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Ricardian and HO model assumes constant return to scale what does Krugman model assume
increasing returns to scale
Krugman model has what type of competition
imperfect competition
if variable costs are constant then the firm will set marginal revenue to what
MR will be set equal to C
a decline in the fixed cost of entry in the Krugman model does what to… average cost, profits, quantity, and the number of firms
drop in average cost,
temporary increase in profits before new firms enter,
drop in quantity sold of each variety,
increase in equilibrium number of firms
a decline in the marginal cost in the krugman model creates
entry of new firms, prices of different varieties drop
what is intra industry trade
the trade of products that belong to the same industry, consists of a large share of world trade
intra industry… industry
an increase in product variety results from what decreasing
marginal costs
Equilibrium number of firms are dictated by what to enter or exit the market
fixed costs, variable costs, size of market
what does the graph depict
monopolistic pricing decision out of equilibrium since firms are making positive profits
what changes would result in an increase in product variety
decrease in marginal costs
what can explain the shape of the demand curve firms face in the krugman model
consumers have lots of variety; consumers have personal favorites brands
what role does investment play in production
investment today allows for more production in the future
y axis consumption/ production tomorrow, x axis is consumption/ production today. In the current period US is
running a trade deficit; running a joint capital and financial account
if US PPF contracts downward (becomes less steep), then the US current trade account today
it will become more positive, surplus will grow
which of the following falls into the financial account
revenue from sale of assets, money spent abroad on assets, sale of gold/ currencies.
most of the world is what type of industry trade
inter industry trade
What is the difference between internal and external economies of scale?
internal refers to within a firm, external refers to within an industry
If Rw, the interest rate in the rest of the world, is greater than Rc, the autarky interest rate in country C, when the country opens up to trade with the rest of the world, Country C will shift a great proportion of consumption towards
the future, opportunity cost of consuming today increases
