International Trade Types and Market Structures in Economics

Intraindustry trade

The simultaneous export and import of airplanes by the U.S.

Product differentiation

Basis for two-way trade in PCs in monopolistically competitive markets.

Interindustry trade

Trade where a country exports agricultural goods and imports electronics.

Monopolistic competition

Market type where intraindustry trade is most common.

Perfect competition

Market type where interindustry trade is most common, based on comparative advantage.

Increasing returns to scale

Trade encourages specialization in fewer varieties and larger production runs.

External scale economies

More likely to arise when firms share technology improvements across the industry.

Zero economic profit

Long-run profit of firms in perfect competition (normal profit only).

Barriers to entry

Common examples include patents, control of resources, government regulation, economies of scale.

Oligopoly market structure

Defined by a few large firms dominating the industry.

Stolper-Samuelson theorem

Predicts that trade benefits abundant factors and harms scarce factors.

Short run effects of free trade

In a capital-abundant country producing bread and wine, wages and rental rates of capital will rise in the wine industry but fall in the bread industry.

Long run effects of free trade in labor-abundant country

Workers in Alpha will be better off, landowners will be worse off if drink is labor-intensive.

Price and elasticity in monopolistic competition

If product variants decrease, price increases and demand becomes inelastic.

Two-way trade in personal computers

In monopolistically competitive global markets, it is based on product differentiation.