International Economics 3rd Edition By Robert C. Feenstra – Test Bank A+

Description

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.
	Ans: B Difficulty: Easy Section: Introduction Skill Descriptor: Concept-Based Topic: Introduction

2.	The ____________ model best explains intra-industry trade.
	A)	Ricardian
	B)	Heckscher-Ohlin
	C)	monopolistic competition
	D)	specific-factors
	Ans: C Difficulty: Easy Section: Introduction Skill Descriptor: Concept-Based Topic: Introduction

3.	To analyze intra-industry trade, we must bring in imperfect competition, and we change our assumptions about our trade models to allow:
	A)	price-conscious consumers.
	B)	short-run unemployment.
	C)	differentiated products.
	D)	perfect competition.
	Ans: C Difficulty: Easy Section: Introduction Skill Descriptor: Concept-Based Topic: Introduction

4.	Products traded between two nations 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.
	Ans: C Difficulty: Easy Section: Introduction Skill Descriptor: Definitional Topic: Introduction

5.	The cross-trade of very similar products exported and imported by trading partners seems to contradict which of the following model(s)?
	A)	Ricardian
	B)	Heckscher-Ohlin
	C)	specific-factors
	D)	It contradicts all of these models.
	Ans: D Difficulty: Easy Section: Introduction Skill Descriptor: Concept-Based Topic: Introduction

6.	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.
	Ans: A Difficulty: Easy Section: Introduction Skill Descriptor: Definitional Topic: Introduction

7.	“Differentiated” is another word for:
	A)	identical.
	B)	homogeneous.
	C)	heterogeneous.
	D)	None of these has the same meaning.
	Ans: C Difficulty: Easy Section: Introduction Skill Descriptor: Definitional Topic: Introduction

8.	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.
	Ans: A Difficulty: Easy Section: Introduction Skill Descriptor: Analytical Thinking Topic: Introduction

9.	Which of the following features is characteristic of monopolistic competition?
	A)	many large producers
	B)	homogeneous products
	C)	differentiated products
	D)	No individual producer has any influence on the market price.
	Ans: C Difficulty: Easy Section: Introduction Skill Descriptor: Concept-Based Topic: Introduction

10.	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.
	Ans: A Difficulty: Easy Section: Introduction Skill Descriptor: Concept-Based Topic: Introduction

11.	Increasing returns to scale occurs 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.
	Ans: B Difficulty: Easy Section: Introduction Skill Descriptor: Concept-Based Topic: Introduction

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)	economies of scale; decrease
	B)	economies of scale; increase
	C)	increasing returns to scale; decrease
	D)	specialization; increase
	Ans: A Difficulty: Easy Section: Introduction Skill Descriptor: Concept-Based Topic: Introduction

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
	Ans: C Difficulty: Easy Section: Introduction Skill Descriptor: Definitional Topic: Introduction

14.	Intra-industry trade refers:
	A)	to imports and exports within the same industry.
	B)	to imports and exports originating in different industries.
	C)	to international trade patterns predicted by the Heckscher-Ohlin model.
	D)	to Ricardian comparative advantage.
	Ans: A Difficulty: Easy Section: Introduction Skill Descriptor: Definitional Topic: Introduction

15.	What term is used to describe situations where 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
	Ans: C Difficulty: Easy Section: Introduction Skill Descriptor: Definitional Topic: Introduction

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.
	Ans: C Difficulty: Easy Section: Basics of Imperfect Competition Skill Descriptor: Concept-Based Topic: Monopoly Equilibrium

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.
	Ans: B Difficulty: Easy Section: Basics of Imperfect Competition Skill Descriptor: Concept-Based Topic: Monopoly Equilibrium

18.	A monopolist maximizes its profits by selling up to the point where:
	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.
	Ans: C Difficulty: Easy Section: Basics of Imperfect Competition Skill Descriptor: Concept-Based Topic: Monopoly Equilibrium

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)	the firm can export its products.
	Ans: A Difficulty: Easy Section: Basics of Imperfect Competition Skill Descriptor: Concept-Based Topic: Monopoly Equilibrium

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.
	Ans: C Difficulty: Easy Section: Basics of Imperfect Competition Skill Descriptor: Concept-Based Topic: Monopoly Equilibrium

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.
	Ans: B Difficulty: Easy Section: Basics of Imperfect Competition Skill Descriptor: Definitional Topic: Demand with Duopoly

22.	If there is a duopoly and the products are identical (homogeneous), the firm selling the product for a lower price:
	A)	will earn less revenue.
	B)	will get 100% of the sales.
	C)	will have a hard time being profitable.
	D)	will be perceived to have lower quality products.
	Ans: B Difficulty: Easy Section: Basics of Imperfect Competition Skill Descriptor: Analytical Thinking Topic: Demand with Duopoly

23.	In a duopoly where products are differentiated and firms charge different prices, the demand curves are _______________ than if the firms sell identical products at the same price.
	A)	steeper
	B)	farther to the right
	C)	more elastic (flatter)
	D)	less elastic
	Ans: C Difficulty: Moderate Section: Basics of Imperfect Competition Skill Descriptor: Analytical Thinking Topic: Demand with Duopoly

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.
	Ans: B Difficulty: Easy Section: Basics of Imperfect Competition Skill Descriptor: Concept-Based Topic: Demand with Duopoly

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.
	Ans: D Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

26.	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.
	Ans: C Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

27.	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, falling long-run average cost
	Ans: C Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

28.	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.
	Ans: B Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

29.	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 have some control over the price of the product.
	D)	Each firm produces a good that is similar to, but differentiated from, the goods that other firms in the industry produce.
	Ans: A Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

30.	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.
	Ans: A Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

31.	When there are increasing returns to scale, average costs must be:
	A)	falling.
	B)	rising.
	C)	constant.
	D)	falling, then rising.
	Ans: A Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

32.	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.
	Ans: A Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

33.	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
	Ans: D Difficulty: Moderate Section: Trade Under Monopolistic Competition Skill Descriptor: concept-based Topic: Trade Under Monopolistic Competition

34.	A firm’s average costs will be falling whenever its:
	A)	marginal costs are positive.
	B)	marginal costs are negative.
	C)	marginal costs are less than average costs.
	D)	marginal costs are less than fixed costs.
	Ans: C Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

35.	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.
	Ans: B Difficulty: Easy Section: Trade Under Monopolistic Competition Skill Descriptor: Analytical Thinking Topic: Trade Under Monopolistic Competition

36.	Consider the following cost information for a monopolist: its MR = $15, its MC = $23, and it is producing 9 units of output. Which of the following statements is correct?
	A)	The monopolist should produce and sell 9 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.
	Ans: D Difficulty: Moderate Section: Trade Under Monopolistic Competition Skill Descriptor: Analytical Thinking Topic: Trade Under Monopolistic Competition

37.	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)	More information is required to decide if the firm needs to change its production.
	Ans: A Difficulty: Moderate Section: Trade Under Monopolistic Competition Skill Descriptor: Analytical Thinking Topic: Trade Under Monopolistic Competition

38.	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
	Ans: B Difficulty: Moderate Section: Trade Under Monopolistic Competition Skill Descriptor: Analytical Thinking Topic: Trade Under Monopolistic Competition

39.	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
	Ans: A Difficulty: Moderate Section: Trade Under Monopolistic Competition Skill Descriptor: Analytical Thinking Topic: Trade Under Monopolistic Competition

40.	If a firm has a total cost of $150 and a variable cost of $100 for producing 5 units of output, then the fixed cost is:
	A)	$35.
	B)	$50.
	C)	$250.
	D)	$100.
	Ans: B Difficulty: Moderate Section: Trade Under Monopolistic Competition Skill Descriptor: Analytical Thinking Topic: Trade Under Monopolistic Competition

41.	If a firm has an average total cost of $55 and an average fixed cost of $10 for producing 5 units of output, then the total variable cost will be:
	A)	$550.
	B)	$525.
	C)	$225.
	D)	$65.
	Ans: C Difficulty: Difficult Section: Trade Under Monopolistic Competition Skill Descriptor: Analytical Thinking Topic: Trade Under Monopolistic Competition

42.	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.
	Ans: B Difficulty: Difficult Section: Trade Under Monopolistic Competition Skill Descriptor: Analytical Thinking Topic: Trade Under Monopolistic Competition

43.	In the long run, profits in a monopolistic competition 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.
	Ans: C Difficulty: Moderate Section: Trade Under Monopolistic Competition Skill Descriptor: Concept-Based Topic: Trade Under Monopolistic Competition

44.	In the short run, in equilibrium, firms that operate in a monopolistically competitive market face a down sloping demand curve and will charge a price where _____ and ______ .