A product is produced in a monopolistically competitive industry with scale economies. If thisindustry exists in two countries, and these two countries engage in trade with each other, then wewould expectA) the country with a relative abundance of the factor of production in which production of theproduct is intensive will export this product.B) the countries will trade only with other nations they are not in competition with.C) the country in which the price of the product is lower will export the product.D) neither country will export this product since there is no comparative advantage.E) each country will export different varieties of the product to the other.
Question
A product is produced in a monopolistically competitive industry with scale economies. If thisindustry exists in two countries, and these two countries engage in trade with each other, then wewould expectA) the country with a relative abundance of the factor of production in which production of theproduct is intensive will export this product.B) the countries will trade only with other nations they are not in competition with.C) the country in which the price of the product is lower will export the product.D) neither country will export this product since there is no comparative advantage.E) each country will export different varieties of the product to the other.
Solution
Based on the given information, we can analyze the possible outcomes of trade between two countries in a monopolistically competitive industry with scale economies. Let's go through each option step by step:
A) The country with a relative abundance of the factor of production in which production of the product is intensive will export this product. This option suggests that the country with more resources or factors of production used in the production of the product will export it. This could be a possibility as the country with more resources might have a comparative advantage in producing the product.
B) The countries will trade only with other nations they are not in competition with. This option implies that the two countries will only engage in trade with nations that are not their competitors. However, this does not directly address the question of which country will export the product.
C) The country in which the price of the product is lower will export the product. This option suggests that the country with a lower price for the product will export it. This could be a possibility as lower prices might make the product more competitive in the international market.
D) Neither country will export this product since there is no comparative advantage. This option states that neither country will export the product because neither has a comparative advantage. However, this contradicts the assumption that the industry is monopolistically competitive, which implies that there are differentiated products and some level of market power.
E) Each country will export different varieties of the product to the other. This option suggests that each country will specialize in producing different varieties of the product and export them to each other. This could be a possibility as monopolistically competitive industries often have differentiated products, allowing for specialization.
Based on the given information, option E seems to be the most likely outcome. However, it is important to note that without further information or analysis, it is difficult to determine the exact outcome of trade between the two countries in this specific scenario.
Similar Questions
8. In a two product two country world, international trade can lead to increases inA) total production of both products but not consumer welfare in both countries.B) prices of both goods in both countries.C) consumer welfare only if output of both products is increased.D) output of both products and consumer welfare in both countries.E) consumer welfare in both countries but not total production of both products.
Suppose two countries are identical in their factor endowments. Both would like to consume passenger cars and commercial vehicles, industries with economies of scale. In the absence of trade, each country would have both industries. If they could trade, both could benefit by specialising and taking advantage of economies of scale to lower their production costs.Assume that once trade becomes possible, country A specialises in producing passenger cars, and country B specialises in producing commercial vehicles. a) Explain why we would expect to observe trade in similar products, known as intra-industry trade, when production technology is characterized by economies of scale. [10 points]b) Try to reflect on who are the "winners" and "losers" from international trade in this example [10 points] View keyboard shortcutsEditViewInsertFormatToolsTable12ptParagraph
how is factor of production shown in international trade
If a country differs from the rest of the world in taste patterns but not in production capabilities, the trade will lead to some international specialization in ___________.Select one:a.Productionb.Consumptionc.Productivityd.Techniques of production
True or false: Countries specialize in the production of certain products because they have advantages over other countries in those products.True false question.TrueFalse
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