit.D) decrease the number of firms and lower the price per unit.E) None of the above.Answer: C8) If some industries exhibit internal (firm specific) increasing returns to scale in each country, we should notexpect to seeA) intra-industry trade between countries.B) perfect competition in these industries.C) inter-industry trade between countries.D) high levels of specialization in both countries.E) None of the above.Answer: B9) The simultaneous export and import of widgets by the United States is an example ofA) increasing returns to scale.B) imperfect competition.C) intra-industry trade.D) inter-industry trade.E) None of the above.Answer: C10) The larger the number of firms in a monopolistic competition situation,A) the larger are that country's exports.B) the higher is the price charged.C) the fewer varieties are sold.D) the lower is the price charged.E) None of the above.Answer: Dconstrained byA) the size of the labor force.B) anti-trust legislation.C) the size of the market.D) the fixed cost.E) None of the above.Answer: C12) Intra-industry trade is most common in the trade patterns ofA) developing countries of Asia and Africa.B) industrial countries of Western Europe.C) all countries.D) North-South trade.E) None of the above.Answer: B13) International trade based on external scale economies in both countries is likely to be carried out by aA) relatively large number of price competing firms.B) relatively small number of price competing firms.C) relatively small number of competing oligopolists.D) monopoly firms in each country/industry.E) None of the above.Answer: A14) International trade based solely on internal scale economies in both countries is likely to be carried out by aA) relatively large number of price competing firms.B) relatively small number of price competing firms.C) relatively small number of competing oligopolists.D) monopoly firms in each country/industry.E) None of the above.Answer: D15) A monopoly firm engaged in international trade willA) equate average to local costs.B) equate marginal costs with foreign marginal revenues.C) equate marginal costs with the highest price the market will bear.D) equate marginal costs with marginal revenues in both domestic and in foreign markets.E) None of the above.Answer: D16) An industry is characterized by scale economies and exists in two countries. In order for consumers of itsproducts to enjoy both lower prices and more variety of choice,A) each country's marginal cost must equal that of the other country.B) the marginal cost of this industry must equal marginal revenue in the other.C) the monopoly must lower prices in order to sell more.D) the two countries must engage in international trade one with the other.E) None of the above.Answer: Dexists in two countries, and these two countries engage in trade one with the other, then we would expectA) the country in which the price of the product is lower will export the product.B) the country with a relative abundance of the factor of production in which production of the product isintensive will export this product.C) each of the countries will export different varieties of the product to the other.D) neither country will export this product since there is no comparative advantage.E) None of the above.Answer: C18) Two countries engaged in trade in products with no scale economies, produced under conditions of perfectcompetition, are likely to be engaged inA) monopolistic competition.B) inter-industry trade.C) intra-industry trade.D) Heckscher-Ohlin trade.E) None of the above.Answer: B19) Two countries engaged in trade in products with scale economies, produced under conditions ofmonopolistic competition, are likely to be engaged inA) price competition.B) inter-industry trade.C) intra-industry trade.D) Heckscher-Ohlinean trade.E) None of the above.Answer: C20) Intra-industry trade will tend to dominate trade flows when which of the following exists?A) large differences between relative country factor availabilitiesB) small differences between relative country factor availabilitiesC) homogeneous products that cannot be differentiatedD) constant cost industriesE) None of the above.Answer: B21) Trade without serious income distribution effects, then, is most likely to happenA) in simple manufactures trade between developing countries.B) in sophisticated manufactures trade between rich and poor countries.C) in sophisticated manufactures trade between rich countries.D) in agricultural trade between rich countries.E) None of the above.Answer: C22) Refer to above figure. Now the monopolist discovers that it can export as much as it likes of its steel at theworld price of $5/ton. It will therefore expand for-export production up to the point where its marginal cost equals $5. How much steel will the monopolist sell, and at what price?Answer: It would sell 10 million tons at $5/ton.Refer to above figure. Given the opportunity to sell at world prices, the marginal (opportunity) cost of sellinga ton domestically is what?Answer: $5/ton.Refer to above figure. While selling exports it would also maximize its domestic sales by equating itsmarginal (opportunity) cost to its marginal revenue of $5. How much steel would the firm sell domestically, and at what price?Answer: 4 million tons at $10/ton.23) The most common form of price discrimination in international trade isA) non-tariff barriers.B) Voluntary Export Restraints.C) dumping.D) preferential trade arrangements.E) None of the above.Answer: C24) If an industry is imperfectly competitive, and markets are segmented thenA) a firm may find that it is profitable to engage in dumping.B) a firm may find that international trade is unprofitable.C) a firm may find that it should promote scale economies.D) a firm may find that it has lost its comparative advantage.E) None of the above.Answer: A25) Explain why it may be argued that the relative importance of the intra-industry component of world trade islikely to lessen economic strife or confrontation (a la Stolper-Samuelson) associated with commercial policy within countries in which overall trade is expanding?Answer: In the case of the Neo-Classical H-O model, the expansion of trade will tend to increase the incomes of those factors in which the exports are relatively intense. This may create situations in which unskilledlabor's already relatively low relative incomes would worsen in a country such as the U.S., henceheating up "class warfare." In the case of intra-industry trade, the expanding exports will tend to be inrelatively fragmented subsets of products ("brands"). Such export expansion will have no determinantor systematic tendency to affect relative factor returns in any deterministic manner.。