Trade between Similar Economies
Countries with similar economies are more likely to trade with one another, especially if they are at a similar development level, have political or security partnerships, or have cultural ties. Why might that be? Consider that qustion as you read this section, and then answer the questions at the end of the section.
Self-Check Questions
- How can there be any economic gains for a country from both importing and exporting the same good, like cars?
- Table 16 shows how the average costs of production for semiconductors (the "chips” in computer memories) change as the quantity of semiconductors built at that factory increases.
- Based on these data, sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis. How does the curve illustrate economies of scale?
- If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if the quantity demanded is 70,000 semiconductors? 50,000 semiconductors? 30,000 semiconductors?
- Explain how international trade could make it possible for even a small economy to take full advantage of economies of scale, while also benefiting from competition and the variety offered by several producers.
Quantity of Semiconductors Average Total Cost 10,000 $8 each 20,000 $5 each 30,000 $3 each 40,000 $2 each 100,000 $2 each Table 16.