复旦国际贸易英文课件06.pptVIP

INCREASING RETURNS TO SCALE AND IMPERFECT COMPETITION 6 Introduction We will look at trade in golf clubs, a good that the U.S. imports and exports in large quantities. Many countries that sell to the U.S. are also buying from the U.S. The total value of imports is close to the total value of exports. Why does the U.S. export and import golf clubs to and from the same countries? We observe intra-industry trade. A new explanation for trade will be discussed here. Introduction Introduction Introduction We will look at a model of monopolistic competition where goods are differentiated. Gives a degree of market power Firms tend to specialize because in monopolistic competition we have increasing returns to scale The imperfect competition model also predicts that larger countries will trade more with each other. This is called the gravity equation. Trade Under Monopolistic Competition We begin this section with a few assumptions Assumption 1: each firm produces a good that is similar to, but differentiated from, the goods that other firms in the industry produce. Assumption 2: there are many firms in the industry. Assumption 3: firms produce using a technology with increasing returns to scale (decreasing AC, fig. 6.3). Assumption 4: firms can enter and exit the industry freely, so that monopoly profits are zero in the long run. Trade Under Monopolistic Competition Trade Under Monopolistic Competition Trade Under Monopolistic Competition Equilibrium Without Trade Short-Run Equilibrium Figure 6.4 shows our monopolistically competitive firm. Each firm maximizes profits by producing Q0, where MR=MC. Price is from the demand curve at P0. Since price is greater than average cost, the firm is earning positive monopoly profits. Long-Run Equilibrium Since firms are making positive profits, firms will enter the industry. The demand for existing firms will fall until no firm is earning positive profits; the demand curves also becomes flatter (more elastic). Trade Under