Question

1. In the monopolistic competition model with internal economies of scale, which of the following is NOT an element of the gains from trade?

more varieties available to consumers

lower price

lower average cost

2. With trade based on economies of scale, we expect to see

specialization

incomplete specialization

we cannot say without more information

No answer text provided.

Intra industry trade refers to trade

of different goods

within the same industry

within the same country

across different industries

lower marginal cost

4. In the monopolistic competition model with internal economies of scale, international trade

will be intra industry

will be inter industry

will only occur if one country is relatively more efficient than the other

will only occur if one country is larger than the other.

Answer 1

1) In a monopolistic competition consumer always get a variety of option because there are a number of small sellers selling slightly differentiated goods. But economies of scale provide with low cost which the consumer in the monopolistic competition doesn't get. An increased return to scale will lead to a lower average cost.

The correct answer to this question is "B" lower price.

2) "Specialization" trade based on economies of scale lead to specialization.

3) With the same industry. Intra industry trade means exchange if same products belonging to the same industry.

4) Monopolistic competition means a number of sellers selling same but slightly differentiated goods. It all belongs to the same industry for example cookie industry. there are a lot of cookie seller with little differentiation in their cookie. An international trade in the monopolistic competition will be an intra industry.