Krugman_TB_ch11

Supposeairbusissettoproducetheaircraftbeforeboeingwhic

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Unformatted text preview: organization with the power to overturn governments. i C) t determines which nations may trade what with whom. i D) t punishes naughty nations. i E) one of the above. N Answer: A Question Status: revious Edition P 24) t may be argued that Japanʹs explicit promotion of its microchip industry was an excellent example of I successful industrial policy. What criteria would you apply to determine whether such a policy is or is not successful? Judging from your own stated criteria, was Japanʹs exercise successful? Why or why not? What information would a government require in order to increase the probability that its industrial policy would promote long term self-generated economic growth? Answer: is argued that Japanʹs subsidies to its nascient microchip industry was an important factor in putting It Japan on the world map in this area. However, a minimal criteria for a successful industrial policy would be that the infant industry mature, and that it prove to be a profitable area of the countryʹs comparative advantage. In this case, one might argue that the latter part of the above statement was not fulfilled, since the microchip industry was adopted by so many countries, that it became a ʺcommodity.ʺ That is, it became a product with a very low profit margin, which was not really a good use of Japanʹs resources, given their alternative uses. Question Status: revious Edition P 5 25) efer to the above table. Suppose Airbus is set to produce the aircraft before Boeing. Which company will R enter the market? Answer: Airbus will produce and Boeing will not. Question Status: revious Edition P 26) efer to the above table. Suppose both governments offer their respective company a subsidy of $4(million). R Answer: Only Airbus will produce since it knows that the subsidy would not be sufficiently large to entice Boeing to also enter the market. Question Status: revious Edition P 27) efer to the above table. Suppose both governments offer their respective company a $10 million subsidy. R Answer: Both companies would enter the market, since each knows that regardless of the otherʹs decision, it will make some profit...
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