Chap. 3 Flashcards
How many kinds of IRS exists?
- Internal
- External national
- External international
Why IRS generate international trade ?
- Because it give incentives to concentrate production of each good in one place and serve costumer in ALL locations FROM that place
- one factory for EU instead of one for each country (Spain France, etc)
What is a monopolistic competition?
- It is a structure of freedom of entry and exit, but firms can differentiate their products.
Therefore, they have an inelastic demand curve and so they can set prices
They specialize until the point where there is not other product equal, only similar ( clothes)
What if an industry have internal IRS but fixed cost are low ?
Allowing many small producers
- If the entry is free and each producer have very unique products
- Then it become a Monopolistic competition
what is a mayor implications that offer monopolistic competition ?
- Its imply INTRAINDUSTRY TRADE,
- Also lower/price marginal cost
- greater product variety ( for consumer )
What is Melitz effect ?
The change in the structure in a monopolistic competitive market :
- Through international trade
- the differences in productivity
- fixed cost of transport
Because the companies that can take advantage of trade in comparison with less/small companies
allowing the most efficient companies to push domestic companies from other country ( location )
what happens to small companies when international trade opening up?
According to the Melitz effect
- It push smaller companies to increase expenses (fixed cost of exporting)
- The ones that cannot compete in other locations (the least efficient and/or local market ) will drop out .
what options have a corporation in how to serve a foreign market ?
- It can export from a single location:
If the IRS is the dominant factor - it will export
- It can produce locally for each market
If the tariffs and transport cost are dominant - it will produce locally
