Response to Required Reading

Please read the article attached, which is titled ” Gains from Trade when Firms Matter “. Last week you have read the first 7 pages, this week please read the remainder of it.

Please discuss the following question:

When countries integrate, the number of world varieties will be high than each country’s autarky level, but less than the sum of both country’s autarky varieties, implying some of the initial varieties in each county exit. When firms making different varieties also have different marginal costs, what happens when a country integrates? Which varieties survive, and which ones exit? Why does this create an additional gain from trade?

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