In the "Krugman model" of New Trade Theory, increasing returns to scale and network effects play asignificant role in international trade patterns. Suppose two countries are identical in every respect except forthe fact that one country has a slightly larger initial market for a particular industry. According to the model,what is the likely long-term outcome for the industry?A) The industry will be evenly distributed between the two countries due to comparative advantage.B) The industry will eventually concentrate in the country with the larger initial market, leading tomonopolistic competition and economies of scale.C) Both countries will experience identical growth rates in the industry due to constant returns to scale.D) The industry will disappear in both countries due to competitive pressures from other industries.

This result is predicated on the notion that the nation with the larger initial market will benefit…

Answered: In the "Krugman model" of New Trade…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume the situation of an exchange economy. (a) Determine the contract curve as an expression in which good I (x1) is a function of good 2 (x2). (b) Provide a diagram that illustrates the contract curve and the core of the economy. (c) Determine the Walrasian equilibrium prices.
Match each trade theory below to its rationale for international trade Theory of Comparative Advantage Heckscher-Ohlin Theory Product Life Cycle Theory New Trade Theory match to: cost reductions due to large scale production differences in productivity demand and market conditions differences in endowments
Suppose we are considering a HO model setting, where countries have not yet opened up to trade. Two goods are produced exclusively by domestic labor supplies, tires and vehicle frames. Suppose a tire is labor-intensive in production whereas constructing vehicle frames is a capital intensive task that more frequently features automated machinery. Home and foreign maintain the following capital (K) and labor (L) endowments. Factor L K Home 1120 575 Foreign 1680 950 Suppose these countries transition into a free trade scenario. Using the previous details about both countries, perform the following tasks. (i) Sketch a world relative price, CPC line, through your bundle such that it passes through the PPF (it will have no tangency to PPF). (ii) Using this CPC line, with its fixed slope, shift the line until it is perfectly tangent with the indifference curve. Update your sketch with this newly labeled CPC. (iii) Correctly label the equilibria points at which Home consumes and produces. (iv)…
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Assume that there are two Countries, Gabon and Togo. Togo can either produce 100 tons of Palm oil or 120 meters of cloth using their resources to the maximum and most efficiently. Gabon on the other hand can produce either 180 tons of palm oil or 50 meters of cloth using all their resources to the maximum and most efficiently. Assume that both countries experience constant opportunity cost in production: i) Draw PPF for each country placing palm oil on the y-axis. ii) Identify the comparative advantage for each country. Explain in terms of opportunity cost. iii) Indicate the trend of trade if the two countries had to trade
Suppose the US is relatively well endowed with skilled workers and Mexico is relatively well endowed with unskilled workers. Define wg as the wage of a skilled worker and wy as the wage of an unskilled worker. The production of widgets is unskilled labor intensive and the production of gadgets is skilled labor intensive. Both factors of production are mobile across industries but immobile across countries. Assume perfect competition in both markets. In moving from autarky to free trade, the skilled workers are better off in Mexico. True. False.
When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFs) for Glacier and Rainier. Both countries produce corn and basil, each initially (i.e., before specialization and trade) producing 18 million pounds of corn and 9 million pounds of basil, as indicated by the grey stars marked with the letter A. BASIL (Millions of pounds) 48 42 36 30 24 18 12 6 0 0 PPF 6 Glacier A 12 18 24 30 36 CORN (Millions of pounds) 42 48 ? BASIL (Millions of pounds) 48 42 36 30 24 18 12 6 0 0 PPF I + 6 Rainier 12 18 24 30 36 CORN (Millions of pounds) I 42 48 (?) Glacier has a comparative advantage in the production of while Rainier has a comparative advantage in the production of Suppose that Glacier and Rainier specialize in the production…
When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of sugar, as indicated by the grey stars marked with the letter A. (? (?) Maldonia Lamponia 64 64 56 56 48 PPF 48 40 40 32 32 24 24 PPF 16 16 16 24 32 40 48 56 64 16 24 32 40 48 56 64 LEMONS (Millions of pounds) LEMONS (Millions of pounds) Maldonia has a comparative advantage in the production of production of while Lamponia has a comparative advantage in the . Suppose that Maldonia and Lamponia specialize in the production of the goods in which each has a comparative advantage.…
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