Question

Recall that technological change shifts the average cost curves. Draw a graph showing how technological change could influence intra-industry trade.

Solution

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Technology has allowed countries and individual companies to specialize in very specific and particular products. This has led to splitting up the value chain where different steps of production are split among different firms. These two developments from technology, along with the concept that innovations in technology increase production efficiency result in lower costs of production.

Therefore, technological change will shift average cost curves of firms down which will result in increased intra-industry trade.

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