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Economies of Scale and Trading Advantages

How Economies of Scale Lead to Trading Advantages

Written by Jason Gordon

Updated at March 29th, 2023

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How do Economies of Scale Lead to Trading Advantages?

A second broad reason that intra-industry trade between similar nations produces economic gains involves economies of scale. The concept of economies of scale means that as the scale of output goes up, average costs of production decline—at least up to a point. 

The concept of economies of scale becomes especially relevant to international trade when it enables one or two large producers to supply the entire country. 

International trade provides a way to combine the lower average production costs that come from economies of scale and still have competition and variety for consumers. 

Back to: ECONOMIC ANALYSIS & MONETARY POLICY

Related Topics

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  • Mercantilism
  • J Curve
  • National Trade Data Bank
  • Capital Account (Economics)
  • Merchandise Trade Balance
  • Current Account 
  • Income Payments
  • Unilateral Transfer
  • Is it better to have a trade surplus or a trade deficit? 
  • Export of Goods and Services and Percentage of GDP
  • Heckscher-Ohlin Model 
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  • The Balance of Trade as a Balance of Payments
  • National Savings and Investment Identity
  • Circular Flow of Money
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  • National Savings Identity and Trade Deficits
  • How the Business Cycle Affects Trade Balances
  • Trade Balance or Trade Surplus
  • Level of Trade
  • Comparative Advantage
  • Absolute Advantage
  • Specialization and Gain from Trade
  • Absolute Advantage in All Goods
  • Production Possibilities Frontier and Comparative Advantage
  • Comparative Advantage and Mutually Beneficial Trade
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  • Opportunity Costs and International Trade
  • Intra-Industry Trade
  • Splitting Up the Value Chain
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  • Tariffs 
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  • Import Quotas
  • Double Column Tariff
  • Infant Industry Theory
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  • National Interest Argument for Restricting Imports
  • What is the WTO?
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economies of scale trading advantage trading benefits scale economy

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