ECN 607 Chapter Notes - Chapter 5: Pearson Education, Association To Advance Collegiate Schools Of Business, Comparative Advantage
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International Economics, 7e (Gerber)
Chapter 5 Beyond Comparative Advantage
5.1 Introduction: More Reasons to Trade
1) Comparative advantage has mixed results when it comes to predicting a country's trade
patterns. Which of the following is FALSE?
A) There are many potential products an economy might export that use the same comparative
advantage.
B) A large share of international trade is not based on comparative advantage.
C) Comparative advantage has proven completely incapable of predicting trade.
D) Comparative advantage is a dynamic concept, which means that the spread of technology,
improvement in skills, and learning-by-doing may alter a country's comparative advantage over
time.
Answer: C
Topic: Introduction: More Reasons to Trade
Difficulty: Easy
Objective: LO 5.1 Give examples of interindustry and intraindustry trade.
AACSB: Application of knowledge
2) Comparative advantage cannot account for a significant portion of world trade.
Answer: TRUE
Topic: Introduction: More Reasons to Trade
Difficulty: Easy
Objective: LO 5.1 Give examples of interindustry and intraindustry trade.
AACSB: Application of knowledge
5.2 Intraindustry Trade
1) Intraindustry trade refers to
A) international trade in products made within the same industry.
B) international trade in products made across different industries.
C) trade that occurs as a result of comparative advantage.
D) the exchange of dissimilar items.
Answer: A
Topic: Intraindustry Trade
Difficulty: Easy
Objective: LO 5.1 Give examples of interindustry and intraindustry trade.
AACSB: Application of knowledge
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Copyright © 2018 Pearson Education, Inc.
2) Interindustry trade refers to
A) international trade in products made within the same industry.
B) domestic trade in products made within the same industry.
C) international trade in products made across different industries.
D) the exchange of similar items that are differentiated.
Answer: C
Topic: Intraindustry Trade
Difficulty: Easy
Objective: LO 5.1 Give examples of interindustry and intraindustry trade.
AACSB: Application of knowledge
3) Intraindustry trade is characterized by what two features of the industry and market?
A) Diseconomies of scale and homogeneous products
B) Non-tariff barriers and large-scale foreign investment
C) Quota auctions and low effective rates of protection
D) Economies of scale and differentiated products
Answer: D
Topic: Intraindustry Trade
Difficulty: Moderate
Objective: LO 5.1 Give examples of interindustry and intraindustry trade.
AACSB: Application of knowledge
4) Intraindustry trade relies on
A) economies of scale.
B) the product cycle.
C) differences in factor endowments.
D) monopoly pricing.
Answer: A
Topic: Intraindustry Trade
Difficulty: Easy
Objective: LO 5.1 Give examples of interindustry and intraindustry trade.
AACSB: Application of knowledge
5) One reason that a large share of the trade between high-income industrial economies is
intraindustry trade is because
A) it is more advantageous than interindustry trade.
B) high-income industrial economies produce in the first stage of the product cycle.
C) high-income industrial economies have dissimilar resource endowments in absolute terms.
D) it allows firms to take advantage of internal economies of scale.
Answer: D
Topic: Intraindustry Trade
Difficulty: Moderate
Objective: LO 5.1 Give examples of interindustry and intraindustry trade.
AACSB: Application of knowledge
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Copyright © 2018 Pearson Education, Inc.
6) An internal economies of scale is defined as
A) an industry with costs that fall for all firms.
B) a firm with falling costs over a specific level of output.
C) a firm with falling costs over a relatively large range of output.
D) a firm with falling costs over a relatively large range of output, but definite declining profits.
Answer: C
Topic: Intraindustry Trade
Difficulty: Easy
Objective: LO 5.2 Compare and contrast internal and external economies of scale.
AACSB: Application of knowledge
7) Which of the following is true about monopolistic competition?
A) One firm serves as the entire industry.
B) A small number of firms serve the entire market.
C) It is competition among many firms producing similar but differentiated products.
D) Firms do not have economies of scale.
Answer: C
Topic: Intraindustry Trade
Difficulty: Easy
Objective: LO 5.3 Analyze the effects of international trade in a monopolistically competitive
market.
AACSB: Application of knowledge
8) Which of the following is FALSE about intraindustry trade?
A) Intraindustry trade creates gains from trade.
B) Intraindustry trade is due to comparative advantage.
C) Intraindustry trade may involve heightened competition and lower prices for consumers.
D) Intraindustry trade increases consumer choice.
Answer: B
Topic: Intraindustry Trade
Difficulty: Moderate
Objective: LO 5.1 Give examples of interindustry and intraindustry trade.
AACSB: Application of knowledge
