EC 340 Exam 2 with correct answers
100% 2026
Consider the following statement
i) More than ½ of the world's trade is bilateral trade between developed countries
ii) The share of world trade among developing countries is between 10-15%
A Only (i) is true
B Only (ii) is true
C (i) is true and (ii) is false
D Both are true
E Both are false - Correct Answers Both are true
True or False: Most world trade is inter-industry trade.
A True
B False - Correct Answers False
True or False: Cross country difference in autarky prices can explain why fully assembled cars are
imported to the US from Mexico as well as exported to Mexico from the US.
A True
B False - Correct Answers False
The Ricardian and H-O models assumed
A Increasing returns to scale
B Constant returns to scale
C Decreasing returns to scale
D Increasing and then decreasing returns to scale - Correct Answers Constant returns to scale
,True or False: An industry exhibit increasing returns to scale if average costs decreases as output
increases
A True
B False - Correct Answers True
Technology can exhibit IRS due to
A Internal factors only
B External factors only
C Both internal and external factors
D It is independent of these factors - Correct Answers Both internal and external factors
What is the technical meaning of "economies of scale"?
A Average cost decreases as output decreases
B Average cost decreases as output increases
C Average cost increases as output decreases
D Average cost increases as output increases - Correct Answers Average cost decreases as
output increases
What is the difference between internal and external economies of scale?
A Internal refers to within a firm
B Internal refers to within an industry
C Internal refers to within a country
D External refers to between industries
E External refers to between countries - Correct Answers Internal refers to within a firm
Which of these is not an assumption of the Krugman New Trade Model
A Differentiated Products
,B Increasing Returns to Scale
C Free Entry
D Perfect Competition - Correct Answers Perfect Competition
(An) Important ingredient(s) of the monopolistic competition model is (are):
A Product differentiation
B Perfect competition
C External economies of scale
D (a) and (b)
E All of the above - Correct Answers Product differentiation
If the demand curve faced by an individual firm downward sloping, then
A If it raises its price at all, then it loses all of its customers
B If it raises its price at all, then it loses only some of its customers
C If it lowers its price at all, then it captures all consumers in the market
D If it lowers its price at all, then it will not make any profits
E (A) and (C) are true - Correct Answers If it raises its price at all, then it loses only some of its
customers
Consider the following statement regarding the Krugman Model
i) Markets are not perfectly competitive
ii) Producers of each variety will have horizontal demand curve
A Only (i) is true
B Only (ii) is true
C Both are true
D Both are false - Correct Answers Only (i) is true
, In the Krugman model,
A industry profits are always zero, because of competition from entry
B industry profits are above zero, because of monopoly power
C industry profits are above zero, because price is set above marginal cost
D industry profits are below zero because of fixed costs
E (b) and (c) - Correct Answers industry profits are always zero, because of competition from
entry
In the Krugman model, producers pays
A A variable cost to enter the market
B A fixed cost to enter the market
C No cost to enter the market
D Fixed cost to exit the market - Correct Answers A fixed cost to enter the market
How do firms set quantities sold in a monopolistic competition framework?
A Where Price = Marginal Cost
B Where Price = Average Cost
C Where Marginal Revenue = Marginal Cost
D Where Marginal Revenue = Price - Correct Answers Where Marginal Revenue = Marginal Cost
In an industry with monopolistic competition, if the variable cost in the industry is constant at c
across all firms, then
A all firms will all set prices to c
B all firms will all set marginal revenues to c
C all firms will set marginal revenue equal to price
D (a) and (b)
100% 2026
Consider the following statement
i) More than ½ of the world's trade is bilateral trade between developed countries
ii) The share of world trade among developing countries is between 10-15%
A Only (i) is true
B Only (ii) is true
C (i) is true and (ii) is false
D Both are true
E Both are false - Correct Answers Both are true
True or False: Most world trade is inter-industry trade.
A True
B False - Correct Answers False
True or False: Cross country difference in autarky prices can explain why fully assembled cars are
imported to the US from Mexico as well as exported to Mexico from the US.
A True
B False - Correct Answers False
The Ricardian and H-O models assumed
A Increasing returns to scale
B Constant returns to scale
C Decreasing returns to scale
D Increasing and then decreasing returns to scale - Correct Answers Constant returns to scale
,True or False: An industry exhibit increasing returns to scale if average costs decreases as output
increases
A True
B False - Correct Answers True
Technology can exhibit IRS due to
A Internal factors only
B External factors only
C Both internal and external factors
D It is independent of these factors - Correct Answers Both internal and external factors
What is the technical meaning of "economies of scale"?
A Average cost decreases as output decreases
B Average cost decreases as output increases
C Average cost increases as output decreases
D Average cost increases as output increases - Correct Answers Average cost decreases as
output increases
What is the difference between internal and external economies of scale?
A Internal refers to within a firm
B Internal refers to within an industry
C Internal refers to within a country
D External refers to between industries
E External refers to between countries - Correct Answers Internal refers to within a firm
Which of these is not an assumption of the Krugman New Trade Model
A Differentiated Products
,B Increasing Returns to Scale
C Free Entry
D Perfect Competition - Correct Answers Perfect Competition
(An) Important ingredient(s) of the monopolistic competition model is (are):
A Product differentiation
B Perfect competition
C External economies of scale
D (a) and (b)
E All of the above - Correct Answers Product differentiation
If the demand curve faced by an individual firm downward sloping, then
A If it raises its price at all, then it loses all of its customers
B If it raises its price at all, then it loses only some of its customers
C If it lowers its price at all, then it captures all consumers in the market
D If it lowers its price at all, then it will not make any profits
E (A) and (C) are true - Correct Answers If it raises its price at all, then it loses only some of its
customers
Consider the following statement regarding the Krugman Model
i) Markets are not perfectly competitive
ii) Producers of each variety will have horizontal demand curve
A Only (i) is true
B Only (ii) is true
C Both are true
D Both are false - Correct Answers Only (i) is true
, In the Krugman model,
A industry profits are always zero, because of competition from entry
B industry profits are above zero, because of monopoly power
C industry profits are above zero, because price is set above marginal cost
D industry profits are below zero because of fixed costs
E (b) and (c) - Correct Answers industry profits are always zero, because of competition from
entry
In the Krugman model, producers pays
A A variable cost to enter the market
B A fixed cost to enter the market
C No cost to enter the market
D Fixed cost to exit the market - Correct Answers A fixed cost to enter the market
How do firms set quantities sold in a monopolistic competition framework?
A Where Price = Marginal Cost
B Where Price = Average Cost
C Where Marginal Revenue = Marginal Cost
D Where Marginal Revenue = Price - Correct Answers Where Marginal Revenue = Marginal Cost
In an industry with monopolistic competition, if the variable cost in the industry is constant at c
across all firms, then
A all firms will all set prices to c
B all firms will all set marginal revenues to c
C all firms will set marginal revenue equal to price
D (a) and (b)
