Tutorial 4 Questions SOUTH PACIFIC B. Short Answers and Calculations 1. Consider that in country A, there are some models of cars available in the luxury segment produced by the domestic companies. Some more models are available in the same segment in country B as well. Explain with the help of suitable figures how the consumers in both the countries gain if these countries engage in free trade. 2. Carefully explain how, and under what conditions, an increase in foreign markets available to the United States computer producers would lead to an increase in economic well-being for consumers of computers in the United States. 3. Carefully explain how, and under what conditions, an increase in foreign markets available to the United States computer producers would lead to an increase in economic well-being for consumers of computers in the United States. 4. "In the shift from no trade to free trade, the monopolistic-competition model can predict which specific varieties of products will be produced by which countries, and the models based on substantial scale economies can predict which countries will be the major production locations for a product." Are these claims correct? Explain briefly. 5. What is intra-industry trade? Is intra-industry trade consistent with the predictions of the Heckscher-Ohlin theory? Explain, and relate your discussion to evidence about trade between industrialized countries and developing counties, and about trade among industrialized countries.A. Multiple Choice 1. Internal scale economies occur when: A. expansion of output by a firm leads to greater specialization of labor. B. expansion in an industry drives down the input prices. C. industry growth leads to a greater diffusion of knowledge among firms. D. a firm pays higher input prices to expand production. 2. Which of the following can best explain the clustering of some industries, such as banking and finance in New York City and high-technology computer production in Silicon Valley? A. External scale economies B. Perfect competition C. Intra-industry trade D. Comparative advantage 3. Which of the following is the formula for the intra-industry trade (IIT) share in a product's total trade? A. 1 - [X - M] B. 1 - (X + M) C. 1 _ [X-MJ (X+M) D. 1 - X+M] (X-M) 4. Suppose the amount of exports of textile machinery from Italy to the rest of the world equals 60 billion tons. The amount of imports of textile machinery into Italy from the rest of the world is 40 billion tons. Therefore, the intra-industry trade share for machinery is: A. 0.2. B. 0.8. C. 1.5. D. 0.67. 5. Which of the following can help explain the rise of intra-industry trade? A. Recent recessions and increase in the price of oil have led to lower national income levels. B. The demand for product variety has increased substantially over time. C. Countries widely vary in terms of their resource endowments. D. The developed nations have recently implemented more conservative fiscal policies