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Chapter 33: Q.13 (page 803)

What is intra-industry trade?

Short Answer

Expert verified

Trade of similar products between international boundaries

Step by step solution

01

Step 1. Introduction 

International trade can be defined as the exchange of goods, services and resources across international borders.

02

Step 2. Explanation

Intra-industry refers to the trade of similar products across international borders. A significant portion of international trade is composed of trade between advanced high-income countries. who trade similar products.

Generally, it is assumed that countries specialize in one product and export it to another country and import products they do not specialize in. But when countries export and import the same types of products they gain from a higher degree of specialization, economies of scale, and splitting of the value chain.

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Most popular questions from this chapter

In Exercise 33.31, is there an “ask” where Venezuelans may say “no thank you” to trading with Canada?

How does comparative advantage lead to gains from trade?

What is splitting up the value chain?

Table 19.15 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.

a. 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?

b. If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if quantity demanded is 70,000 semiconductors 50,000 semiconductors? 30,000 semiconductors?

c. 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.

Why does the United States not have an absolute advantage in coffee?
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