Chap 4

Question 1

What is Cournot oligopoly ?

Answer 1

• It is a model of imperfect competition

each firm chooses its quantity , according to the quantity choose by the other firm (given its conjecture)

Question 2

How Cournot oligopoly can produce international trade?

Answer 2

• It can produce trade because each firm wants to grab some of the market share of the other

Question 3

What happens in a symmetric Cournot model ?

Answer 3

• Trade lowers the profits of oligopolist by forcing them to compete , and raises consumer surplus.

Question 4

what happens when transport cost are high enough ?

Answer 4

This can result in social welfare losses from trade

• The benefits to consumers from enhanced competition is smaller than the loss in corporate profits.

Question 5

What happens when one country’ oligopolist has substantial cost advantage ?

Answer 5

• The one with the advantage will have incentive to support trade
• The ones in disadvantage will oppose trade

because the effect of trade is in the transfer of rents (market share) from the one with the advantage

Question 6

what happens to trade when oligopolist’s products are not identical ?

Answer 6

• Trade is more likely to rise profits and to raise social welfare

Question 7

What is Bertrand oligopoly ?

Answer 7

• It is model of imperfect competition in which one firm choose it price according to the other decision and conjecture.

Question 8

What happens to trade when two oligopolist have identical product ? ( Bertrand oligopolist )

Answer 8

• Bertrand oligopolist CANNOT produce international trade

if their product is IDENTICAL,
neither country has a COST ADVANTAGE
and positive TRANSPORT COST.

However the THREAT OF TRADE has effects:

• lowering prices
• increasing social welfare