Chapter 8: Internal Scale Effects

What is internal scale economy?

Costs decrease as firm output increases.

What is monopolistic competition?

Firms differentiate products and act as monopolists but face competition from similar products.

What are characteristics of oligopolies?

Few firms, interdependence, and strategic behavior.

What does the PP curve show?

As the number of firms increases, price falls.

What does the CC curve show?

As the number of firms increases, average cost rises.

What is the trade equilibrium result in monopolistic competition?

Lower prices and more variety due to market expansion.

What are the benefits of trade under internal scale economies?

Lower prices, more variety, and intra-industry trade.

What is intra-industry trade?

Countries export and import similar goods (e.g. different car models).

What determines the extent of intra-industry vs inter-industry trade?

Similarity of countries; more similar → more intra-industry trade.