New Trade Theories

Question 1

in horizontal fdi, what costs play important role

Answer 1

trade and transport costs

Question 2

modeling imperfect competition considers the behavior of individual firms

Answer 2

1. firms produce goods that are differentiated from one another
2. performance measures

Question 3

a case when costs fall with cumulative production over time, rather than with the current rate of production

Answer 3

dynamic increasing returns

Question 4

can raise the profits of all firms at the expense of consumers. may be managed through explicit agreements or through tacit coordination strategies

Answer 4

collusive behavior

Question 5

this is a situation where the price of a product when sold in the importing country is less than the price of that product in the market of exporting country

Answer 5

dumping

Question 6

occur when cost per unit of output depends on the size of the firm

Answer 6

internal economies of scale

Question 7

vertical fdi is driven by ____ cost

Answer 7

production

Question 8

intra-industry trade is based on ___ and ____

Answer 8

product differentiation and economies of scale

Question 9

either imports or exports in a given sector of the economy

Answer 9

inter-industry

Question 10

two kinds of behavior arise in the general oligopoly setting that are excluded by assumption from the monopolistic competition model

Answer 10

1. collusive behavior
2. strategic behavior

Question 11

both imports and exports in a given sector of the economy at the different stage of processing

Answer 11

vertical intra-industry

Question 12

three main reasons why a cluster of firms may be more efficient.

Answer 12

1. specialized suppliers
2. labor market pooling
3. knowledge spill-overs

Question 13

situation in which dumping leads to two-way trade in the same product

Answer 13

reciprocal dumping

Question 14

assumptions under imperfect competition theory

Answer 14

1. positive relationship: N and AC
2. negative relationship: N in the industry and price

Question 15

in vertical fdi, it involves trade off between

Answer 15

cost savings and fixed cost of setting up an additional production facility

Question 16

this refers to the exchange of similar products belonging to the same industry

Answer 16

intra-industry

Question 17

occur when cost per unit of output depends on the size of the industry

Answer 17

external economies of scale

Question 18

types of economies of scale

Answer 18

• external economies of scale
• internal economies of scale

Question 19

this refers to investment in which a firm in one country directly controls or owns a subsidiary in another country

Answer 19

FDI

Question 20

intra-industry trade is related to the ____ of product

Answer 20

sharp increase in international trade in parts and components

Question 21

if a foreign company invests in at least __ of stock in subsidiary, the two firms are ____ corporation

Answer 21

10%, multinational corporation

Question 22

foreign outsourcing can substitiute

Answer 22

vertical fdi

Question 23

why would some firms choose not to export?

Answer 23

trade costs reduce the profitability of exporting all firms

Question 24

is adopted by firms to affect the behavior of competitors in a desirable way. deters potential rivals from entering industry

Answer 24

strategic behavior

Question 25

according to _____, there are three main reasons why a cluster of firms may be more efficient.

Answer 25

Alfred Marshall

Question 26

this occurs when a firm contracts with an independent firm to produce in the foreign location

Answer 26

foreign outsourcing

Question 27

is when company builds a new production facility abroad

Answer 27

greenfield fdi

Question 28

the horizontal fdi decision involves trade off between

Answer 28

per unit export cost and fixed cost of setting up an additional production facility

Question 29

it is when a domestic firm buys a controlling stake in a foreign firm

Answer 29

brownfield fdi

Question 30

also called cross-border mergers and acquisitions

Answer 30

brownfield fdi

Question 31

two main types of FDI

Answer 31

1. horizontal 2. vertical

Question 32

it relates unit cost to cumulative output

Answer 32

learning curve

Question 33

developed countries have been the biggest recipients of ____ FDI

Answer 33

inward

Question 34

external economies has ____ supply curve

Answer 34

forward falling

Question 35

when the production chain is broken up, and parts of the production processes are transferred to the affiliate location

Answer 35

vertical fdi

Question 36

implies that a firm's average cost of production decreases the more output it produces

Answer 36

internal economies of scale

Question 37

represents the relocation of parts of the production chain abroad and groups together both foreign outsourcing and vertical fdi

Answer 37

offshoring

Question 38

when the affiliate replicates the production process elsewhere in the world

Answer 38

horizontal fdi

Question 39

reciprocal dumping net welfare effect is

Answer 39

ambiguous. waste resources in transportation and creates competition

Question 40

both imports and exports in a given sector of the economy at the same stage of processing

Answer 40

horizontal intra-industry