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Ch-8. Internal Economies of Scale and Trade (Krugman)
Ch-8. Internal Economies of Scale and Trade (Krugman)
Assumptions:
There are two countries: Home (the capital-abundant
country) and Foreign (the labor-abundant country) .
There are two industries: manufactures (the capitalintensive industry) and food (labor capital-intensive
industry) .
Neither country is able to produce the full range of
manufactured products by itself due to economies of
scale.
Slide 6-2
Home
Manufactures
Food
(capital abundant)
Foreign
(labor abundant)
Slide 6-3
Interindustry trade
The exchange of manufactures for food
Slide 6-4
Home
Manufactures
Food
(capital abundant)
Interindustry
trade
Intraindustry
trade
Foreign
(labor abundant)
Slide 6-5
Slide 6-6
Slide 6-7
Slide 6-8
Dumping
Price discrimination
The practice of charging different customers different
prices
Dumping
The most common form of price discrimination in
international trade
A pricing practice in which a firm charges a lower price
for an exported good than it does for the same good sold
domestically
Copyright 2003 Pearson Education, Inc.
Slide 6-9
Dumping
Slide 6-10
Dumping
Figure 6-8: Dumping
Cost, C and
Price, P
3
PDOM
MC
1
DFOR = MRFOR
PFOR
DDOM
MRDOM
QDOM
QMONOPOLY
Quantities produced
and demanded, Q
Domestic sales
Exports
Total output
Copyright 2003 Pearson Education, Inc.
Slide 6-11
Summary
Dumping occurs when a firm charges a lower price
Slide 6-12