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EXTERNAL ECONOMIES

This analysis examines the concept of external economies, focusing on specialized suppliers, labor market pooling, and knowledge spillovers. It discusses how trade dynamics between Argentina and Israel can lead to competitive advantages. Specifically, if an Argentine product establishes a foothold first, it could undercut Israeli firms, creating pricing strategies that may influence market outcomes. Additionally, the scenario where Israel blocks trade is explored, emphasizing how it could result in significant price fluctuations. This interplay highlights key principles in specialization and trade.

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EXTERNAL ECONOMIES

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  1. EXTERNAL ECONOMIES Specialized suppliers, labor market pooling, knowledge spillovers

  2. D Specialization and Trade C0 P1 ACargentine ACisrael Quantity D If Argentine product gets established first, it may be able to sell belowthe cost that an individual Israeli firm faces, C0 .

  3. D Losses from Trade C0 1 P1 ACargentine 2 ACisrael P2 Quantity D If Israel were to block all trade, it will gain from the fall in price from P1 to P2

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