session 6 alternative theories of trade (scale economies, imperfect competition, and trade)
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Developed Countries Developing Countries Trade Different ResourcesTRANSCRIPT
Session 6
Alternative Theories of Trade (Scale Economies, Imperfect Competition, and Trade)
Trade Facts in Search of Better TheoryAccording to the “comparative advantage”, nations should trade with each others to exploit their production-side differences.
Land-intensive country
Labor-intensive country
Export Export
DevelopedCountries
DevelopingCountries
Trade
Different Resources
The Rise of Intra-industry Trade
DevelopedCountries
DevelopedCountries
Similar ResourcesGermany Japan
Trade
Trade
Why do they still have to trade ?
Percentage of Intra-industry Trade forNon-food Manufactured Goods
Rationales for Intra-industry Trade
Consumers view the products of an industry as close but not perfect substitutes for each other.
1.Demand Effect
2.Supply Effect
Product Differentiation
Economies of Scale
Economies of scale pulls down the price, which the create competitive advantage for an industry.
Product Differentiation VS Scale Economies
Economies of Scale1. Internal Economies Scale
1. External Economies Scale
Global Industries Dominated by a Few Large Firms
Airbus Boeing
Microsoft Nintendo Sony
Monopolistic Competition and TradeMonopolistic is somewhat like “monopoly”
and somewhat like “competition”.Some scale economies exist that are internal to the firm,
but they are moderate.
Germany Japan
MR
MC
D (0)
AC
Profit
StillNo trade
Unit Cost (No trade)
Price
Unit Cost (Free trade)Cost Decrease
Internal Scale Economies and Trade
External Scale Economies and Trade
S1 (Not include external economies)
S2 (Include external economies)D1 D2
Industry’s average cost, including external economies)