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Scale Economies, imperfect competition and trade

Scale Economies, imperfect competition and trade. http://www.census.gov/foreign-trade/statistics/country/. Calculating IIT. What are some examples?. US trade data at: http://www.ita.doc.gov/td/industry/otea/trade-detail/.

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Scale Economies, imperfect competition and trade

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  1. Scale Economies, imperfect competition and trade

  2. http://www.census.gov/foreign-trade/statistics/country/

  3. Calculating IIT

  4. What are some examples? US trade data at: http://www.ita.doc.gov/td/industry/otea/trade-detail/

  5. 2 questions1. How important is IIT in non-food mfg for different countries?

  6. 2 questions2. Why is IIT so prevalent for industrial countries? • IIT is prevalent where trade barriers and transportation costs are low • IIT is prevalent in higher income countries: higher income generates taste for variety • IIT is driven by (BASIS for ANALYSIS): • Role of product differentiation • Role of scale economies • Constant economies of scale: • long-run average total cost stays the same as the quantity of output changes. • total cost  in the same proportion as output  • Scale economies (economies of scale) • long-run average total cost  as the quantity of output  • total cost  as output 

  7. 1st Source of Scale Economies • Internal Scale Economies or internal economies of scale • Sources of internal economies of scale • Fixed cost of production • Increasing returns to scale • Results of internal scale economies • Modest scale economies: monopolistic competition • Large scale economies: oligopoly

  8. 2nd Source of Scale Economies 2. External Scale Economies or external economies of scale • Sources of internal economies of scale • Emergence of specialized input suppliers • Benefits of a common pool of specialized workers • Knowledge spillovers

  9. Explaining IIT with modest internal scale economies: Monopolistic Competition

  10. 3 characteristic of Monopolistic Competition • Large number of producers. • Product differentiation. • Free entry/exit in the long run.

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