Exercise 3. Q1: Which sector has received an increased attention in China recently?

Q1: Which sector has received an increased attention in China recently?

(a) auto-mobile industry

(b) construction

(c) agriculture

(d) pharmaceuticals

Q2: According to the article, the price of agricultural products has risen substantially. What mechanism is behind this change in agricultural prices?

(a) Peasants moved to the cities in large numbers; therefore no extra labour source remained in the villages.

(b) The increasing industrial production requires more land in order to expand industrial activity. As industries expand to new territories, arable land are extricated from agricultural production. This process, however, along with the increasing number of population, makes agricultural products more expensive.

(c) The dynamic increase of the Chinese population caused a serious increase in food consumption. As a corollary, the price of agricultural products has increased dramatically. In fact, hunger is now a country-wide phenomenon in China.

(d) The increasing industrial production requires more land in order to expand industrial activity. As industries expand to new territories, they prefer non-arable land, where they do not have to pay extra fees to peasants.

Q3: How do increased prices in the agricultural sector affect migration (from the rural territories to manufacturing centres)?

(a) since prices are higher now in the agricultural sector (than before), people cannot eat as much as they need in order to apply for hard physical work

(b) instead of moving to the agricultural sites, would-be industrial migrants prefer to stay at home

(c) instead of moving to the cities (industries), would-be rural migrants prefer to stay at home

(d) increased agricultural prices induce farmers to work less and consume more

Q4: What consequences does the slowing down of the migration of rural workers have for the industrial centres in the capitalistic province of Guangdong?

(a) labour shortage, which in turn causes a downward pressure on industrial wages

(b) labour oversupply, which in turn causes a downward pressure on industrial wages

(c) labour oversupply, which in turn causes an upward pressure on industrial wages

(d) labour shortage, which in turn causes an upward pressure on industrial wages.

Q5: How have entrepreneurs responded to the labour shortage in the most developed Southern part of China?

(a) they have moved to the North, because labour is more skilled up there

(b) they have moved to places where labour, land and energy are available in a (much) greater abundance

(c) they have opened new branches in places where child labour and electricity are relatively cheaper

(d) they have moved to places where labour and capital are available in a (much) greater abundance

Q6: The Chinese example has shown that businesses move from the relatively expensive places to the relatively cheaper places (where production factors such as land, energy and labour are less expensive). Is this relocation of businesses in line with the neoclassical economic theory?

(a) Yes, it is, since the movement of businesses can be rationalised by the theory of factor endowment.

(b) Yes, it is, since the movement of businesses can be rationalised by the theory of perfect competition.

(c) No, not at all, since the movement of businesses can be rationalised only by the theory of oligopolistic power.

(d) No, not at all, since the movement of businesses can be rationalised by the theory of factor endowment.

Q7: According to the theory of factor endowment, what is the natural direction of movement of capital?

(a) from the relatively poor regions to the relatively rich regions

(b) from the relatively capital abundant regions to the relatively capital poor regions

(c) from the South to the North – independently from the region under scrutiny

(d) from the relatively capital poor regions to the relatively capital abundant regions

Q8: We have just seen that capital moves from the capital rich to the capital poor regions. Why is this the case?

(a) Because the marginal product of capital is higher in a relatively capital poor region than in a capital rich region. In turn, the price of capital is higher in the latter than in the former.

(b) Because the marginal product of capital is lower in a relatively capital poor region than in a capital rich region. In turn, the price of capital is higher in the latter than in the former.

(c) Because the marginal product of capital is lower in a relatively capital poor region than in a capital rich region. In turn, the price of capital is also lower in the latter than in the former.

(d) Because the marginal product of capital and labour is lower in a relatively capital and labour poor region than in a capital and labour rich region. In turn, the price of capital and labour is also lower in the latter than in the former.

Q9: How do we call the phenomenon when “companies are not migrating to a new industrial centre or cluster, [r]ather, they are spreading in a variety of directions”?

(a) centripetal forces

(b) perfect markets

(c) centrifugal forces

(d) economies of scale

Q10: What are the synonyms for “centrifugal”?

(a) cooperation

(b) agglomeration

(c) concentration

(d) diffusion or decentralising

Q11: How do we call the opposite forces in which case a concentration occurs?

(a) labour shortage

(b) centripetal forces

(c) centrifugal forces

(d) marginal product of capital

Q12: According to new economic geography, “every government engages in deliberate efforts to erect barriers or provide inducements that will make either the centripetal or the centrifugal forces work toward their own advantage” (p. 121). Is this true in the case of China as well?

(a) President Hu Jintao and Premier Wen Jiabao are interested in a broad-based and well-balanced growth, and therefore they support the revitalisation of the South and the coastal region.

(b) President Hu Jintao and Premier Wen Jiabao are interested in a broad-based and well-balanced growth; therefore they support a southward migration of Chinese business activities.

(c) President Hu Jintao and Premier Wen Jiabao are not interested in manipulating the migration of Chinese business activities into any direction. That is, new economic geography seems to fail in the case of China.

(d) President Hu Jintao and Premier Wen Jiabao are interested in a broad-based and well-balanced growth; therefore they support a northward migration of Chinese business activities.

Q13: Based on the article, is the lowering of transportation costs a determining factor in the relocation of business activities in China?

(a) Certainly, it is, as it has also been shown by the theory of new economic geography.

(b) No, because China is so big that transportation costs will always remain relatively high.

(c) No, because it is the economies of scale that determine the location of any business activity.

(d) Yes, it is, although new economic geography has remained silent on this issue.

Q14: What are the effects of transportation costs on Chinese export?

(a) Nothing, since China is too big to sell abroad.

(b) Nothing, since China operates with low production costs, therefore transportation costs do not matter in trade decisions.

(c) Chinese producers try to locate their plants near to the export markets.

(d) Chinese producers try to locate their plants near to Beijing, thereby creating a hub-and-spoke system of allocation.

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