Managerial Economics and Strategy, 2/e

Summary

1. Reasons for International Trade. One key reason for international trade is comparative advantage. If producers in Country A can produce relatively more of Good 1 than Good 2 from a given amount of input, while producers in Country B are relatively better at producing Good 2, both countries can benefit from trading. A second important reason for trade is increasing returns to scale. Rather than producing everything at a small scale in a single country, producers can take advantage of increasing returns to scale by producing a large quantity of some good in one country and exporting much of the output to other countries. Increasing returns to scale are particularly important in industries where product variety is important. Allowing each ...