Question

Define "Economies of scale" and how it is one of the causes of international trade. Furthermore, explicate how the evidence supports this theory of trade.

Answer 1

Economies of the scale refer to a situation where reducing the cost per units and increase the production level of output.The following the factors are responsible for the economies of scale in the production process.

• Division of labors reduce the cost of production and reduce the cost of the production
• Technological progress reduces the cost of per unit
• Availablity of cheap economic resource more substitution possible to dearer economics resources

The economies of scale result in an increase in output level in the economy in order to stabilize the price level the surplus production can be exported to the international market.

The economies of scale result in a comparative advantage in the international market and help in gain from the international trade.