This lesson explains why countries with similar levels of income and productivity trade with one another, even when traditional comparative advantage might seem to predict trade mainly between very different economies. It introduces intra-industry trade and shows how specialization, learning, and the division of production stages create gains from trade.
All flashcards
Intra-industry trade
Trade in goods from the same industry between countries; each country can export and import within that industry.
Value chain
The stages through which a good is designed, produced, assembled, marketed, and delivered.
Economies of scale
A reduction in average production cost as output increases, up to a certain point.
Dynamic comparative advantage
Comparative advantage that can evolve as countries and firms develop skills, learn, innovate, and reorganize production.
Learning through specialization
Experience with particular products or tasks can build expertise and improve production methods.
Quiz questions
What happens to average production cost when economies of scale operate?Answer: It declines as output increases, up to a certain point.
How can international trade combine large-scale production with consumer choice?Answer: It lets producers serve wider markets while consumers choose among firms from different countries.
How can competition among international producers benefit consumers?Answer: It can encourage firms to improve quality, innovate, and respond to consumer preferences.
A toaster oven plant increases output from 150 to 200 units, while its average cost remains $10 per unit. What does this show?Answer: The additional output does not reduce average cost in this range.
Why can trade give consumers access to a wider variety of products?Answer: Firms in different countries can offer distinct products and compete for customers.
Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.