B8 Flashcards
Firms in the global economy, export decisions, outsourcing and multinational enterprises
in a perfectly competative market firms are price takers
true, their production choices do not effect the price of goods
How does imperfect competition apear
When there are only a few companies in the industry or when a company produces goods that are differentiated in the eyes of the consumer
internal economies of scale leads to imperfect competition and companies that view themselves as price setters
true, they will outcompete eachother or force diferentiation
How much does a monopoly produce
Untill marginal cost equals marginal revenue
Is the marginal revenue curve always bellow the demand curve
Yes becouse to sell an iditional unit it has to lower the price of all the goods thus marginal revenue decreases faster in proportion to the demand at the price
will other firms be effected by one firms price setting in monopolistc competition
Not in a way that would make them change their own prices in response such as in oligopolies
How does the number of firms in monopolistic competition affect price
Price decreases as competition intensifies
How are costs effected by competition in monopolistic competition
More competition often leads to higher costs if we assume the companies are symmetrical as companies prodice less and are not able to take advantage of scale
What is the equalibrium price in monopolistic competition
When price equals average cost as greater would attract more competition driving up costs and lesser would mean losses that forces some to leave
How does opening up to trade effect monopolistic competition
It serves as an enlarging of the market that allows each firm all things equal the produce more and gain lower cost which then entices more competition which reduces the prices. Lower costs but lower prices better for consumers anyway
What is intra industry trade
When two countries trade similar goods in an industry where there is monopolistic competition, the countries gain from trade as it leads to a bigger market, allowing them to cut costs but as it is monopolistic competition one country cannot take over the whole industry.
Is there emperical evidence of intra industry trade
Yes, just look at the car market, consumers can enjoy the greater variety of cars and lower prices that comes from economies of scale
How does opening up to trade affect productivity in the domestic industry
Weaker companies die as they cannot keep up with the competition while stronger companies expand in the larger market increasing productivity in the industry as a whole
The symmetry assumption means that the companies in tue monopolistic competition trade model have the same cost curve and the same demand curve
True
Most markets are perfectly integrated
No, there are often costs associated with trade
Do bigger or smaller companies usually export
Bigger companies with their lower marginal costs are the ones that tend to export as the trade barriers are to high for small companies to export at a profit
What is dumping
When a firm lowers its markup and so price on export markets compared to domestic markets, a practice considered to be unfair competition
Can a company seek damages when a forign competitor is dimping
Yes, it usually comes in the form of an anti dumping duty scaled as the price diference if the markup
Is there economical reasons to enforce anyi dumping laws
No, it is basically just rebranded protectionism
How much of a domestic firm needs to be controlled by a foreign company to be considered multinational
10%
What is greenfield fdi
When a domestic firm builds a facility abroad
What are brownfield fdi
When a domestic firm buys 10% aka a controlling share of a foreign firm
What is vertical fdi
When parts in the supply chain are produced abroad by a domestic company
What is horizontal fdi
When additional facilities that does the same commercial activities as the ones home are created abroad by a domestic firm
What is the proxity concentration tradeoff
The tradeoff between return to scale when having few facilities and the trade barriers avoided when producing in many facilities in close proximity to international markets
Why would countries not do vertical forign investment
Becouse it comes with a high initial cost
Explain the horizontal fdi decision
Is the vost and spread worth for skipping trade barriers
Explain the horizontal fdi decision
To directly invest in foreign production facilities or not, attractive for large companies as it allows them to overcome the cost of trade but smaller firms might be better of establishing economies of scale in one location
Explain the vertical fdi decision
As some countries have comparative advantage in some sectors it makes sense to adapt the supply chain to take advantage of these forces, it is however a substantial investment that some firms don’t initially afford
What is the internationalization motive
The question why a firm chooses to own a part of the supply chain abroad instead of just purchasing their supplies
What is outsourcing
When a company licenses a foreign company to take care of different stages in the supply chain
What is offshoring
A term that includes both outsourcing and vertical foreign direct investment
What is the difference between counting trade deficits or surplus at value added or gross value
The definite calculated at gross value is just imports vs exports to that country while value added just voumts the value added by the exporter. F.ex if an iphone is imported from china the US might pay a gross sum but that import is made by parts from corea that were designed by the home country making the value added and thus deficit to China in particular smaller than it seams
Is outsourcing a common substitute for horizontal fdi
No, licensing your production technology to another involves the risk of loosing the edge over competition
Is outsourcing a common substitute for vertical fdi
It may be, independent companies can serve multiple clients and then benefit from economies of scale. Local ownership also incentivizes alignment between the managers and the production process. On the other hand direct control offers greater control and lessens the risk costly renegotiation and conflicts
Do companies that export also tend to offshore
Yes, there are substantial fixed costs associated with offshoring so the ones doing it are usually larger and more productive firms that can also overcome the barriers of trade
Do offshoring tend to lead to domestic job loss
No there is no evidence for that as companies tend to increase their domestic employment as they offshore, no such pattern have been seen on macrolevels either
