Most goods are not identical
firms can influence the price they charge
single producer of a good
two key features:
-The goods produced by different firms are differentiated.
-Firms enjoy increasing returns to scale, by which we mean that the average costs for a firm fall as more output is produced.
assumes differentiated products, many firms, and increasing returns to scale. Firms enter whenever there are profits to be earned, so profits are zero in the long-run equilibrium.
deals with imports and exports in the same industry.
Minimum of imports and exports divided by the average of imports and exports
Prediction: Large countries (as measured by their GDP) should trade the most.
The gravity equation states that countries with higher GDP, or that are close, will trade more. In addition, research has shown that there is more trade within countries than between countries.
free trade occurs among a group of countries
Factors that make it easier or more difficult to trade goods between countries