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International trade

4 important questions on International trade

What are internal and external economies of scale?

Internal economies of scale: the costs per unit of production decrease if production increases.

External economies of scale: the costs per unit of production decrease if a firm functions within a large complex (cluster). Costs are lower if the industry is larger.

What is meant by institutional factors?

Institutional factors refer to how institutions function. Institutions are market, property right structure, government policy, judicial system, etc.

If this country would be large (the small country assumption does not apply) how would an appreciation and a depreciation affect the world market price expressed in dollar/kg?

With appreciation the decrease in world market price expressed in euro/kg leads to lower exports or larger imports. Both have a positive effect on the world market price expressed in dollar/kg. With depreciation the increase in world market price expressed in euro/kg leads to higher exports or smaller imports. Both have a negative effect on the world market price expressed in dollar/kg.