B7 Flashcards
External economies of scale and the international location of production
What effects do economies of scale have on trade
It motivates speciallization as a country that focuses on few industries can achive economies of scale
What does constant returns to scale mean
That as production increases and the share of all resources are increased by the same proportions, output increases linearly
What are economies of scale
increaseing returns to scale, when you add more of everything by the same proportions production becomes more efficient simply becouse there are more of everything
What are the weaknesses of national specialization
it may create market structures like monopolies which prevent perfect competition and thus become unfavorable to the citicens
What is external economies of scale
When economies of scale occurs based on the size of the industry and not on the size of any one firm
What is internal economies of scale
When individual firms can gain the benefits of economies of scale but do not benefit as a result of the size of the industry
Will internal or external economies of scale pose a risk for imperfect competition
internal economes of scale may lead to monopolies/oligopolies
What are external economies
Economies where ecomomies of scale apply but firms remain small
How do external economies gain economies of scale
Through industrial districts where specialized suppliers can be reached, labor market pooling can occur and firms gain access to knowledge spillovers
Do labor market pooling benefit both companies and employees
Yes, it provides job security as one companies misfortune may coenside with anothers boom so if a worker is in a place with many companies in the same industry they may more easily find a new job near their living area. This allows them the ability to specialize which is good for the companies in adition to the large and close supply of fitting labor
How does external econimies of scale effect the global supply curce
It adds an exponential component ot it and makes it forward sloping, thus the more is demanded the more is exponentially supplied making the unit cost cheaper
What are the implications of economies of scale on the price of traded goods
Controary to the sandard model where prices converge, prices decrease more than that in both countries when all production moves to the more efficient one as scale improves the unit price.
May economies of scale work against comparative advantage
Yes, centers of industry are often established by historical accidents so if a country tecnically could make things for less it might initially struggle to compete with other centers with less potential becouse of their economies of scale
It is impossible for a country to be worse of as a result of trade
No, not if established industries undercut sectors in which the domestic economy has immense potential in.
What are dynamic increasing returns
When a country can increase its efficiency as a function of time as opposed to scale as a country advances through the learning curve of handling a particular industry
