Understanding the reason behind Intra-industry Trade between Similar Economies

7. Because firms split up the value chain, international trade often does not involve whole finished products like automobiles or refrigerators being traded between nations. Instead, it involves shipping more specialized goods. True or False.

a. False

b. True

4. The underlying reason why a country like the United States, Japan, or Germany produces one kind of machinery rather than another is because

a. It is related to U.S., German, or Japanese firms and workers having generally higher or lower skills.

b. In working on very specific and particular products, firms in certain countries develop unique and different skills.

14. The countries practice intra-industry trade, in which they import and export the same products at the same time, like cars, machinery, and computers. True or False.

a. True

b. False

15. Intra-industry trade seems surprising from the point of view of _______________________. 

a. absloute advantage

b. comparative advantage

1. The theory of comparative advantage suggests that trade should happen between economies with large differences in opportunity costs of production. True or False.

a. True

b. False

2. The theory of comparative advantage suggests that each economy should specialize to a degree in certain products, and then exchange those products. A high proportion of trade, however, is ______________________. 

a. intra-industry trade

b. inter-industry trade

3. Why do similar high-income economies engage in intra-industry trade? 

a. The division of labor leads to learning, innovation, and unique skills

b. Economies of scale.

c. Both a and b

5. Specialization in the world economy can be very finely split. In fact, recent years have seen a trend in international trade called splitting up the value chain. True or False. 

a. True

b. False

8. _________________ between similar countries produces economic gains because it allows workers and firms to learn and innovate on particular products—and often to focus on very particular parts of the value chain. 

a. Inter-country trade

b. Inter-industry trade

c. Intra-industry trade

9. The concept of ___________________ means that as the scale of output goes up, the average costs of production decline—at least up to a point. 

a. economies of scope

b. economies of scale

10. ____________________ provides a way to combine the lower average production costs that come from economies of scale and still have competition and variety for consumers.

a. Intra-industry trade

b. International trade

c. Inter-industry trade

11. The sources of gains from intra-industry trade between similar economies—namely, the learning that comes from a high degree of specialization and splitting up the value chain and from economies of scale, give rise to ______________________________.

a. static comparative advantage

b. dynamic comparative advantage

12. In intra-industry trade, the level of worker productivity is determined by:

a. climate or geography.

b. the general level of education or skill.

c. how firms engage in specific learning about specialized products, including taking advantage of economies of scale.

6. Who said the following, " The essence of international trade is not the absolute difference in cost but a comparative difference in cost."

a. David Ricardo

b. Adam Smith

c. J.S.Mill

13. In intra-industry trade, the level of worker productivity is not determined by climate or geography. It is not even determined by the general level of education or skill. Instead, the level of worker productivity is determined by how firms engage in specific learning about specialized products, including taking advantage of economies of scale. In this vision, comparative advantage can be dynamic. 

True or False.

a. True

b. False