In the presence of external economies of scale,trade
A) may or may not improve welfare in both countries.
B) will unambiguously improves welfare in both countries.
C) will unambiguously worsens welfare in both countries.
D) will unambiguously worsen welfare in the exporting country and improve welfare in the importing country.
E) will unambiguously improve welfare in the exporting country and worsen welfare in the importing country.

Question

Quizplus · Accepted Answer

If there are external economies of scale, trade may or may not improve welfare in both countries. The reason is that external economies of scale result in a larger scale of production and a lower average cost of production. If the increased scale of production is driven by domestic demand, it can lead to economies of scale that benefit both domestic producers and consumers. However, if the increased scale of production is driven by exports, it may lead to a decline in domestic welfare as resources are diverted from the domestic economy to the export sector, resulting in higher prices for domestic consumers. Therefore, the impact of trade on welfare depends on the specific circumstances of each case.

In the Presence of External Economies of Scale,trade