Chapter 6

Question 1

Summarise intra industry trade

Answer 1

1. While trade based on comparative advantage is likely to be larger when difference in factor endowments among nations is larger, intra industry is likely to be larger among industrial economies of same size and factor proportions.
2. Pretrade relative prices don’t apply anymore. A large country could produce a commodity at cheaper prices than a small country at freetrade.
3. With intra-industry trade based on economies of scale or increasing returns, all factors might gain.
4. Intra industry trade is related to the sharp increase in international trade in parts and components of a product, or outsourcing.