Vecka 2 sammanfattningar del 1 Flashcards
What incentives does Economies of scale give?
to specialize and trade even in the absence of differences in resources or technology between countries.
What types of Economies of scale is there?
internal (depending on the size of the firm) or external (depending on the size of the industry).
How come that Economies of scale can lead to a breakdown of perfect competition?
Because there is high barriers to enter, because the big firms will have a lower AC.
How is monopolistic competition?
an industry that contains a number of firms producing differentiated products. These firms act as individual monopolists, but additional firms enter a profitable industry until monopoly profits are competed away.
What does International trade allow?
The creation of an integrated market that is larger than any one country’s market. As a result, it is possible to simultaneously offer consumers a greater variety of products and lower prices. The type of trade generated by this model is intra-industry trade.
What happens In the presence of trade costs?
Markets are no longer perfectly integrated through trade. Firms can set different prices across markets. These prices reflect trade costs as well as the level of competition perceived by the firm.
When does Dumping occur?
When a firm sets a lower price (net of trade costs) on exports than it charges domestically.
What is A consequence of trade costs?
Firms will feel competition more intensely on export markets because the firms have smaller market shares in those export markets. This leads firms to do dumping.
What is dumping?
When a firm reduce markups for their export sales relative to their domestic sales.
When does Dumping arises naturally?
In a model of monopolistic competition and trade costs where firms from both countries behave in the same way. Policies against dumping are often used to discriminate against foreign firms in a market and erect barriers to trade.
What is An alternative to FDI?
To export to a market instead of operating a foreign affiliate in that market.
What is FDI?
Horizontal foreign direct investment, when multinationals replicate their production processes or some parts of it in foreign facilities located near large customer bases.
Who will choose the FDI option over exports?
Only firms that operate at a big enough scale.
What is The trade-off between exports and FDI?
FDI involves a lower per-unit cost because you have no trade cost but you have an additional fixed cost associated with the foreign facility.
What is an alternative to FDI?
Offshoring
