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By the end of this section, you will be able to:

  • Identify at least two advantages of intra-industry trading
  • Explain the relationship between economies of scale and intra-industry trade

Absolute and comparative advantages explain a great deal about patterns of global trade. For example, they help to explain the patterns noted at the start of this chapter, like why you may be eating fresh fruit from Chile or Mexico, or why lower productivity regions like Africa and Latin America are able to sell a substantial proportion of their exports to higher productivity regions like the European Union and North America. Comparative advantage, however, at least at first glance, does not seem especially well-suited to explain other common patterns of international trade.

The prevalence of intra-industry trade between similar economies

The theory of comparative advantage suggests that trade should happen between economies with large differences in opportunity costs of production. Roughly half of all world trade involves shipping goods between the fairly similar high-income economies of the United States, Canada, the European Union, Japan, Mexico, and China (see [link] ).

(Source: https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf)
Where u.s. exports go and u.s. imports originate (2015)
Country U.S. Exports Go to ... U.S. Imports Come from ...
European Union 19.0% 21.0%
Canada 22.0% 14.0%
Japan   4.0%   6.0%
Mexico 15.0% 13.0%
China 8.0% 20.0%

Moreover, the theory of comparative advantage suggests that each economy should specialize to a degree in certain products, and then exchange those products. A high proportion of trade, however, is intra-industry trade    —that is, trade of goods within the same industry from one country to another. For example, the United States produces and exports autos and imports autos. [link] shows some of the largest categories of U.S. exports and imports. In all of these categories, the United States is both a substantial exporter and a substantial importer of goods from the same industry. In 2014, according to the Bureau of Economic Analysis, the United States exported $159 billion worth of autos, and imported $327 billion worth of autos. About 60% of U.S. trade and 60% of European trade is intra-industry trade.

(Source: http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm)
Some intra-industry u.s. exports and imports in 2014
Some U.S. Exports Quantity of Exports ($ billions) Quantity of Imports ($ billions)
Autos $146 $327
Food and beverages $144 $126
Capital goods $550 $551
Consumer goods $199 $558
Industrial supplies  $507  $665
Other transportation  $45  $55

Why do similar high-income economies engage in intra-industry trade? What can be the economic benefit of having workers of fairly similar skills making cars, computers, machinery and other products which are then shipped across the oceans to and from the United States, the European Union, and Japan? There are two reasons: (1) The division of labor    leads to learning, innovation, and unique skills; and (2) economies of scale.

Questions & Answers

what is j curve
Pervaiz Reply
distinguish between microeconomics and macroeconomics
Yash Reply
Microeconomics is just study about a small market or can say as single market. While Macroeconomics is study of the entire economy of country or the whole market. Example: Sales of Toyota Vios is consider as Microeconomics which is under the work of Microeconomist.
But if you wanna to know about the entire sales market of Toyota car series then it belongs to Macroeconomics and it will be the work of Macroeconomist
Micro studies the behavior of individuals and Firm in making decisions regarding the allocation of Scarce resources & the interactions among these individuals and firms. while macro is the study of the sum total of economic activity, dealing with the issues of growth & inflation & unemployment
can anyone tell me what is deadweight loss.....
Micro deals from individual point of view and their day to day economy problem whole macro deals with the economic problems of nations as a whole
what is economy ?
Pandit Reply
what is market failure
Parey Reply
the market which does not fulfill the Peroto optimum criteria is called market failure. That means some is better without making no one can worse up.
what is peroto optimum
Why globalisation an free trade is important
Fredrick Reply
First i vll tell u what is Globalisation Glosbalisation means to integrate your economy with the economy of the other countries Thus we can say there should b free trade b/w countries there shouldt not any restriction on trade so that when u go for trade then integrate yr economy with the rest of
of world that described u ave globalised yr economy but it is possible only in free trade ....so that it is important
monopoly or monopolistic is known as 'price maker'
Rossi Reply
what is elasticity
Helna Reply
measures responsiveness the quantity of demand for change in the price
a degree in which consumer's changes their demand or amount supplied in responce to changes in income or prices
is the concept which indicate the degree of responsiveness of quantity demanded to a small change in price of goods,income or price of another goods.
what is a trade off
a balance achieved between two desirable but incompatible features; a compromise.
wow sorry question... fish not bull bear fish
flexiblity in demand and price
what is demand
Mouni Reply
what is dead weight loss
Sharee Reply
a reduction in consumers’ surplus caused by a fall in quantities of a product produced, especially when a monopoly producer keeps production low to maintain high prices
society welfare loss:the loss of total societal welfare(consumer & producer surplus) when a market is producing at a level of output which is not socially optimal...May arise from a market failure orfrom when there is intervention of government in efficient market
what is the difference between capitalism and socialism
Helna Reply
captalism ,market dominated economy socialism,goverment domineted economy
what is the difference between positive economics and normative economics
Ritesh Reply
positive economics is not the value judgement but normative economics is known as the value judgement.
positive economics only describes the economic phenomenon as it is. normative economics, beside describing phenomenon also suggest a solution to it
is there only one difference between positive and normative economics
that's the most important difference.
what is economics
Ritesh Reply
is the study of allocative scarce resources to meet human unlimited want
other definition of economics
economic is the knowledge which concerned with the wealth and consumption of goods and services
Study of all kinds of economic activities people involve in a particular society n time
how can we define a demand
A good or something we really want and need
economics simple defination is =needs+wants>resources
demand is consumer willingness to pay a price for a specific good or services
It is the science of scarcity the want are unlimited and resources are limited which are in alternative uses
Demand is the desire to own anything, the willingness to pay for it and the ability to buy it
explain the relationship between individual supply and market supply
what is positive economics
Sarita Reply
The consumer and producer are getting equal satisfaction i.e called positive economics.
Positive economics seeks to describe and predict measurable, economic phenomena. Normative economics seeks to identify what economies ought to be like.
so what is life like
Raymone Reply
life is a long story about how you die
Life is all about impact, influence and contributions u make when living
It's about how you use yourself as a resources to fulfill your goals, needs etc
what is a law of demand?
Lydia Reply
its the relationship between price and quantity demanded, they are related conversely. As the price of a good increases, the quantity demanded will decrease and as price decreases the quantity demanded increases (all other factors remaining constant).
thank you Ligia I know understand.
A demand curve shows the relationship between the price and the quantity demanded... how about the supply curve?
Also shows the relationship between price and quantity supply... At higher price, quantity supply increases and vice versa... All other things being equal.
It's shows an in inverse relationship between the price n quantity demand made by individual in a given period of time

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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