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Industrial Organization and International Trade

Description: This quiz covers the concepts of Industrial Organization and International Trade. It includes questions on market structure, competition, trade policies, and their impact on economic outcomes.
Number of Questions: 15
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Tags: industrial organization international trade economics
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Which market structure is characterized by a single seller controlling the entire market?

  1. Monopoly

  2. Oligopoly

  3. Perfect Competition

  4. Monopolistic Competition


Correct Option: A
Explanation:

A monopoly is a market structure where a single seller controls the entire market, giving them significant market power and the ability to set prices and output levels.

In an oligopoly, firms are interdependent in their decision-making. This interdependence is primarily due to:

  1. Collusion

  2. Game Theory

  3. Economies of Scale

  4. Product Differentiation


Correct Option: B
Explanation:

In an oligopoly, firms are interdependent because their decisions, such as pricing and output levels, affect each other's profits. This interdependence is analyzed using game theory, which provides a framework for understanding strategic interactions among firms.

Which trade policy involves imposing a tax on imported goods?

  1. Tariff

  2. Quota

  3. Embargo

  4. Subsidy


Correct Option: A
Explanation:

A tariff is a tax imposed on imported goods, increasing their price in the domestic market. Tariffs are often used to protect domestic industries from foreign competition or to generate revenue for the government.

The concept of comparative advantage suggests that countries should specialize in producing and exporting goods for which they have:

  1. Absolute Advantage

  2. Relative Advantage

  3. Opportunity Cost

  4. Comparative Cost


Correct Option:
Explanation:

Comparative advantage refers to the ability of a country to produce a good or service at a lower opportunity cost compared to other countries. According to the theory of comparative advantage, countries should specialize in producing and exporting goods for which they have a comparative advantage.

Which trade agreement aims to reduce or eliminate tariffs and other trade barriers among member countries?

  1. Free Trade Agreement

  2. Customs Union

  3. Common Market

  4. Economic Union


Correct Option: A
Explanation:

A free trade agreement (FTA) is an agreement between two or more countries to reduce or eliminate tariffs and other trade barriers, facilitating the free flow of goods and services between them.

The concept of economies of scale refers to:

  1. Increasing Average Cost

  2. Decreasing Average Cost

  3. Constant Average Cost

  4. Marginal Cost Pricing


Correct Option: B
Explanation:

Economies of scale occur when the average cost of production decreases as the quantity produced increases. This can be due to factors such as specialization, division of labor, and technological improvements.

In a perfectly competitive market, firms are:

  1. Price Takers

  2. Price Makers

  3. Monopolists

  4. Oligopolists


Correct Option: A
Explanation:

In a perfectly competitive market, firms are price takers, meaning they have no control over the market price. They must accept the prevailing market price and adjust their output accordingly.

Which trade policy involves restricting the quantity of a good that can be imported?

  1. Tariff

  2. Quota

  3. Embargo

  4. Subsidy


Correct Option: B
Explanation:

A quota is a trade policy that restricts the quantity of a good that can be imported. Quotas are often used to protect domestic industries from foreign competition or to manage the balance of payments.

The concept of product differentiation refers to:

  1. Identical Products

  2. Homogeneous Goods

  3. Heterogeneous Goods

  4. Perfect Substitutes


Correct Option: C
Explanation:

Product differentiation refers to the situation where goods or services are not perfect substitutes for each other. Instead, they have unique characteristics or attributes that make them distinct from competing products.

In a monopolistically competitive market, firms have:

  1. Market Power

  2. Price-Setting Ability

  3. Perfect Competition

  4. Identical Products


Correct Option: A
Explanation:

In a monopolistically competitive market, firms have some degree of market power due to product differentiation. This allows them to set prices above marginal cost and earn positive economic profits.

Which trade policy involves prohibiting the import or export of certain goods?

  1. Tariff

  2. Quota

  3. Embargo

  4. Subsidy


Correct Option: C
Explanation:

An embargo is a trade policy that prohibits the import or export of certain goods. Embargoes are often used for political or economic reasons, such as punishing a country for its actions or protecting domestic industries.

The concept of externalities refers to:

  1. Internal Costs

  2. Private Benefits

  3. Social Costs

  4. Public Goods


Correct Option: C
Explanation:

Externalities are costs or benefits that arise from the production or consumption of a good or service that are not reflected in the market price. Social costs are negative externalities that impose costs on society as a whole.

In a duopoly, the market structure is characterized by:

  1. Two Sellers

  2. Perfect Competition

  3. Monopoly

  4. Oligopoly


Correct Option: A
Explanation:

A duopoly is a market structure characterized by the presence of only two sellers. Duopolies often exhibit strategic interactions between the two firms, such as price wars or collusion.

Which trade policy involves providing financial assistance to domestic industries to make them more competitive?

  1. Tariff

  2. Quota

  3. Embargo

  4. Subsidy


Correct Option: D
Explanation:

A subsidy is a trade policy that involves providing financial assistance to domestic industries to make them more competitive. Subsidies can take various forms, such as direct cash payments, tax breaks, or low-interest loans.

The concept of dumping refers to:

  1. Selling Goods Below Cost

  2. Exporting Goods at a Loss

  3. Price Discrimination

  4. Predatory Pricing


Correct Option: B
Explanation:

Dumping is a trade practice where a company exports goods to a foreign market at a price below the cost of production. Dumping can be used to gain market share or to harm competing domestic industries.

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