0321316762_IM_06 - Chapter 6 Economies of Scale Imperfect...

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Chapter 6 Economies of Scale, Imperfect Competition, and International Trade T Chapter Organization Economies of Scale and International Trade: An Overview Economies of Scale and Market Structure The Theory of Imperfect Competition Monopoly: A Brief Review Monopolistic Competition Limitations of the Monopolistic Competition Model Monopolistic Competition and Trade The Effects of Increased Market Size Gains from an Integrated Market: A Numerical Example Economies of Scale and Comparative Advantage The Significance of Intraindustry Trade Why Intraindustry Trade Matters Case Study: Intraindustry Trade in Action: The North American Auto Pact Dumping The Economics of Dumping Case Study: AntiDumping as Protection Reciprocal Dumping The Theory of External Economies Specialized Suppliers Labor Market Pooling Knowledge Spillovers External Economies and Increasing Returns
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24 Krugman/Obstfeld • International Economics: Theory and Policy, Seventh Edition External Economies and International Trade External Economies and the Pattern of Trade Trade and Welfare with External Economies Box: Tinseltown Economics Dynamic Increasing Returns Summary Appendix: Determining Marginal Revenue T Chapter Overview In previous chapters, trade between nations was motivated by their differences in factor productivity or relative factor endowments. The type of trade which occurred, for example of food for manufactures, is based on comparative advantage and is called interindustry trade . This chapter introduces trade based on economies of scale in production. Such trade in similar productions is called intraindustry trade , and describes, for example, the trading of one type of manufactured good for another type of manufactured good. It is shown that trade can occur when there are no technological or endowment differences, but when there are economies of scale or increasing returns in production. Economies of scale can either take the form of (1) external economies whereby the cost per unit depends on the size of the industry but not necessarily on the size of the firm; or as (2) internal economies , whereby the production cost per unit of output depends on the size of the individual firm but not necessarily on the size of the industry. Internal economies of scale give rise to imperfectly competitive markets, unlike the perfectly competitive market structures that were assumed to exist in earlier chapters. This motivates the review of models of imperfect competition, including monopoly and monopolistic competition. The instructor should spend some time making certain that students understand the equilibrium concepts of these models since they are important for the justification of intraindustry trade. In markets described by monopolistic competition, there are a number of firms in an industry, each of
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0321316762_IM_06 - Chapter 6 Economies of Scale Imperfect...

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