How can international trade encourage economies of scale?
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Last updated 3 Feb 2023
International trade can encourage economies of scale by increasing the size of the market for a product or service, which allows companies to produce and sell more units at lower costs.
The following are ways in which international trade can encourage economies of scale:
- Access to larger markets: By selling products in new international markets, companies can increase the size of their customer base and sell more units, which can lead to economies of scale.
- Specialization: International trade can allow countries to specialize in the production of goods and services in which they have a comparative advantage, which can lead to increased efficiency and lower costs.
- Technological advancements: International trade can encourage companies to adopt new technologies and best practices from other countries, which can increase efficiency and reduce costs.
- Diversification of supply chains: International trade can allow companies to diversify their supply chains, reducing their dependence on a single supplier or market and increasing their resilience to supply chain disruptions.
Overall, international trade can encourage economies of scale by providing companies with access to larger markets, improved competitiveness, specialized production, technological advancements, and diversified supply chains, which can help reduce costs and increase efficiency.