Discussion #3

Econ 167
- Scale Economies, Imperfect
Competition, and Trade

- Growth and Trade

Review: Economies of Scale
___________ economies of scale the size of the individual
firm matters, i.e. larger firms have a cost advantage over
smaller firms.

As a result of (sources):
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-

______________ scale economies are based on the size of

an entire industry within a specific geographic area.

Types of __________. economies of scale:

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-
 Review: Intra-Industry Trade (IIT)
IIT is the part of total trade in the product (exports plus imports) that is not net trade
(IIT) =

The relative importance of IIT as a share of total trade in the product can be expressed as:
!!"
IIT share = =
#$%&' %(&)*

U.S. Exports (X) U.S. Imports (M) Total Trade ( ) Net Trade (. ) Intra-Industry Trade IIT Shares
$million ($millions) ($millions) ($millions) ($millions) (%)

Microcircuits (77640) 33,483 27,490

Automobiles(78120) 53,901 149,142

Books and brochures 323 134

(89219)
Photographic 2,414 1,712
cameras(88111)

What Explains Intra-Industry Trade?

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-
 Review: Monopolistic Competition
Monopolistic competition describes an
industry with the following characteristics:
-

-
Sources of gains from trade?

How is this different from an Oligopoly?

Review: Balanced vs. Biased Growth
__________ growth (_________ shift of PPC) could occur because all factors are growing at similar rates,
or because production technology is improving at the same rate in both sectors.

Growth is ____________. if the outward shift in the PPC is skewed, so that the growth favors producing
more of one product than the other.
Review: Rybczynski Theorem
In a two-good world, and assuming that product prices are constant, growth in the country’s endowment of
one factor of production, with the other factor unchanged, has two results:

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What if it is large nation?

Large country case: If a country is large, a

change in willingness to trade affects the
equilibrium international price ratio.