Other economic benefits of trade, such as the ability to exploit economies of scale and increased competition
International trade lets firms sell to bigger markets, so they can cut costs by producing more. It also forces firms to compete with foreign rivals, which drives down prices for consumers.
Formula
Average Cost = Total Cost ÷ Output (falls as output rises with economies of scale)
Real World
Airbus sells aircraft to airlines worldwide, allowing it to spread enormous fixed R&D costs — estimated at $15 billion for the A380 — across thousands of units, making each plane cheaper to produce than if it only served European airlines.
Exam Focus
Link economies of scale directly to lower average costs and then to consumer prices — chains of reasoning earn more marks than isolated points.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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