Page 1
1.
The ____________ model best explains intra-industry trade.
A)
Ricardian
B)
Heckscher–Ohlin
C)
monopolistic competition
D)
specific-factors
2.
To analyze intra-industry trade, we change our assumptions about our trade models to
allow:
A)
price-conscious consumers.
B)
short-run unemployment.
C)
differentiated products.
D)
perfect competition.
3.
Products that are very similar and very close substitutes, but that may be of different
quality or prices, are called:
A)
differentiated complements.
B)
differentiated substitutes.
C)
differentiated products.
D)
perfect substitute products.
4.
Which model best explains the cross-trade of very similar products exported and
imported by trading partners?
A)
Ricardian
B)
Heckscher–Ohlin
C)
specific-factors
D)
monopolistic competition
5.
A differentiated product is one that:
A)
is slightly different from the competitor’s product, although it is a close substitute.
B)
is very different.
C)
is traded within firms and is not for sale in retail markets.
D)
has a shelf life of less than a year.
6.
“Differentiated” is another word for:
A)
identical.
B)
homogeneous.
C)
heterogeneous.
D)
None of these has the same meaning.
Page 2
7.
What will happen when a firm raises the price of a differentiated product in an
imperfectly competitive market?
A)
It will see lower sales but will not lose all its sales.
B)
It will lose all its sales to competitor firms.
C)
It will actually get new customers from other firms.
D)
It will see an increase in revenues.
8.
Which of the following features is characteristic of monopolistic competition?
A)
only one producer
B)
homogeneous products
C)
differentiated products
D)
No individual producer has any influence on the market price.
9.
Which of the following is NOT characteristic of a monopolistically competitive
industry?
A)
monopoly profits
B)
many firms in the industry
C)
differentiated products
D)
Individual firms can influence the market price.
10.
Which of the following is characteristic of a monopolistically competitive industry?
A)
monopoly profits
B)
few firms in the industry
C)
homogeneous products
D)
Individual firms can influence the market price.
11.
Increasing returns to scale occur when a firm’s:
A)
average costs of production increase as its output increases.
B)
average costs of production decrease as its output increases.
C)
average fixed costs increase as its output increases.
D)
marginal costs increase as its output increases.
12.
A feature of imperfect competition is _________, which means that as the firm expands
its production, average costs of production fall. Therefore, the firm can _______ its
costs of production by selling internationally.
A)
increasing returns to scale; decrease
B)
increasing returns to scale; increase
C)
decreasing returns to scale; decrease
D)
decreasing returns to scale; increase
Page 3
13.
Which of the following is the term describing very similar products being exported and
imported by trading partners?
A)
reciprocal trade
B)
imperfect competition
C)
intra-industry trade
D)
inter-industry trade
14.
Intra-industry trade refers to:
A)
imports and exports within the same industry.
B)
imports and exports originating in different industries.
C)
international trade patterns predicted by the Heckscher–Ohlin model.
D)
Ricardian comparative advantage.
15.
What term is used to describe situations in which countries specialize in and trade
different varieties of the same type of product?
A)
comparative advantage
B)
the Heckscher–Ohlin model
C)
intra-industry trade
D)
increasing returns to scale
16.
Equilibrium in a monopoly occurs when:
A)
the monopolist has driven out all competitors.
B)
the monopoly firm has sold the maximum number of units.
C)
the monopoly firm produces the quantity that maximizes its profits (or minimizes
loss) where MR = MC.
D)
the monopoly firm has gotten unions to agree to wage concessions.
17.
For a monopolistic competitor, marginal revenue at its short-run equilibrium price and
quantity equals:
A)
price.
B)
marginal cost.
C)
average cost.
D)
average revenue.
18.
A monopolist maximizes its profits by selling up to the point at which:
A)
its price equals its marginal cost.
B)
its price equals its marginal revenue.
C)
its marginal revenue equals its marginal costs.
D)
the difference between its price and average cost is maximized.
Page 4
19.
The price charged by a monopoly firm is the market price (demand curve) at which:
A)
MR = MC, and usually P > MR and P > MC.
B)
the firm is just breaking even.
C)
the firm makes a normal profit.
D)
MR = MC = P.
20.
A monopolistic competitive firm:
A)
will always earn monopoly profits.
B)
will never earn monopoly profits.
C)
may earn monopoly profits in the short run.
D)
may earn monopoly profits in the long run.
21.
A duopoly is a market structure in which:
A)
two consumers buy the product.
B)
two firms sell the product.
C)
one firm sells the product and one consumer buys the product.
D)
two firms sell the product and two consumers buy the product.
22.
If there is a duopoly and the products are identical (homogeneous), the firm selling the
product for a lower price will:
A)
earn less revenue.
B)
get 100% of the sales.
C)
have a hard time being profitable.
D)
be perceived to have lower-quality products.
23.
In a duopoly where products are differentiated and firms charge different prices, their
demand curves are _______________ than if the firms sell identical products at the
same price.
A)
steeper
B)
farther to the right
C)
more elastic
D)
less elastic
24.
In a duopoly, each firm faces:
A)
a more elastic demand curve if it raises its price.
B)
a more elastic demand curve if it lowers its price.
C)
a perfectly elastic demand curve.
D)
a perfectly inelastic demand curved.
Page 5
25.
Which of the following is NOT an assumption of monopolistic competition?
A)
Each firm’s output is slightly different from other firms in the industry.
B)
There are many firms in the industry.
C)
Production occurs with increasing returns to scale technology.
D)
Each firm faces a perfectly elastic demand curve.
26.
Which of the following is an assumption of monopolistic competition?
A)
Firms produce identical (homogeneous) outputs.
B)
There are many firms in the industry.
C)
Production occurs with decreasing returns to scale technology.
D)
Each firm faces a perfectly elastic demand curve.
27.
The demand curve facing a monopolistic competitor:
A)
is perfectly inelastic.
B)
is perfectly elastic.
C)
slopes downward to the right.
D)
has a positive slope.
28.
To analyze monopolistic competition in trade, we make several assumptions about the
market. Which of the following is NOT an assumption of monopolistic competition?
A)
many firms in the industry
B)
easy entry and exit
C)
constant long-run average cost
D)
increasing returns to scale
29.
To analyze monopolistic competition in trade, we make several assumptions about the
market. Which of the following is an assumption of monopolistic competition?
A)
few firms in the industry
B)
difficult entry and exit
C)
increasing long-run average cost
D)
increasing returns to scale
30.
Which of the following is NOT a characteristic of monopolistic competition?
A)
Firms have some control over their markets.
B)
Firms produce an identical product.
C)
Firms retain some ability to control prices.
D)
The average cost for firms declines as they produce more output.
Page 6
31.
Which of the following is NOT an assumption for monopolistic competition?
A)
Firms produce goods using a technology with increasing returns to scale.
B)
There are many firms in the industry.
C)
Firms are price takers.
D)
Each firm produces a good that is similar to, but differentiated from, the goods that
other firms in the industry produce.
32.
When average costs of production are falling, average cost:
A)
is higher than marginal cost.
B)
is equal to price.
C)
is negative.
D)
is less than marginal cost.
33.
When there are increasing returns to scale, average costs must be:
A)
falling.
B)
rising.
C)
constant.
D)
falling, then rising.
34.
Whenever a firm’s marginal costs are less than its average costs, its average costs must
be:
A)
falling.
B)
rising.
C)
constant.
D)
falling, then rising.
35.
Which of the following will NOT cause increasing returns to scale and declining
average costs?
A)
focusing on a single product line and specializing
B)
exporting goods to other countries
C)
selling more in their home market
D)
hiring more workers at the existing plant
36.
A firm’s average costs will be falling whenever its marginal costs are:
A)
positive.
B)
negative.
C)
less than average costs.
D)
less than fixed costs.
Page 7
37.
Firm X’s total fixed costs are $1,000. Its total variable costs of producing 100 units are
$2,000, and its total variable costs of producing 200 units are $4,000. What are its
average costs of producing 100 and 200 units of output?
A)
$30 and $25
B)
$20 and $20
C)
$10 and $5
D)
$25 and $30
38.
Firm X’s total fixed costs are $1,000. Its total variable costs of producing 100 units are
$2,000, and its total variable costs of producing 200 units are $4,000. Which of the
following will happen to firm X’s average costs as it increases output from 100 to 200
units?
A)
Average costs increase.
B)
Average costs decrease.
C)
Average costs remain constant.
D)
Average costs increase slightly.
39.
Consider the following cost information for a monopolist: its MR = $15, its MC = $23,
and it is producing nine units of output. Which of the following statements is correct?
A)
The monopolist should produce and sell nine units of output.
B)
The monopolist should increase production of output.
C)
We need more information to decide if the firm needs to produce.
D)
The monopolist should not produce this output because MR < MC.
40.
At its current production level, a monopolist’s marginal revenue is $20 and its marginal
cost is $10. Which of the following is correct?
A)
The monopolist should produce and sell more output.
B)
The monopolist should produce and sell less output.
C)
The monopolist is maximizing its profits at its current level of output.
D)
The monopolist should cease production.
41.
A monopolistic competitor has fixed costs of $100 and marginal costs of $10 per unit.
What is its average cost of producing 100 units?
A)
$10
B)
$11
C)
$1,100
D)
$2,000
Page 8
42.
A monopolistic competitor has fixed costs of $100 and marginal costs of $10 per unit.
What is its marginal revenue at its equilibrium price and quantity?
A)
$10
B)
$11
C)
$1,100
D)
$2,000
43.
If a firm has a total cost of $150 and a total variable cost of $100 for producing five
units of output, then the fixed cost is:
A)
$35.
B)
$50.
C)
$250.
D)
$100.
44.
If a firm has an average total cost of $55 and an average fixed cost of $10 for producing
five units of output, then the total variable cost will be:
A)
$550.
B)
$525.
C)
$225.
D)
$65.
45.
If a firm has a total fixed cost of $75 and an average variable cost of $35 for producing
10 units of output, the average total cost would be:
A)
$425.
B)
$42.50.
C)
$110.
D)
$350.
46.
In the long run, profits in a monopolistically competitive market are zero because:
A)
of government regulations.
B)
of collusion.
C)
firms are free to enter and exit the market.
D)
firms produce a differentiated product.
Page 9
47.
In the short run, in equilibrium, firms that operate in a monopolistically competitive
market face a downward sloping demand curve and will charge a price where _____ and
______.
A)
quantity produced is maximized; costs are minimized
B)
sales revenue is maximized; costs are falling
C)
MR = MC; P > average cost
D)
average costs are rising; sales are rising
48.
(Figure: Costs and Demand for a Monopolistic Competitor) The profit-maximizing
amount of output produced will be:
A)
42.
B)
32.
C)
0 (not profitable, so shut down).
D)
50.
Page 10
49.
(Figure: Costs and Demand for a Monopolistic Competitor) What price should the firm
charge?
A)
$15
B)
$10
C)
a price greater than $15
D)
The firm cannot be profitable, so the price is zero.
50.
(Figure: Costs and Demand for a Monopolistic Competitor) The total cost of producing
the profit-maximizing output is:
A)
$320.
B)
$480.
C)
$420.
D)
$500.
Page 11
51.
(Figure: Costs and Demand for a Monopolistic Competitor) The profits for the firm are:
A)
$320.
B)
$480.
C)
$160.
D)
$420.
52.
A monopolistically competitive firm faces demand given by this equation: P = 50 – Q.
It has no fixed costs and its marginal cost is $20 per unit. What quantity will the firm
produce when it is maximizing its profits?
A)
10
B)
15
C)
20
D)
25
53.
A monopolistically competitive firm faces demand given by this equation: P = 50 – Q.
It has no fixed costs and its marginal cost is $20 per unit. What price will the firm
charge when it is maximizing its profits?
A)
$20
B)
$25
C)
$30
D)
$35
Page 12
54.
A monopolistically competitive firm faces demand given by this equation: P = 50 – Q.
It has no fixed costs and its marginal cost is $20 per unit. What is the value of the firm’s
monopoly profits when it sets a price that maximizes its monopoly profits?
A)
$125
B)
$300
C)
$425
D)
$225
55.
The demand equation for a good produced by a monopolistically competitive firm is P =
10 – Q. At what price is the firm’s total revenue maximized?
A)
$9
B)
$7
C)
$5
D)
$3
56.
The demand equation for a good produced by a monopolistically competitive firm is P =
10 – Q. If the firm’s marginal cost is a constant $2 per unit, what price will it charge and
how many units will it produce if it maximizes its profits?
A)
$8 and two units
B)
$7 and three units
C)
$6 and four units
D)
$5 and five units
57.
The demand equation for a good produced by a monopolistically competitive firm is P =
10 – Q. If the firm has no fixed costs and variable costs of $2 per unit, what is the value
of the firm’s monopoly profits when it sets a price that maximizes its monopoly profits?
A)
$7
B)
$12
C)
$15
D)
$16
58.
Which of the following describes the long-run situation for a firm in a monopolistically
competitive market?
A)
Competition drives out firms until there is only one left.
B)
New firms enter the market because of monopoly profits, the firm’s demand curve
shifts to the left and becomes flatter, and monopoly profits disappear.
C)
New firms enter the market and eventually there is only one kind of product, and
each firm agrees to share the profits.
D)
Consumers are left with no choices and no close substitutes, and firms make higher
profits.
Page 13
59.
When firms charge different prices for differentiated products in imperfect competition,
each firm faces a demand curve that is ___________ than would be the case if the
market was perfectly competitive.
A)
flatter
B)
farther to the left
C)
farther to the right
D)
less elastic
60.
In the long run, a monopolistically competitive firm will produce where:
A)
average cost equals price.
B)
average cost equals marginal revenue.
C)
marginal revenue equals price.
D)
marginal cost equals price.
61.
In the long run, a monopolistically competitive firm will:
A)
earn normal monopoly profits.
B)
earn excess monopoly profits.
C)
earn no monopoly profits.
D)
produce where marginal cost equals price.
62.
If a firm in monopolistic competition lowers its price, what will happen to the quantity
of products it sells?
A)
The quantity of products sold will increase and sales revenue will fall.
B)
The quantity of products sold will decrease because this is not perfect competition.
C)
The quantity of products sold will increase slightly—and in some cases not at all.
D)
The quantity of products sold and sales revenues will increase as the firm lures
customers from its competitors and attracts new customers.
63.
Which of the following is NOT a short-run opportunity that international trade provides
for a monopolistically competitive firm?
A)
International trade provides an opportunity for it to produce more output.
B)
International trade provides an opportunity to for it to earn monopoly profits.
C)
International trade provides an opportunity for it to reduce its average costs.
D)
International trade provides an opportunity for it to reduce its fixed costs.
Page 14
64.
What is the expected outcome when trade occurs in a monopolistically competitive
industry if the nations have similar tastes, technology, products, and costs?
A)
No trade is possible.
B)
Consumers are left with no choices.
C)
Each firm has a larger market in which to sell, and consumers have more choices of
sellers and products.
D)
Transportation costs become the driving factor.
65.
Suppose that there are 50 firms in a monopolistically competitive industry in country A
and 50 firms in the same monopolistically competitive industry in country B. If country
A and country B engage in international trade, we expect that the total number of firms
in this industry:
A)
will increase.
B)
will decrease.
C)
will remain unchanged.
D)
will first decrease, then increase.
66.
When trade occurs among nations with similar tastes, technology, products, and costs,
monopolistically competitive firms will have an incentive to:
A)
lower prices to get new customers and increase market share.
B)
raise prices to take advantage of a lucrative situation.
C)
cut corners in manufacturing to boost profits.
D)
raise quality, so they can charge a higher price than the competition.
67.
In long-run equilibrium with trade, losses from import competition will force some
firms to ______________, increasing demand for the remaining firms’ output, which
will then cause their demand curves to become ______________, due to the increased
variety of products from _______________.
A)
raise prices; steeper; new firms entering the industry
B)
leave the industry; flatter; foreign firms
C)
lower prices; more inelastic; new firms entering the industry
D)
lay off workers; more elastic; the research and development departments in firms
68.
In the long run, international trade allows a monopolistically competitive firm an
opportunity to produce:
A)
more output and earn monopoly profits.
B)
less output and earn monopoly profits.
C)
more output and reduce its average costs.
D)
less output and increase its average costs.
Page 15
69.
In the long run, prices in a monopolistically competitive industry will be ________
prices without trade.
A)
higher than
B)
lower than
C)
equal to
D)
the same as
70.
In the long run, a monopolistically competitive firm that trades internationally will
____________than it would in autarky.
A)
produce more output
B)
earn more monopoly profits
C)
have higher average costs
D)
produce more output and earn more monopoly profits
71.
With increasing returns (falling average costs), international trade will cause the demand
curves of monopolistically competitive firms to become _______________ because of
foreign competition and firms must _______________to meet foreign competition.
A)
steeper; raise prices
B)
flatter; lower prices
C)
flatter; raise prices
D)
steeper; lower prices
72.
Consumers gain from trade within a monopolistically competitive industry because:
A)
prices fall and product varieties decrease.
B)
prices rise and product varieties increase.
C)
prices rise and product varieties decrease.
D)
prices fall and product varieties increase.
73.
How do consumers benefit from trade among monopolistically competitive firms?
A)
Prices are the same as in autarky, but the wider choice of goods increases consumer
surplus.
B)
Consumer surplus increases because prices are lower than in autarky, and there is a
wider choice of goods.
C)
Prices are higher than in autarky, but the wider choice of goods increases consumer
surplus.
D)
The government provides cash subsidies to consumers.
Page 16
74.
In what two ways does trade benefit consumers when firms are monopolistically
competitive?
A)
better quality products, increased information
B)
higher incomes, more dependable products
C)
lots of bells and whistles, higher wages
D)
lower prices, more variety
75.
Which of the following is likely under free trade and monopolistic competition?
A)
Domestic firms will always be provided cash subsidies.
B)
Some domestic firms will shut down.
C)
Consumers will not benefit at all from trade.
D)
Foreign firms will sell the product at a higher price in the export market.
76.
The costs identified with opening trade are called:
A)
short-run costs.
B)
adjustment costs.
C)
variable costs.
D)
overhead costs.
77.
Adjustment costs include:
A)
dealing with child labor issues.
B)
human rights.
C)
getting used to foreign products.
D)
short-term unemployment.
78.
In the long run, after trade occurs, the equilibrium number of monopolistically
competitive firms:
A)
is less than the total number of firms worldwide in autarky.
B)
is the same as the total number of firms worldwide in autarky.
C)
is greater than the total number of firms worldwide in autarky.
D)
may be less than, the same as, or greater than the total number of firms worldwide
in autarky.
79.
Which of the following was NOT a reason for Canada to join NAFTA?
A)
Canadian firms could expand their markets by selling to the United States and
Mexico.
B)
Canadian firms could enjoy lower average costs by producing more.
C)
Canada did not want U.S. products to dominate its domestic market.
D)
Canada would experience an increase in income and employment by joining
NAFTA.
Page 17
80.
Using a model of imperfect competition, economist Daniel Trefler concluded that the
North American Free Trade Agreement:
A)
cost Canada more than 100,000 jobs that were never replaced.
B)
caused no job loss in Canada.
C)
caused Canada to lose 5% of jobs in manufacturing because Canadian tariffs had to
be cut, but over time the trade agreement created higher productivity and more jobs
to offset losses.
D)
created new jobs in Canada from day one, as firms sold across the border and
undercut U.S. firms.
81.
NAFTA benefited Canadian consumers because of:
A)
higher wages and more travel opportunity.
B)
lower wages but also lower taxes.
C)
lower prices but lower quality.
D)
lower prices and increased variety.
82.
Studies have concluded that NAFTA caused ________ in economic welfare to Canada.
A)
a gain
B)
a loss
C)
no change
D)
first a gain, then a loss
83.
Studies of U.S.–Canadian free trade have concluded that free trade produced what effect
on Canadian firms?
A)
increased productivity
B)
decreased productivity
C)
no change in productivity
D)
could not be determined
84.
Studies of U.S.–Canadian free trade have concluded that the number of new jobs created
in Canadian manufacturing was _________ the number of jobs lost elsewhere in
Canadian manufacturing due to free trade.
A)
less than
B)
equal to
C)
greater than
D)
substantially less than
Page 18
85.
Since NAFTA was signed, Mexico saw the productivity of its firms:
A)
decrease in the nonmaquiladora plants.
B)
decrease in the maquiladora plants.
C)
increase in the maquiladora plants at a faster pace than in the nonmaquiladora
plants.
D)
increase in the maquiladora plants at a slower pace than in the nonmaquiladora
plants.
86.
Studies of NAFTA have concluded that from 1994 to 2003, free trade caused
______________in the productivity of Mexican maquiladora firms producing for export
than for Mexican firms mainly producing for the Mexican domestic market.
A)
larger increases
B)
smaller increases
C)
identical increases
D)
no change
87.
NAFTA is believed to have __________ manufacturing productivity, especially in the
maquiladora plants.
A)
raised
B)
lowered
C)
had no effect on
D)
greatly hindered
88.
Which of the following probably slowed NAFTA’s effect on the wages of Mexican
workers?
A)
the Mexican peso crisis in which Mexico’s currency fell greatly in value
B)
the reluctance of the U.S. government to allow guest workers
C)
the Iraq war
D)
increases in illegal emigration to the United States
89.
Mexico’s gains from NAFTA have benefited mostly:
A)
unskilled workers.
B)
semi-skilled workers.
C)
higher-income workers.
D)
agricultural workers.
Page 19
90.
NAFTA probably helped productivity in Mexico’s maquiladora sector, but:
A)
the Mexican peso became undervalued, making it more difficult to export abroad.
B)
increased competition from other countries may have limited its output growth.
C)
both the Mexican and U.S. governments reversed some of the tariff reductions.
D)
Mexico raised taxes on the maquiladoras, which caused tension with the United
States.
91.
Studies of NAFTA have concluded that free trade caused ______ in the variety of U.S.
imports from Mexico.
A)
decreases
B)
increases
C)
no change
D)
slight decreases
92.
Studies of NAFTA have concluded that increases in the variety of U.S. imports from
Mexico are equivalent to about a ________ per year reduction in Mexican import prices.
A)
100.2%
B)
10.2%
C)
1.2%
D)
0.2%
93.
The United States has benefited from NAFTA substantially in terms of increased:
A)
prices.
B)
variety.
C)
manufacturing jobs.
D)
quality.
94.
Using data from Trade Adjustment Assistance claims, we can make an accurate estimate
of:
A)
the variety of products U.S. consumers import from Mexico.
B)
U.S. exports to Mexico that give Mexican consumers more product variety.
C)
the barriers to trade erected by affected firms.
D)
the unemployment caused by NAFTA.
95.
Approximately how many U.S. workers received Trade Adjustment Assistance from
1994 to 2002 as a result of job losses due to NAFTA?
A)
525 million
B)
52.5 million
C)
5.25 million
D)
0.525 million
Page 20
96.
The unemployment caused by NAFTA in the United States from 1994 to 2002:
A)
was permanent because most workers were not able to be reemployed within three
years.
B)
totaled 13% of manufacturing job losses in the United States during that period.
C)
totaled 40% of the manufacturing job losses in the United States during that period.
D)
totaled 75% of manufacturing job losses in the United States during that period.
97.
U.S. unemployment as a result of free-trade agreements such as NAFTA:
A)
should be taken much more seriously, and workers should be offered assistance.
B)
is a temporary phenomenon to which the economy will adjust within a few years.
C)
results in a shift into lower productivity jobs such as hamburger flipping.
D)
results in a shift into lower productivity jobs such as hamburger flipping and is a
temporary phenomenon to which the economy will adjust within a few years.
98.
U.S. Trade Adjustment Assistance:
A)
is not available to workers in manufacturing.
B)
is not available to workers displaced by NAFTA.
C)
is available to workers in service industries.
D)
expired with the advent of the WTO in 1995.
99.
A recap of the effects of NAFTA for its first nine years reveals some adjustment costs
were offset by:
A)
increased exports of U.S. manufactured goods to China.
B)
increased benefits for U.S. consumers due to expansion of varieties of imports from
Mexico.
C)
increased benefits for low-wage Mexican workers.
D)
increased employment of low-skilled American workers.
100.
When imports and exports for the same type of good are nearly equal:
A)
the laws of comparative advantage break down.
B)
it is an indication that nearly all the trade is intra-industry.
C)
exports are probably just “finished” in the nation instead of being fully sourced
there.
D)
there is a very low level of intra-industry trade.
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101.
Suppose that imports and exports in an industry are $100 million and $200 million,
respectively. Will the index of intra-industry trade for this industry rise, fall, or remain
unchanged if exports fall to $100 million?
A)
It will rise.
B)
It will fall.
C)
It will remain unchanged.
D)
There is not enough information to determine how the index will change.
102.
Which of the following is the calculation that tells us the proportion of trade in a
particular industry that involves both imports and exports?
A)
the index of overlapping production
B)
the index of effective trade
C)
the index of intra-industry trade
D)
the index of displacement
103.
The index of intra-industry trade is calculated as:
A)
the minimum of imports and exports divided by the average of imports and exports.
B)
the maximum of imports and exports divided by the sum of imports and exports.
C)
imports divided by exports.
D)
imports plus exports divided by the average of imports and exports.
104.
Suppose that industry X and industry Y have intra-industry trade indexes equal to 0.80
and 0.20, respectively. Which of the following is then correct?
A)
There is a greater share of intra-industry trade in industry X than in industry Y.
B)
There is a greater share of intra-industry trade in industry Y than in industry X.
C)
Industry X and industry Y have equal shares of intra-industry trade.
D)
There is no intra-industry trade in either industry X or industry Y.
105.
For which of the following products would you expect the index of intra-industry trade
to be lowest?
A)
golf clubs
B)
automobiles
C)
whiskey
D)
natural gas
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106.
If the index of intra-industry trade is high, products are probably ______, and costs in
both nations are ______.
A)
identical; different
B)
differentiated; similar
C)
identical; similar
D)
differentiated; different
107.
What is the value of the index of intra-industry trade for an industry in which exports
are $100 million and imports are $200 million?
A)
100/300 = 0.33
B)
(100 + 200)/100 = 3.00
C)
100/[1/2 · (100 + 200)] = 0.67
D)
100/200 = 0.50
108.
If the index of intra-industry trade for an industry is zero, then:
A)
exports and imports in that industry are equal.
B)
there are either no exports or no imports in that industry.
C)
there are few imports in that industry.
D)
there are few exports in that industry.
109.
If exports of an industry are $100 million and imports are zero, which of the following
is the value of the index of intra-industry trade?
A)
0
B)
1
C)
0.5
D)
100 million
110.
What is the value of the intra-industry trade index for an industry in which exports are
$100 million and imports are $100 million?
A)
100/200 = 0.50
B)
(100 + 100)/100 = 2.00
C)
100/[1/2 · (100 + 100)] = 1.00
D)
(100 – 100)/100 = 0.00
111.
What is the value of the intra-industry trade index for an industry in which exports are
$200 million and imports are $20 million?
A)
2.00
B)
(200 + 20)/20 = 11.00
C)
20/[1/2 · (200 + 20)] = 0.18
D)
(200 – 20)/200 = 0.90
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112.
(Table: Imports and Exports of Commodities Within U.S. Industries) Which of the
following is the intra-industry trade index for large passenger aircraft?
A)
129.1%
B)
54%
C)
2.56%
D)
42%
113.
(Table: Imports and Exports of Commodities Within U.S. Industries) What is the
intra-industry trade index for fax machines?
A)
211%
B)
90%
C)
71%
D)
98%
114.
(Table: Imports and Exports of Commodities Within U.S. Industries) In the table, which
industry has the lowest intra-industry trade index?
A)
large passenger aircraft
B)
fax machines
C)
golf clubs
D)
men’s shorts
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115.
The higher the value for the index of intra-industry trade:
A)
the lower total trade is for other products.
B)
the greater is the percentage of intra-industry trade in that good.
C)
the more we should be concerned about job loss and outsourcing.
D)
the higher the gains from trade.
116.
The gravity equation is used to predict:
A)
the level of bilateral trade.
B)
the level of intra-industry trade.
C)
the weight of exports plus imports.
D)
the level of inter-industry trade.
117.
Which of the following is(are) factors affecting the constant (B) in gravity equation
estimates?
A)
GDPs of the two countries or regions
B)
tariffs and quotas of the two countries or regions
C)
the distance between the two countries or regions
D)
the share of trade in the GDPs of the two countries or regions
118.
Economist Jan Tinbergen developed a formula, called ______, to predict which nations
would engage in bilateral trade.
A)
the trade deficit equation
B)
the index of equality
C)
the Tinbergen ratio
D)
the gravity equation in trade
119.
The gravity equation uses a calculation to predict the level of bilateral trade based
directly on ________ and inversely on ________.
A)
wages; technology
B)
size of the countries’ GDP; the geographic distance between the countries
C)
the percent of the countries’ GDP in manufacturing; their level of tariffs
D)
the growth rates of the countries’ GDP; their openness to trade
120.
Other things equal, the gravity equation predicts that the United States will have more
trade with __________ than with _________.
A)
Bangladesh; Japan
B)
Russia; Japan
C)
Canada; Bangladesh
D)
Russia; Canada
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121.
Other things equal, the level of bilateral trade between two countries will increase as
their GDP:
A)
rises.
B)
falls.
C)
stays the same.
D)
becomes less equal.
122.
(Table: Distances and GDP) According to the gravity equation, which country should be
the United States’ largest trade partner?
A)
Germany
B)
Norway
C)
France
D)
Sweden
123.
(Table: Distances and GDP) According to the gravity equation, which country should be
the United States’ smallest trade partner?
A)
Germany
B)
Norway
C)
France
D)
Sweden
124.
The distances from Paris, France, to Frankfurt, Germany; Stockholm, Sweden; and
Oslo, Norway, are about 400 miles, 450 miles, and 500 miles, respectively. Assuming
each country has a similar GDP, would you expect French trade to be greatest with
Germany, Sweden, or Norway?
A)
Germany
B)
Sweden
C)
Norway
D)
Equal volumes of trade would be expected with each country.
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125.
Larger countries will trade more with one another; this is empirically supported by:
A)
intra-industry trade.
B)
increasing returns to scale.
C)
the gravity equation.
D)
the theory of comparative advantage.
126.
Which of the following is the gravity equation calculation?
A)
the inverse of the average GDPs times transportation costs
B)
the sum of GDPs times total exports
C)
the product of the GDPs in two nations divided by a measure of the distance
between them times a constant, reflecting other factors affecting trade
D)
the product of the land mass of the two nations divided by the average of their
GDPs times a constant factor, reflecting other factors affecting trade
127.
The gravity equation was tested and found to be very accurate in predicting:
A)
world trade in total.
B)
trade between various provinces in Canada and American states.
C)
trade between the United States and Japan.
D)
trade between nations in the European Union.
128.
To test the gravity equation of trade, a regression model was calculated for two nations,
the United States and Canada, testing the correlation among:
A)
intra-industry trade, size of GDP, and distance for states and provinces.
B)
intra-industry trade, size of GDP, and size of states and provinces.
C)
bilateral trade and ratio of GDP for states and provinces.
D)
bilateral trade, size of GDP, and distance for states and provinces.
129.
What do tests of the gravity equation for trade between Canadian provinces and
American states indicate?
A)
Individual state and individual provincial GDPs are negatively related to the
amount of trade between individual states and provinces.
B)
Individual state and individual provincial GDPs are positively related to the
amount of trade between individual states and provinces.
C)
Individual state and individual provincial GDPs are not at all related to the amount
of trade between individual states and provinces.
D)
The gravity equation does not apply to U.S.–Canadian trade.
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130.
Border effects can result from:
A)
trade.
B)
tariffs.
C)
monopolistic competition.
D)
imperfect competition.
131.
What did the gravity equation predict about trade within the borders of a nation?
A)
Trade between states or regions within a nation is much more likely than trade
outside the borders.
B)
Trade between states or regions within a nation is much less likely to occur.
C)
There was no predictive value for trade within a nation’s borders.
D)
Trade between states or regions within a nation is more subject to national law and
regulation and therefore not as predictable.
132.
When research and development costs are spread out over greater output, it is an
example of what?
133.
Why can’t the models developed in previous chapters (Ricardian, specific factors, and
Heckscher–Ohlin) be used to explain trade in intra-industry products?
134.
XYZ Corporation is a monopolistic competitor. It has fixed costs of $1,000 per month
and a constant marginal cost of $1 per unit of production.
I.
II.
III.
IV.
135.
ABC Corporation is a monopolistic competitor. It has fixed costs of $5,000 and a
constant marginal cost of $500 per unit of production. It faces a demand curve described
by this equation:
P = 1,000 – 10Q.
I. Find ABC’s equilibrium price and quantity.
II. Will it earn monopoly profits at this equilibrium?
III. What will happen to ABC’s price, quantity, and monopoly profits in the long run?
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136.
A monopolistic competitor has fixed costs of $100 and a constant $1 marginal cost of
production.
I. Will this firm earn short-run monopoly profits if it produces and sells 300 units at a
price of $2.00 each?
II. What can we expect to happen to this monopolistic competitor in the long run?
137.
Does the demand curve facing a monopolistic competitor become more or less elastic
when it engages in international trade? Why?
138.
Why would you expect firms with high research and development costs to be more
interested in free trade?
139.
The fall in real wages for the maquiladora workers during the 1990s was likely due to
what?
140.
Would you say that the gains from NAFTA clearly outweigh its costs for the United
States?
141.
Has the United States gained or lost from NAFTA?
142.
The following table gives intra-industry trade in three industries. Which of the three
industries has the greatest degree of intra-industry trade?
143.
Suppose that imports and exports in an industry are both $100 million. If exports rise to
$200 million, will the value of the industry’s index of intra-industry trade rise, fall, or
remain the same?
144.
Can the index of intra-industry trade ever exceed 1.00?
145.
Suppose the U.S. imports more computers than it exports, and that the index of
intra-industry trade in the U.S. computer industry increases from 0.25 to 0.50.
Assuming no change in U.S. computer imports, does this increase mean that the U.S.
computer industry exports more or less computers?
Page 29
146.
The values of the index of U.S. intra-industry trade for small cars and large passenger
aircraft are 40% and 10%, respectively. Suggest reasons for the difference in these
values.
147.
Use this information to answer the following questions: The GDPs of countries A, B,
and C are $100, $200, and $300, respectively. There are 1,000 miles between country A
and countries B and C. Assume that their markets are monopolistically competitive.
Does the gravity equation predict that there will be more trade between A and B or
between A and C?
148.
Other things equal, do you expect that the gravity equation will predict that there will be
more trade between the United States and Canada than between the United States and
Argentina?
149.
NAFTA includes an agreement that allows trucks from neighboring countries access to
highways on both sides of the border. Why did it take 17 years for the agreement to be
implemented between the United States and Mexico? And what actions did Mexico take
to facilitate the agreement’s implementation?
150.
Explain why the gravity equation for U.S. and European trade may be higher than the
gravity equation for U.S. and Canadian trade even though that the U.S. and Canada
share a border.
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