Related to the Economics in Practice on page 197. In a world economy in which trade occurs across geographical boundaries, if economies of scale exist,
A) they actually result in lower output due to exchange rate variations.
B) it is possible to exploit them across a very large output base.
C) trade barriers prevent them from being beneficial.
D) they promote production of products in which a country does not have a comparative advantage.

Question

Quizplus · Accepted Answer

Economies of scale refer to the cost advantages that firms gain as they increase their level of production. In a world economy with trade across geographical boundaries, these cost advantages can be exploited over a larger output base, resulting in lower costs and increased competitiveness. Therefore, option B is the best choice. Option A is incorrect because exchange rate variations do not necessarily result in lower output due to economies of scale. Option C is incorrect because trade barriers can prevent the exploitation of economies of scale, but they do not prevent them from being beneficial. Option D is incorrect because economies of scale promote production of products in which a country has a comparative advantage, not the other way around.

Related to the Economics in Practice on Page 197