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Chapter 5: Beyond Comparative Advantage
Terms in this set (13)
why do trade models built exclusively on comparative advantage not always serve to predict a country's trade pattern?
comparative advantage is difficult to measure and large share of international trade is not based on comparative advantage
a country's official strategic effort to encourage the development and growth of all or part of the economy
international trade of products made within the same industry (steel-for-steel, bread-for-bread)
international trade of products between two different industries (steel-for-bread)
when is there greater intraindustry trade?
high tech industries, more scope for product differation, countries more open to trade, nations that have received larger amounts of FDIs
decreasing average costs over a relative large range of outputs
economies of scale
lead to larger firms because size confers a competitive advantage
internal economies of scale
leads to larger industries
external economies of scale
forces that cause larger firms and governments to produce goods and services at increased per-unit costs
diseconomies of scales
why does diseconomies of scale occur?
1) a specific process within a plant cannot produce the same quantity of output as another related product
2) as output increases, the cost of transporting a product to distant markets can offset any economies of scale
-the more a firm produces the more it needs to ship to distant locations
intraindustry trade is not based on comparative advantage since it consists of the export and input of similar products; rather it is based on what?
economies of scale and product differation
handful of firms produce the entire market output
unlike a pure monopoly, competition exists among many firms however there is slight production differation
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