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Gains from specialization and learning

Consider the category of machinery, where the U.S. economy has considerable intra-industry trade. Machinery comes in many varieties, so the United States may be exporting machinery for manufacturing with wood, but importing machinery for photographic processing. The underlying reason why a country like the United States, Japan, or Germany produces one kind of machinery rather than another is usually not related to U.S., German, or Japanese firms and workers having generally higher or lower skills. It is just that, in working on very specific and particular products, firms in certain countries develop unique and different skills.

Specialization in the world economy can be very finely split. In fact, recent years have seen a trend in international trade called splitting up the value chain    . The value chain    describes how a good is produced in stages. As indicated in the beginning of the chapter, the production of the iPhone involves the design and engineering of the phone in the United States, parts supplied from Korea, the assembly of the parts in China, and the advertising and marketing done in the United States. Thanks in large part to improvements in communication technology, sharing information, and transportation, it has become easier to split up the value chain. Instead of production in a single large factory, all of these steps can be split up among different firms operating in different places and even different countries. Because firms split up the value chain, international trade often does not involve whole finished products like automobiles or refrigerators being traded between nations. Instead, it involves shipping more specialized goods like, say, automobile dashboards or the shelving that fits inside refrigerators. Intra-industry trade between similar countries produces economic gains because it allows workers and firms to learn and innovate on particular products—and often to focus on very particular parts of the value chain.

Visit this website for some interesting information about the assembly of the iPhone.

Economies of scale, competition, variety

A second broad reason that intra-industry trade between similar nations produces economic gains involves economies of scale. The concept of economies of scale    , as introduced in Cost and Industry Structure , means that as the scale of output goes up, average costs of production decline—at least up to a point. [link] illustrates economies of scale for a plant producing toaster ovens. The horizontal axis of the figure shows the quantity of production by a certain firm or at a certain manufacturing plant. The vertical axis measures the average cost of production. Production plant S produces a small level of output at 30 units and has an average cost of production of $30 per toaster oven. Plant M produces at a medium level of output at 50 units, and has an average cost of production of $20 per toaster oven. Plant L produces 150 units of output with an average cost of production of only $10 per toaster oven. Although plant V can produce 200 units of output, it still has the same unit cost as Plant L.

Questions & Answers

Demand is set to be enlastic when its what
bohvy Reply
more than boll had him had bhaag......
SHADAB
Cant you speak in English
john
a little
Tith
I do speak English.. the question is Demand is set to be elasticity went the dash *2
bohvy
if I want some document from,that 9k?
Tith
hi
muhammed
if both %^ Increase in input & %^ increase in output, then it is elastic and = to 1.
Rowda
Allah's Allah's last I'll be in the area around.....
SHADAB
why is scarcity a fundamental problem in economic
Abubakar Reply
what is demand curve
Takyi Reply
xplain
Ubong
thanks for your help with the same....
SHADAB
What is elasticity of demand
Karim
what is opportunity cost
Samuel Reply
Opportunity cost which also mean real cost it is a term used for foregone alternatives
john
what is demand
ikea Reply
Demand may simply be define as the total quantity of good or service a consumer are willing to buy at a specific price within a period of time.
john
your language is tough
techy Reply
How economics is related to other subjects?
Mikateko Reply
It is social science related subjects
john
How ? explain
Mikateko
and something else help me about business cycle
Mikateko
s classified as a social science. This view makes eco­nomics an academic relative of political science, sociology, psychology and anthropology. All of these disciplines study the behaviour of human beings individually and in groups.
john
The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles are generally measured using the rise and fall in the real gross domestic product (GDP) or the GDP.
john
hello everyone
Selena
hii
Yes
hello selena
Yes
How are you doing every one
john
hello Selena
Yes
hi
NONSO
yes
NONSO
What Is Economic Growth?
Saviour Reply
is the increase of quantity of goods ans services
Hashi
what is economic
Yomina Reply
Economic may be define as the science which studies human behaviour in relationship with end and scarce which have alternative use. This definition was drafted by Lionel robbin
john
good
Tith
it is science of wealth.
SHADAB
if I want some documents from you ,Are you ok?
Tith
it is not only wealth as well as welfare also.as well as scarce means of ends,for human satisfaction for alternative uses.
Avijit
economics applications
techy
who should study economics
Mary Reply
hi
Adu
How are you doing
john
finr
Tith
sorry, fine
Tith
and you?
Tith
Good
Adu
where do you live?
Tith
Accra n u
Adu
what's the difference between elasticity and demand
Rich Reply
if country had a potential full employment income of Rs 1000 and following consumption and investment function C=0.75 y=50,I=150.find the level of government expenditure necessary to maintain full employment
Vijay Reply
what is China's economy
Ved
the meaning of elasticity
Yawe Reply
when equilibrium is égal to 1
Moussa
The tendency to change consumption habits with change in price
Iben
The type of elasticity if demand
Okonkwo Reply
aren't leaving too about bathrooms
SHADAB
I don't understand
Amina
like.
Ubong
Price elasticity of demand cross elasticity of demand income elasticity of demand
Lawrence
what is money
Lawal Reply
what is supply
Lawal
the total number of goods present at a particular area at a particular time
Offset

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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