International Econ

falls as the industry grows larger rises as the average firm grows larger.

External economies of scale arise when the cost per unit

falls as the average firm grows larger.

Internal economies of scale arise when the cost per unit

the size of the domestic plus the foreign market.

Where there are economies of scale, the scale of production possible in a country is constrained by

increasing returns to scale.

If output more than doubles when all inputs are doubled, production is said to occur under conditions of

scale economies.

History and accident determine the details of trade involving

classification and aggregation ambiguities.

We often observe intra-industry North-South trade in "computers and related devices." This is due to

Why is it that if an industry were operating under conditions of domestic internal scale economies (applies to firm in the country)-then the resultant equilibrium cannot be consistent with the pure competition model?

Because once one firm became bigger than another, or if one firm began the industry, then no other firm would be able to match its per unit cost, so that they would be driven out of the industry.

Is it possible that if positive scale economies characterize an industry, that its equilibrium may be consistent with purely competitive conditions? Explain how this could happen.

Yes. If the scale economies were external to the firm, then there is no reason why the firms may not be in perfect competition.

Why are increasing returns to scale and fixed costs important in models of international trade and monopolistic competition?

There are many answers. Three of these are
(a) Increasing returns to scale, and high fixed costs may be inconsistent with perfect competition. In such a case, the initial autarkic state may be a suboptimal equilibrium. For example, relative prices may not

may be associated with a perfectly competitive industry.

External economies of scale

cannot be associated with a perfectly competitive industry.

Internal economies of scale

increase the number of firms and lower the price per unit.

Where there are economies of scale, an increase in the size of the market will

perfect competition in these industries.

If some industries exhibit internal (firm specific) increasing returns to scale in each country, we should not expect to see

If a scale economy is the dominant technological factor defining or establishing comparative advantage, then the underlying facts explaining why a particular country dominates world markets in some product may be pure chance, or historical accident. Expla

This statement is true, since the reason the seller is a monopolist may be that it happened to have been the first to produce this product in this country. It may have no connection to any supply or demand related factors; nor to any natural or man-made a