IBE 2

22 flashcards · Other · by Daniel F.

1. Measure of IIT

   Grubel-Lloyd index: 1 - |EX-IM| / EX+IM Amount of EX and IM are the same: GL = 1 Only EX or only IM: GL = 0

2. Imperfect competition

   Firms influence price of procuts falling average cost of production => economies of scale

3. Sources of scale of economies

   Internal External

4. Internal sources of scale

   Average costs fall in the firm’s own scale of production more internal scale economies the more oligopoly there is Reasons: up front costs, equipment produces in large numbers

5. External economies of scale

   average costs fall in the industry/region of all firms as output increases average costs are lower in larger industries/regions Explains clustering of firms (Hollywood, Silicon Valley) Reasons: Large supply of specialized services, labor, Knowledge spillovers

6. Monopoly

   AC = (MC*Q+F)/Q Profit = MR*Q - MC*Q - F

7. Why we need imperfect competition

   classical trade implies perfect competition trade is driven by differences in comparative advantages countries should import and export different products similar countries should not trade with one another in reality there is trade between similar countries countries import and export similar products To get here we need to deviate from perfect competition product differentiation and monopolies oligopolies firm clustering

8. Intra-Industry trade

   Growing with increase of demand for product variety Trade within industries/product categories: Export and import products that are close substitutes Driven by product differentiation, comparative advantages, seasonal fluctuation Net trade: absolute difference between EX and IM (|EX – IM|). IIT: EX + IM – |EX – IM|

9. Models with imperfect competition

   Monopoly Monopolistic competition each firm produces one unique product, but competes with other firms that offer similar products Oligopoly Firm clustering

10. Monopolistic competition under autarky

    Characteristics Products are unique but are strong substitutes and analyzed together easy entry and exit Firms are encouraged to join market demand is reduced, profits decline as long as there is profit to be made new firms join under equilibrium there are no profits

11. Monopolistic competition with trade

    Production and price More competition decreases D and MR More variety makes D (and MR) more price elastic (flat) Result: lower price, lower profit, some firms exit until all firms make 0 profit

12. Number of varieties in monopolistic competition

13. Gains from trade in monopolistic competition

    Free trade benefits consumers in two ways: Lower product prices. More varieties Little/no impact on producer surplus sales at home is compensated by gain of sales abroad Due to fiercer competition from trade, inefficient firms go out of business Average firm productivity increase

14. Trade restriction in monopoly - Tariff

15. Trade restriction in monopoly - Quota

    Net welfare losses are bigger under the quota than the tariff

16. Oligopoly

    very few large firms actions provoke strategic counteractions models two firms two actions

17. The oligopoly coordination problem

    firms are in a prisoners dilemma cooperating would yield higher profit if they do collude there is incentive to break away if price is higher there is more profit and better terms of trade

18. When is collusion easy/difficult

19. Model of external scale economies

    large number of small firms (zero profit) the average costs of production of all firms in an industry and region fall as the industry in this region expands

20. external scale economies and trade

    trade expands the industry lowering AC Producers in exporting benefit Producers in importing lose Consumers win on lower prices

21. firm clustering

    certain locations experience lasting production advantages potentially lower-cost locations, cannot easily overcome the scale advantages of the established location

22. Grubel-Lloyd index