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Chapter 33: Q.14 (page 804)

What are the two main sources of economic gains from intra-industry trade?

Short Answer

Expert verified

Economies of scale, gains from higher degree of specialization

Step by step solution

01

Step 1. Introduction 

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

02

Step 2. Explanation 

Unlike traditional trade of different types of products, intra-industry does not provide gain in the form of exporting goods they specialize in and importing those they do not specialize in.

However, in exporting and importing similar products, countries can gain from a higher degree of specialization. Specialization can be finely split and distributed around the world.

The countries also gain from economies of scale when the average cost declines with an increase in output.

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Most popular questions from this chapter

In France it takes one worker to produce one sweater, and one worker to produce one bottle of wine. In Tunisia it takes two workers to produce one sweater, and three workers to produce one bottle of wine. Who has the absolute advantage in production of sweaters? Who has the absolute advantage in the production of wine? How can you tell?

Are differences in geography behind the differences in absolute advantages?

How does comparative advantage lead to gains from trade?

Are the gains from international trade more likely to be relatively more important to large or small countries?

Do consumers benefit from intra-industry trade?
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