EC239 Chapter Notes - Chapter 7: Infant Industry Argument, International Trade, Imperfect Competition

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magentalizard752

18 Sep 2017

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Economies of scale & international trade: an overview. If each country produces only some of the goods, then each good can be produced at a larger scale than would be the case if each country tried to produce everything => ^ world economy production of each good. If production is constant but firm # , remaining firms have to make up for missing units. Internal economies of scale give large firms a cost advantage over small firms & => an imperfectly competitive market structure. Labour market pooling: advantages both producers & workers, as the producers are less likely to suffer from labour shortages & workers are less likely to become unemployed. Low demand for one firm will at least sometimes be offset by high demand from another. External e(cid:272)o(cid:374)o(cid:373)ies & ma(cid:396)ket eq"(cid:373: the st(cid:396)e(cid:374)gth of these e(cid:272)o(cid:374)o(cid:373)ies p(cid:396)esu(cid:373)a(cid:271)l(cid:455) depe(cid:374)ds o(cid:374) the i(cid:374)dust(cid:396)(cid:455)"s size: othe(cid:396) thi(cid:374)gs =, a bigger industry will generate stronger external economies.

Related Questions

Select True/False for the following questions.

1. A country's per capita real income is equal to the product of a nation's population multiplied by the country's aggregate, inflation-adjusted income.

2. A firm experiences economies of scale along the downward-sloping portion of its long-run average cost curve.

3. A free-rider problem arises when individuals presume that others will pay for public goods so that, individually, they can escape from paying for their portion without reducing the production of the public good.

4. Economists measure economic growth as the percentage change in a nation's per capita real income.

5. In a monopolistically competitive industry, firms can earn economic profits in the short run that leads to industry exit and zero long-run economic profits.

6. Moral hazard refers to the likelihood that firms selling particularly poor-quality products are the ones that have the greatest incentive to misrepresent their attributes to sell them.

7. The geographic-based rationale for international trade is that firms seeking to take advantage of external economies and agglomeration naturally exchange products across borders, thereby generating international trade.

graygoldfish20

QUESTION 38

You are the president of the United States. In an attempt to make gasoline prices cheaper, you have imposed a binding price ceiling on gas. What would you expect your critics to say?

	a.	The binding price ceiling will cause firms to minimize their spending on the research and development of alternatives to gasoline.
	b.	The binding price ceiling will discourage individuals from using their personal automobile to commute to work or school.
	c.	The binding price ceiling will increase the likelihood that customers obtain needed gasoline on the black market.
	d.	The binding price ceiling will encourage oil companies to deplete the resource too quickly.
	e.	The binding price ceiling will cause firms to produce only gasoline of the highest quality.

1.05000 points

QUESTION 39

If a firm's long-run average total costs increase as it increases its scale of production, the firm is experiencing:

	a.	increasing returns from specialization.
	b.	diseconomies of scale.
	c.	economies of scale.
	d.	constant returns to scale.
	e.	diminishing marginal product.

1.05000 points

QUESTION 40

A(n) __________ in the elasticity of supply or demand in a market for a good that is taxed would tend to __________ tax revenue from that tax.

	a.	increase; increase
	b.	increase; have no effect on
	c.	decrease; have no effect on
	d.	decrease; decrease
	e.	increase; decrease

1.05000 points

QUESTION 41

The costs of a market activity paid for by an individual engaged in the market activity are:

	a.	external costs.
	b.	social costs.
	c.	common costs.
	d.	free-rider costs.
	e.	internal costs.

1.05000 points

QUESTION 42

Assume that the price of rubber increased at the same time that Michael Jordan, arguably the best NBA basketball player of all time, became famous. What do you expect to happen to the equilibrium price and equilibrium quantity of the basketball shoes that are promoted by Michael Jordan?

	a.	Equilibrium price will go down and equilibrium quantity will be indeterminate.
	b.	Equilibrium price will go up and equilibrium quantity will go down.
	c.	Equilibrium price will go up and equilibrium quantity will be indeterminate.
	d.	Equilibrium price will go down and equilibrium quantity will go up.
	e.	Equilibrium price will go up and equilibrium quantity will go up.

1.05000 points

QUESTION 43

The minimum wage law is an example of a:

	a.	price floor.
	b.	law that sets the minimum number of hours that an employee must work for wages during the week.
	c.	law that allows individual employers and employees to make free decisions.
	d.	law that requires quantity demanded to equal quantity supplied.
	e.	price ceiling.

taupezebra466

Silicon Valley in California and Route 128 in Massachusetts are the preeminent high-tech clusters in the world. Silicon Valley dates back to the early 1930s when Stanford University encourages its electrical engineering graduates to stay in the area and start companies.

In the early 1950s, Stanford created the Stanford Industrial Park, leasing University land to high-tech companies that worked closely with its engineering school. In the mid-1950s, defense contractors such as Lockheed brought dollars to the area. By the late 1960s, a critical mass of such talent had accumulated. For example, in 1968, eight young engineers left their employer over a disagreement; over the next 20 years, they founded 65 new companies, including Intel Corporation, which later created the microprocessor chip, the brain of personal computers.

This pattern repeated: one researcher estimated that in small and medium-sized firms, 35% of the workforce would, on average, turn over in a year. Silicon Valley became a fertile location for start-ups, with dozens sprouting every year -- everything from firms specializing in hardware and software to network firms like eBay, Facebook, and Google. It also became home to investors who specialize in financing new high-tech companies. Silicon Valley's compact geographical location allowed people to form close social and research bonds eve while working for rival firms.

On the other side of the country, a high-tech cluster known as Route 128 lies on a 65-mile highway surrounding Boston and Cambridge. It owes its beginnings to the Massachusetts Institute of Technology (MIT), the top engineering university in the world, as well as funding from the U.S. military, NASA, and the National Science Foundation. In the 1950s Route 128 dominated Silicon Valley, with three times the employment.

But early on Route 128 differed from Silicon Valley in significant ways. Geographically, Route 128 was more spread out than Silicon Valley. Its forms were larger; reflecting the needs of defense contractors during the Cold War. And MIT extended little help to Route 128 firms.

Another major difference between the two clusters lay in how firms were organized. Route 128 firms tended to be "vertically integrated", combining the entire chain of production from research to design to production in the same firm. Silicon Valley firms focused exclusively on research and design, contracting production out to specialized firms that achieved economies of scale. In contrast to the fluidity of employees and ideas across companies in Silicon Valley, Route 128 firms emphasized a commitment to lifetime employment and closely guarded their innovations to remain competitive.

The 1970s and 1980s were harsh for Route 128. Military spending dried up, and it lost its edge in microcomputers when Apollo Computers lost its preeminence to an aggressive Silicon valley from, Sun Microsystems. By 1980, electronics employment in Silicon valley was three times that of Route 128. Over time, Route 128 ceded the advantage to Silicon Valley in electronics and networking. Today its niche is in biotechnology, genetics, materials engineering, and finance.

1. What positive externalities were common to both Silicon Valley and Route 128? What positive externalities were not common to both? Explain.

2. What factors made Silicon Valley such a fertile place for start-ups? How did these factors interact with one another? What inhibited start-ups in Route 128?

3. In hindsight, what could Apollo Computers have done to maintain its advantage in mini-computers? What does this tell you generally about research clusters?

ceruleanweasel938

EC239 Chapter Notes - Chapter 7: Infant Industry Argument, International Trade, Imperfect Competition

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