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Questions and Answers
What defines internal economies of scale?
What defines internal economies of scale?
- Collaborative efficiencies obtained from industry-wide practices.
- Efficiency improvements within a single firm. (correct)
- Increased production due to market competition.
- Reduction in costs due to external supplier relationships.
Which of the following is a characteristic of international economies of scale?
Which of the following is a characteristic of international economies of scale?
- Dependence solely on domestic markets.
- Integration of manufacturing operations globally. (correct)
- Uniform production standards across different countries.
- Restriction to local production facilities.
How does product differentiation affect economies of scale?
How does product differentiation affect economies of scale?
- It increases unit costs but enhances variety for consumers. (correct)
- It leads to the use of conventional machinery for all products.
- It eliminates the need for specialized production techniques.
- It allows for lower unit costs by standardizing production.
What factor is not considered an external economy of scale?
What factor is not considered an external economy of scale?
What does the concept of minimum efficient scale refer to?
What does the concept of minimum efficient scale refer to?
Which statement accurately represents natural economies of scale?
Which statement accurately represents natural economies of scale?
What is the consequence of indifference curves crossing?
What is the consequence of indifference curves crossing?
What describes the marginal rate of substitution (MRS)?
What describes the marginal rate of substitution (MRS)?
Why does the marginal rate of substitution decline as one moves down an indifference curve?
Why does the marginal rate of substitution decline as one moves down an indifference curve?
What does opportunity cost refer to in economic terms?
What does opportunity cost refer to in economic terms?
What is true about the production possibilities frontier (PPF) when a country is in autarky?
What is true about the production possibilities frontier (PPF) when a country is in autarky?
What effect does the convexity property of preference ordering have on indifference curves?
What effect does the convexity property of preference ordering have on indifference curves?
What happens when moving to the right along an indifference curve?
What happens when moving to the right along an indifference curve?
Which of the following statements about absolute advantage is correct?
Which of the following statements about absolute advantage is correct?
What is indicated by the absolute value of the slope of an indifference curve?
What is indicated by the absolute value of the slope of an indifference curve?
What can be inferred if both countries have full employment?
What can be inferred if both countries have full employment?
What does the slope of the PPF represent?
What does the slope of the PPF represent?
How is an implicit cost defined in the context of opportunity cost?
How is an implicit cost defined in the context of opportunity cost?
In terms of trade-offs, what does the production possibility frontier (PPF) illustrate?
In terms of trade-offs, what does the production possibility frontier (PPF) illustrate?
Which condition must hold true for a country to benefit from trade according to comparative advantage?
Which condition must hold true for a country to benefit from trade according to comparative advantage?
When is production said to be efficient according to the PPF?
When is production said to be efficient according to the PPF?
If a consumer has a very high quantity of a good, how would this impact their willingness to exchange it for another good?
If a consumer has a very high quantity of a good, how would this impact their willingness to exchange it for another good?
What is the role of transport costs in trade as per the provided assumptions?
What is the role of transport costs in trade as per the provided assumptions?
What does the international terms of trade line (TT') represent?
What does the international terms of trade line (TT') represent?
Which statement concerning the economic outcomes of trade is true?
Which statement concerning the economic outcomes of trade is true?
How is the pre-trade equilibrium marked on the graph?
How is the pre-trade equilibrium marked on the graph?
What is the primary belief of Smith regarding economic progress?
What is the primary belief of Smith regarding economic progress?
According to David Ricardo's theory, if country A has an absolute advantage in producing both goods, what should it do?
According to David Ricardo's theory, if country A has an absolute advantage in producing both goods, what should it do?
What does Ricardo's theory imply about international trade?
What does Ricardo's theory imply about international trade?
What assumption is NOT part of David Ricardo's theory of Comparative Advantage?
What assumption is NOT part of David Ricardo's theory of Comparative Advantage?
What does 'ceteris paribus' imply in the context of Ricardo's theory?
What does 'ceteris paribus' imply in the context of Ricardo's theory?
What type of trade pattern is primarily represented by Ricardo’s theory?
What type of trade pattern is primarily represented by Ricardo’s theory?
How can Africa best benefit from Ricardo’s theory of Comparative Advantage?
How can Africa best benefit from Ricardo’s theory of Comparative Advantage?
Which of the following describes a misconception about international trade based on Ricardo's view?
Which of the following describes a misconception about international trade based on Ricardo's view?
What role does competition play in Ricardo's theory of Comparative Advantage?
What role does competition play in Ricardo's theory of Comparative Advantage?
Why does Ricardo advocate for free trade among nations?
Why does Ricardo advocate for free trade among nations?
What happens to the supply curve when weather positively impacts the production of a good?
What happens to the supply curve when weather positively impacts the production of a good?
Which component is NOT part of the Keynesian equation representing Real GDP?
Which component is NOT part of the Keynesian equation representing Real GDP?
What characterizes a trade surplus in the context of net exports?
What characterizes a trade surplus in the context of net exports?
How does international trade impact investment decisions according to economic uncertainties?
How does international trade impact investment decisions according to economic uncertainties?
What percentage of South Africa's GDP is generated from net exports?
What percentage of South Africa's GDP is generated from net exports?
What effect do global economic growth and government policies have on merchandise trade expansion?
What effect do global economic growth and government policies have on merchandise trade expansion?
Which of these reflects the expected growth rate of world merchandise trade volume for 2018?
Which of these reflects the expected growth rate of world merchandise trade volume for 2018?
What factor generally leads individuals to delay their investments regarding international trade?
What factor generally leads individuals to delay their investments regarding international trade?
Which macroeconomic component does NOT directly reflect the influence of trade balance?
Which macroeconomic component does NOT directly reflect the influence of trade balance?
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Study Notes
Economic Growth and Trade
- Economic growth is indicated by an increase in real GDP.
- The Keynesian equation determines real GDP through: Real GDP = AD = Y = C + I + G + (EX - IM).
- Net exports (EX - IM) represent international trade, contributing approximately 40% to South Africa’s GDP.
- Positive net exports indicate a trade surplus, while negative indicate a trade deficit.
- Trade and investment are interconnected; uncertainties can affect investment decisions influenced by global events and policies.
Global Trade Prospects
- World merchandise trade growth is expected to be strong, projected at 4.4% in 2018.
- Growth relies on robust global economic conditions and effective governmental policies.
- Developing economies are anticipated to grow both in exports (5.4%) and imports (4.8%).
Indifference Curves and Consumer Preferences
- Indifference curves represent combinations of goods providing equal utility.
- Curves do not cross, as each curve indicates a different level of satisfaction.
- The marginal rate of substitution (MRS) shows how many units of one good a consumer is willing to trade for another, without changing overall satisfaction.
- MRS demonstrates diminishing returns, as willingness to trade decreases with increased availability of a good.
Opportunity Cost
- Implicit costs, or opportunity costs, involve sacrifices made for a particular activity.
- Choices made involve trade-offs, impacting resource allocation on the production possibilities frontier (PPF).
- Adam Smith advocated for free trade and minimal government intervention to boost industry and social harmony.
David Ricardo’s Theory of Comparative Advantage
- Comparative Advantage posits that countries should produce goods best suited to their resources and capabilities.
- Gains from trade occur even if one country has an absolute advantage in production.
- The theory encourages inter-industry trade, emphasizing efficiencies in production processes.
- Key assumptions of Ricardian theory include:
- Two countries and two commodities.
- Perfect competition and full employment.
- Mobility of labor domestically but not internationally.
- No transport costs or technological changes.
Economies of Scale
- Economies of scale arise from increased production, leading to lower per-unit costs.
- Can be derived from:
- Internal factors related to a single firm.
- External factors impacting groups of firms within industries.
- International economies of scale emerge through global manufacturing efficiencies and specialization in specific components.
- Comparative advantage is enhanced through economies of scale, facilitating efficient production and trade patterns.
Product Differentiation
- Differentiated products increase unit costs but offer consumers greater choices due to specialization facilitated by international trade.
- Firms can focus on producing specific varieties, enhancing variety available to domestic consumers.
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