DIŞ TİCARET - Deneme Sınavı - 1

Countries usually resort to trade restrictions with various aims. Among them, most referred aims are to protect the domestic consumers, to collect revenue to the treasury, to adjust balance of payments, to implement infant- industry argument and to serve for diplomatic relations. The first two aims, namely to protect the domestic consumers and to collect revenue to the treasury, are referred as traditional aims of trade restrictions.

According to Linder, firms within a country produce commodities for the domestic market, and they are motivated to produce more when the market is enlarged. Thus, it is the domestic market that determines the commodities in which the country specializes.

The first stage is called new-product stage in which the product is produced and consumed only in the innovating country with skilled labor and high technology. The second stage is the product-growth stage. In this stage, production is increased in order to meet the rapidly increasing demand. In the product-growth stage, imitating country starts to demand the new product. The third stage is product-maturity stage. In this stage, the new product is standardized and the innovating country may give license to the imitating country to produce the product introduced by itself. The fourth stage is product-standardization stage. In this stage, the new product is standardized. It is produced with lower costs of production in the imitating country and does no longer requires high technology within the production. The fifth and the last stage is the product-decline stage. In the fifth stage, the production of the new product within the innovating country decreases rapidly since the imitating country undersells it in its domestic market.

In the product-growth stage, production is performed only in the innovating country. Thus, the innovating country has a temporary monopoly power both in domestic and foreign market. This temporary monopoly power is enjoyed by the patent rights.

Economies of scale exist when the increase in the output is proportionally more than the increase in the input. Producing a commodity slightly different from the commodity produced by the competitor is called product differentiation. Constant returns to scale refers to the same amount of output increase with the increase within the factors of production. External economies of scale refers to a reduction in the average cost of a firm in conjunction with the increase within the size of the industry. Internal economies of scale refers to a reduction in the average cost of a firm that is peculiar to the increase within the scale of the firm itself.

Growth of subsidiaries  indicates that there will be new establishments that supply materials or inputs to the industry. The other advantages are: Hereditary skill: Special skills for production can be transferred from one generation to another and thus prolong for decades. Use of specialized machinery: Since there is large scale production within the industrial district, the demand for specialized machinery and for skilled labor would be high. Local market for skill: Industrial district is a stable and constant market for skilled labor. Thus, the firms can easily find and employ skilled labor. On the contrary, it might be hard for a firm that is out of the industrial district to find skilled labor. Introduction to new ideas: Firms that operate with the industrial district can pool their ideas and generate new common ideas on production.

Monopolistic competition is a market type in which there are many firms competing with each other. Each firm produces a differentiated commodity. Firms compete on the basis of commodity quality, price, and marketing. It’s easy to enter in and exit out from the market. In imperfect competition, firms can influence the prices of the commodity which they produce. Thus, they are not just price takers as in the perfect competition. Conversely, they can be price setters. The basic type of imperfect competition is monopoly in which there is only one producer. In monopoly, the firm does not face a competition and thus is the price setter itself. Intra-industry trade occurs when a country exports and imports with the same commodity category or industry as a whole.

Intra- industry trade may arise between similar per capita income countries if the distribution of total income differs. This postulation belongs to Grubel, who has significant contributions on the theory of intra-industry trade.