1) The document discusses external economies of scale and how they can lead to increasing returns and changing patterns of international trade.
2) External economies occur when costs decrease as the size of an entire industry increases, rather than for individual firms. They arise from factors like specialized suppliers and labor pooling.
3) Models with external economies show countries specializing based on historical accidents rather than comparative advantage. Trade allows concentrating production where costs are lowest.
A complete Presentation on the topic of globalization, about its history, dimensions, GATT, role of multinational incorporation, international trade and Evolution of trade theories....
Presentation on terms of trade will provide basic understanding about the concept of Terms of trade. It is one of the Vital Concepts of International Business and important to understand the gain while trading internationally.
When a country applies the same tariff to all nations, it will always import from the most efficient producer, since the more efficient nation will provide the goods at a lower price.
With the establishment of a different forms of Regional economic integration, the same country either reduces or eliminates all the trade barriers for the member countries participaing in the agreement.
And if the agreement is signed with less cost efficient nations then their products become more cheaper in those importing countries which are the part of this agreement.
So, the Importing nations starts to import products from those countries which have less competative advantage rather than those countries which have more competative advantage.
Or in other words, after the establishment of the agreement, the importing country would acquire products from a higher-cost producer, instead of the low-cost producer from which it was importing until then.
Eventually, this would cause a trade diversion.
A complete Presentation on the topic of globalization, about its history, dimensions, GATT, role of multinational incorporation, international trade and Evolution of trade theories....
Presentation on terms of trade will provide basic understanding about the concept of Terms of trade. It is one of the Vital Concepts of International Business and important to understand the gain while trading internationally.
When a country applies the same tariff to all nations, it will always import from the most efficient producer, since the more efficient nation will provide the goods at a lower price.
With the establishment of a different forms of Regional economic integration, the same country either reduces or eliminates all the trade barriers for the member countries participaing in the agreement.
And if the agreement is signed with less cost efficient nations then their products become more cheaper in those importing countries which are the part of this agreement.
So, the Importing nations starts to import products from those countries which have less competative advantage rather than those countries which have more competative advantage.
Or in other words, after the establishment of the agreement, the importing country would acquire products from a higher-cost producer, instead of the low-cost producer from which it was importing until then.
Eventually, this would cause a trade diversion.
International Economics & Policy (VV2)
We Also Provide SYNOPSIS AND PROJECT.
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College of Businesswww.derby.ac.ukbusinessSensitivity WilheminaRossi174
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Marketing across Cultures
Week 4
College of Business
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WHY DO WE TRADE
INTERNATIONALLY?
College of Business
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• Cost-Benefit exchange
• Today’s links were formed
in the 18th/19th centuries
• Key reasons for
international trade:
• - the theory of
comparative advantage
• - the international
product life cycle
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Suggests trade takes place between countries because one country can
produce at lower price than elsewhere.
Example:
Japan (e.g. Hitachi, Sony) – domination of the European TV market due
to a strategy of:
• Better product quality and design
• Lower prices due to economies of scale and superior
manufacturing technology
Reasons Countries Trade – the theory
of comparative advantage (Ricardo)
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• Sustained period of investment in the organisation may lead to
lower operating costs
• Lower labour costs – by locating operations in a newly
industrialised economy (NIE)
• Proximity to raw materials –low inventory and logistics costs
• Subsidies to help native industries
How to Achieve Comparative Advantage?
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College of Business
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PRODUCT LIFE CYCLE
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INTERNATIONAL PRODUCT LIFE CYCLE
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1. US firms manufacture for home market and start to export
2. Foreign companies begin to manufacture
3. US exports decline
4. Foreign company begins exporting to USA; directly competing.
College of Business
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If a country exports a greater value than it imports, it has a trade surplus or
positive trade balance, and conversely, if a country imports a greater value
than it exports, it has a trade deficit or negative trade balance.
BALANCE OF TRADE
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Balance of Import vs Exports
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Overt Barriers:
• Direct taxes and charges imposed on imports
• Traditionally used by poorer nations to collect revenue
• Also used to protect the home producer from import competition
Covert Barriers:
• Local subsidy = penalty for importers
• Customs entry procedures and delays in granting permission to
produce/import (Law, Compliance)
• Quotas: restrictions placed on the volume of a product that may be
imported
Barriers to World Trade and Marketing
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Four Tests for a Successful Tr ...
GBY EDITH OSTAPIK AND KEI-MU YIEdith Ostapik is a rese.docxbudbarber38650
G
BY EDITH OSTAPIK AND KEI-MU YI
Edith Ostapik
is a research
associate in the
Philadelphia
Fed’s Research
Department.
This article is
available free of
charge at www.
philadelphiafed.org/econ/br/index.
International Trade:
Why We Don’t Have More of It
Kei-Mu Yi is a
vice president
and economist
in the Research
Department of
the Philadelphia
Fed. He is also
head of the
department’s
Macroeconomics section.
1 Source: The World Bank’s World
Development Indicators (we use the world
export share of world GDP). Since world
exports = world imports, imports have risen by
the same amount.
2 Previous Business Review articles have
questioned the extent to which globalization
has taken place. The article by Janet Ceglowski
reviews research on barriers to international
trade. Examining another dimension of
globalization, Sylvain Leduc explores the lack
of international diversification of investment
portfolios.
3 They estimate an overall average increase
of 74 percent in the prices of goods in these
countries.
Globalization has many facets.
One of the most important is the enor-
mous increase in international trade.
Over the past 40 years, world exports
as a share of output have doubled to
almost 25 percent of world output.1
However, despite globalization and
the increasing share of output that is
exported and imported internationally,
economic evidence suggests that sig-
nificant barriers to international trade
still exist.2 We will summarize the lat-
est developments in the measurement
of international trade barriers, drawing
mainly from a recent comprehensive
survey on the subject by James Ander-
son and Eric van Wincoop. In their
lobalization has led to an enormous increase
in international trade. Over the past 40
years, world exports as a share of output have
doubled to almost 25 percent of world output.
However, despite this enormous increase, economic
evidence suggests that significant barriers to international
trade still exist. In this article, Edith Ostapik and Kei-Mu
Yi summarize the latest developments in the measurement
of international trade barriers.
survey, these authors report estimates
of the magnitudes of different catego-
ries of international trade costs. They
find that, on average, international
trade costs almost double the price of
goods in developed countries.3
The primary policy implication of
the existing research is that globaliza-
tion still has a long way to go, so that
there is still plenty of room for trade
to grow. Growth in trade will likely
occur primarily through technological
changes that reduce transportation or
communication costs or from long-
run policy choices, such as a national
currency or language. Reduction in
policy-related barriers, such as tariffs,
will also play a role.
WHY AND HOW TRADE COSTS
REDUCE TRADE
The core idea underlying the
benefits of international trade goes
back to Adam Smith and his famous
pin factory para.
Latino Buying Power - May 2024 Presentation for Latino CaucusDanay Escanaverino
Unlock the potential of Latino Buying Power with this in-depth SlideShare presentation. Explore how the Latino consumer market is transforming the American economy, driven by their significant buying power, entrepreneurial contributions, and growing influence across various sectors.
**Key Sections Covered:**
1. **Economic Impact:** Understand the profound economic impact of Latino consumers on the U.S. economy. Discover how their increasing purchasing power is fueling growth in key industries and contributing to national economic prosperity.
2. **Buying Power:** Dive into detailed analyses of Latino buying power, including its growth trends, key drivers, and projections for the future. Learn how this influential group’s spending habits are shaping market dynamics and creating opportunities for businesses.
3. **Entrepreneurial Contributions:** Explore the entrepreneurial spirit within the Latino community. Examine how Latino-owned businesses are thriving and contributing to job creation, innovation, and economic diversification.
4. **Workforce Statistics:** Gain insights into the role of Latino workers in the American labor market. Review statistics on employment rates, occupational distribution, and the economic contributions of Latino professionals across various industries.
5. **Media Consumption:** Understand the media consumption habits of Latino audiences. Discover their preferences for digital platforms, television, radio, and social media. Learn how these consumption patterns are influencing advertising strategies and media content.
6. **Education:** Examine the educational achievements and challenges within the Latino community. Review statistics on enrollment, graduation rates, and fields of study. Understand the implications of education on economic mobility and workforce readiness.
7. **Home Ownership:** Explore trends in Latino home ownership. Understand the factors driving home buying decisions, the challenges faced by Latino homeowners, and the impact of home ownership on community stability and economic growth.
This SlideShare provides valuable insights for marketers, business owners, policymakers, and anyone interested in the economic influence of the Latino community. By understanding the various facets of Latino buying power, you can effectively engage with this dynamic and growing market segment.
Equip yourself with the knowledge to leverage Latino buying power, tap into their entrepreneurial spirit, and connect with their unique cultural and consumer preferences. Drive your business success by embracing the economic potential of Latino consumers.
**Keywords:** Latino buying power, economic impact, entrepreneurial contributions, workforce statistics, media consumption, education, home ownership, Latino market, Hispanic buying power, Latino purchasing power.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
1. Learning Unit 12
New Trade Model
Part 1: External Economies of Scale
ECON452
International Economics
2. Objectives
1. Recognize why international trade often occurs from increasing
returns to scale
2. Differentiate between internal and external economies of scale.
3. Explain the sources of external economies of scale and how it
affects pattern of trade
4. Descibe the roles of external economies and knowledge spillovers
in shaping comparative advantage and international trade patterns.
3. Introduction
• The models of comparative advantage assumed constant returns to scale:
– When inputs are doubled, output will double as well.
• In developed countries, we observe many industries and firms operating under
increasing returns to scale (economies of scale):
– When inputs are doubled, output will increase by more than double.
– A larger scale is more efficient: the cost per unit of output falls as a firm or
industry increases output.
• Mutually beneficial trade can arise as a result of economies of scale.
– International trade permits each country to produce a limited range of goods
without sacrificing variety in consumption.
– With trade, a country can take advantage of economies of scale to produce
more efficiently than if it tried to produce everything for itself.
4. Two Types of Economies of Scale
• Economies of scale could mean either that larger firms or a larger industry would
be more efficient.
• External economies of scale occur when cost per unit of output depends on the
size of the industry.
• Internal economies of scale occur when the cost per unit of output depends on
the size of a firm.
5. Two Types of Economies of Scale - Example
• There are 10 firms in industry, producing the same quantity (perfect
competition).
• When the industry size doubles (the demand doubles), a number of firms
increases to 20, so each firm is still producing the same quantity. After the
expansion of industry, the average cost of each firm decreases due to external
economies of scale.
• When the number of firms in industry halves, where five firms double output and
maintain the total output of the industry. After the expansion of output of each
firm, the average cost of each firm decreases due to internal economies scale.
6. Reasons for Economies of Scale
• External economies of scale may occur when an expansion of industry result in
more specialized services becoming available at lower cost (e.g. infrastructure
such as road, power line, Internet)
• Internal economies of scale may occur when a firm can spread overhead cost
(e.g. management cost) or large production makes more efficient (e.g. learning
curve).
7. Economies of Scale and Market Structure
• Both external and internal economies of scale are important causes of
international trade.
• They have different implications for the structure of industries:
– An industry where economies of scale are purely external will typically consist
of many small firms and be perfectly competitive.
– Internal economies of scale result when large firms have a cost advantage
over small firms, causing the industry to become imperfectly competitive.
8. Industry Cluster
• Industry cluster: a group of firms in the same industry and related-industries are
concentrated in one geographic area.
– Clusters consist of companies, suppliers and service providers.
• Examples of industry clusters:
– In the U.S., the semiconductor industry is concentrated in Silicon Valley,
investment banking in New York, and the entertainment industry in Hollywood.
– In developing countries, manufacturing industry clusters are observed in China:
One town in China produces most of the world’s underwear, another nearly all
cigarette lighters.
– In India, information services companies are clustered in Bangalore and Mumbai.
9. External Economies and Industry Cluster
• The industry cluster benefits from external economies of scale.
– Concentrating production of an industry in one or a few locations can reduce
the industry’s costs, even if the individual firms in the industry remain small.
• Sources of external economies
– Specialized equipment or services may be needed for the industry, but are
only supplied by other firms if the industry is large and concentrated.
– Labor pooling: a large and concentrated industry may attract a pool of
workers, reducing employee search and hiring costs for each firm.
– Knowledge spillovers: workers from different firms may more easily share
ideas that benefit each firm when a large and concentrated industry exists
10. PPF with External Economies
• Assumption: Two nations have identical
production possibilities frontier and
indifference curves.
• Production possibilities frontier: External
economies (Increasing Return to Scale) makes
PPF convex from the origin (inward-bending).
– As resources are allocated more in one
industry, its output increases at an
increasing rate, while an output of other
goods whose resources are taken decreases
at decreasing rate.
Quantity of Food (QF)
A
Indifference Curve
Quantity of Cloth (QC)
PPF
QC
A
QF
A
11. Equilibrium under Autarky
• At autarky, each country produces and
consumes at A, where each country can
reach the highest indifference curve.
– Each country produces and consumes
QC
A units of cloth and QF
A units of
food.
– The relative price under autarky is a
slope of tangent line at A.
– Since the relative prices are same in
tow countries, neither country has a
comparative advantage to produce
either goods.
Quantity of Food (QF)
A
Indifference Curve
Quantity of Cloth (QC)
PPF
QC
A
QF
A
12. External Economies and Pattern of Trade
• Two countries can gain from specialization and
trade.
• Home specializes to produce cloth at QH, while
Foreign specializes to produce food at QF.
– Choice of specialization is not based on
comparative advantage, but incidental.
• After trade, each country reach Point D at the
highest utility, where DC units of cloth and DF
units of food are consumed.
• Each country is better off as compared with
the autarky at A.
Quantity of Food (QF)
QH
Indifference Curve
Quantity of Cloth (QC)
PPF Slope = -PC/PF
Isovalue Line
QF
D
DF
DCQC
A
QF
A
A
13. External Economies and Pattern of Trade
• Each country may end up with monopoly
due to increasing returns to scale.
• This model explains why we observe large
trades of intermediate goods across
countries.
– Each country specializes to produce
certain parts of the final products to take
an advantage of external economies.
– In the end, all parts are shipped to a
country to be assembled into the final
products with eternal economies.
– Off-shoring and outsourcing keep costs
down in manufacturing.
Quantity of Food (QF)
QH
Indifference Curve
Quantity of Cloth (QC)
PPF Slope = -PC/PF
Isovalue Line
QF
D
DF
DCQC
A
QF
A
14. Model of External Economies
• Model of external economies is
represented by assuming that the larger
the industry, the lower the industry’s
average costs.
• There is a forward-falling supply curve:
the larger the industry’s output, the lower
the price at which firms are willing to sell.
• As in ordinary supply-and-demand
analysis, market equilibrium is at point 1,
where the supply curve intersects the
demand curve, D. The equilibrium level of
output is Q1, the equilibrium price P1.
15. External Economies and Market Equilibrium
• Prior to international trade,
equilibrium prices and output for
each country would be at the point
where the domestic supply curve
intersects the domestic demand
curve.
• Assuming the same technology
(forward-falling supply curves are
same in two countries), due to
greater demand for the products in
China, in the absence of trade, the
price of the product in China,
PCHINA, is lower than the price of the
product in the United States, PUS.
16. External Economies and International
Competition
• When two countries open-up for trade in the
products, consumers in both countries will purchase
cheaper products produced in China.
• The Chinese button industry will expand, while the
U.S. button industry will contract.
• This process feeds on itself: As the Chinese industry’s
output rises, its costs will fall further; as the U.S.
industry’s output falls, its costs will rise.
• In the end, all the products will be produced in China.
• Output rises from Q1 to Q2, leading to a fall in the
price of buttons from P1 to P2, which is lower than the
price of the product in either country before trade.
17. External Economies and International Trade
• Very different from the implications of models without increasing returns.
• In the standard trade model relative prices converge as a result of trade.
– If a cloth is relatively cheap in the home country and relatively expensive in
the foreign country before trade opens, the trade will raise cloth prices in
Home and reduce them in Foreign.
– In the end, both countries produce cloth at the same price which is between
pre-trade prices.
• With external economies, by contrast, the effect of trade is to reduce prices
everywhere.
– Countries drop out from production because they cannot achieve the same
low cost of production.
18. Importance of Established Advantage
• What might cause one country to have an initial advantage from having a lower
price?
• One possibility is comparative advantage due to underlying differences in
technology and resources.
• If external economies exist, however, the pattern of trade could be due to
historical accidents:
– Countries that start as large producers in certain industries tend to remain
large producers even if another country could potentially produce more
cheaply.
– Ex. Silicon Valley, Hollywood, NYC
19. Established Advantage and International
Competition
• Assume that the Vietnamese cost curve (ACVIETNAM) lies
below the Chinese curve (ACVIETNAM) because Vietnamese
wages are lower than Chinese wages.
• At any given level of production, Vietnam could
manufacture goods more cheaply than China. Thus
Vietnam could potentially supply the world market more
cheaply than China.
• If the Chinese industry gets established first, it can produce
and sell goods at the price P1.
• When the Vietnamese industry starts producing the goods,
it costs at C0 (with small production).
• Because the Chinese industry has already established the
market and reached at lower price at P1, the Vietnamese
industry cannot compete.
20. Established Advantage and Pattern of Trade
• Ideally, the country which can produce at cheapest cost should produce and
supply to the world market, then the world economy as a whole benefits.
• However, under external economies once a country establishes the market
and supplies the products to the world market at the low price, even if new
comer can manufacture goods more cheaply, new comer may not be able to
enter the world market and compete with the country.
• No guarantee that the right country will produce a good that is subject to
external economies.
• So a pattern of specialization established by historical accident may persist
even when new producers could potentially have lower costs.
21. Welfare under External Economies – Autarky
or Trade
• Imagine that Thailand could make watches
more cheaply, but Switzerland got there first.
• Thailand imports watches from Switzerland,
which is able to supply the world market
(DWORLD) at a price (P1) low enough to block
entry by Thai producers, who must initially
produce the watches at cost C0.
• If Thailand were to block all trade in watches,
it would be able to supply its domestic market
(DTHAI) at the lower price, P2.
• Trade could make Thailand worse off, creating
an incentive to protect its potential watch
industry from foreign competition.
22. Trade and Welfare under External Economies
• Trade based on external economies has an ambiguous effect on national welfare.
– There will be gains to the world economy by concentrating production of
industries with
external economies.
– It’s possible that a country is worse off with trade than it would have been
without trade: a country may be better off if it produces everything for its
domestic market rather than pay for imports.
• It’s still to the benefit of the world economy to take advantage of the gains from
concentrating industries.
– Each country wanting to reap the benefits of housing an industry with
economies of scale creates trade conflicts.
– Overall, it’s better for the world that each industry with external economies
be concentrated somewhere.
23. Dynamic Increasing Returns
• So far, we have considered cases where external economies depend on the
amount of current output at a point in time.
• But external economies may also depend on the amount of cumulative output
over time.
• Dynamic increasing returns to scale exist if average costs fall as cumulative
output over time rises.
• Dynamic increasing returns to scale could arise if the cost of production depends
on the accumulation of knowledge and experience, which depend on the
production process over time.
• A graphical representation of dynamic increasing returns to scale is called a
learning curve.
24. The Learning Curve
• The learning curve shows that unit cost is lower
the greater the cumulative output of a country’s
industry to date.
• A country that has extensive experience in an
industry (L) may have a lower unit cost than a
country with little or no experience, even if that
second country’s learning curve (L*) is lower—
for example, because of lower wages.
25. Effect of Dynamic Increasing Returns
• Like external economies of scale at a point in time, dynamic increasing returns to
scale can lock in an initial advantage or a head start in an industry.
• Can also be used to justify protectionism.
– Temporary protection of industries enables them to gain experience: infant
industry argument.
– But temporary is often for a long time, and it is hard to identify when external
economies of scale really exist.
26. Economic Geography
• Economic geography: Study of international trade, interregional trade
and the organization of economic activity in metropolitan and rural
areas.
– Economic geography studies how humans transact with each other across space.
– Communication changes such as the Internet, e-mail, text mail, video
conferencing, mobile phones (as well as modern transportation) are changing
how humans transact with each other across space.
27. Disclaimer
Please do not copy, modify, or distribute
this presentation
without author’s consent.
This presentation was created and owned
by
Dr. Ryoichi Sakano
North Carolina A&T State University
Disclaimer
Please do not copy, modify, or distribute
this presentation
without author’s consent.
This presentation was created and owned
by
Dr. Ryoichi Sakano
North Carolina A&T State University