Chapter 6 Economies of Scale. Imperfect Competition. and International Trade
Chapter 6 ▪ Economies of Scale,Imperfect Competition, and International Trade
Chapter Organization Introduction Economies of scale and International trade An overview Economies of scale and market structure The Theory of Imperfect Competition Monopolistic Competition and Trade Dumping a The Theory of External Economies External Economies and International Trade Summary Copyright C 2003 Pearson Education, Inc Slide 6-2
Copyright © 2003 Pearson Education, Inc. Slide 6-2 ▪ Introduction ▪ Economies of Scale and International Trade: An Overview ▪ Economies of Scale and Market Structure ▪ The Theory of Imperfect Competition ▪ Monopolistic Competition and Trade ▪ Dumping ▪ The Theory of External Economies ▪ External Economies and International Trade ▪ Summary Chapter Organization
Introduction Countries engage in international trade for two basic reasons Countries trade because they differ either in their resources or in technology. Countries trade in order to achieve scale economies or Increasing returns in production a Two models of international trade in which economies of scale and imperfect competition play a crucial role Monopolistic competition model ° Dumping model Copyright C 2003 Pearson Education, Inc Slide 6-3
Copyright © 2003 Pearson Education, Inc. Slide 6-3 Introduction ▪ Countries engage in international trade for two basic reasons: • Countries trade because they differ either in their resources or in technology. • Countries trade in order to achieve scale economies or increasing returns in production. ▪ Two models of international trade in which economies of scale and imperfect competition play a crucial role: • Monopolistic competition model • Dumping model
Economies of scale and International Trade: An overview Models of trade based on comparative advantage(e. g Ricardian model) used the assumptions of constant returns to scale and perfect competition Increasing the amount of all inputs used in the production of any commodity will increase output of that commodity in the same proportion In practice, many industries are characterized b economies of scale(also referred to as increasing returns) Production is most efficient, the larger the scale at which it takes place Copyright C 2003 Pearson Education, Inc Slide 6-4
Copyright © 2003 Pearson Education, Inc. Slide 6-4 Economies of Scale and International Trade: An Overview ▪ Models of trade based on comparative advantage (e.g. Ricardian model) used the assumptions of constant returns to scale and perfect competition: • Increasing the amount of all inputs used in the production of any commodity will increase output of that commodity in the same proportion. ▪ In practice, many industries are characterized by economies of scale (also referred to as increasing returns). • Production is most efficient, the larger the scale at which it takes place
Economies of scale and International Trade: An overview Under increasing returns to scale Output grows proportionately more than the Increase in all inputs Average costs(costs per unit) decline with the size of the market Copyright C 2003 Pearson Education, Inc Slide 6-5
Copyright © 2003 Pearson Education, Inc. Slide 6-5 ▪ Under increasing returns to scale: • Output grows proportionately more than the increase in all inputs. • Average costs (costs per unit) decline with the size of the market. Economies of Scale and International Trade: An Overview