Question

In: Economics

1. In the monopolistic competition model with internal economies of scale, which of the following is...

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.

Solutions

Expert Solution

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.


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