The effects of trade blocs - HL Only !!!!!!
Syllabus: Explain that different forms of economic integration allow member countries to gain from economies of scale.
Globalization – the integration of factors of production and inclusion of consumer groups from different markets around the world – facilitates unprecedented achievements of economies of scale for producers. Access to increased numbers of laborers, investors, markets, resources, technologies and business models through globalization can theoretically maximize productive efficiency to a level consistent with the size of the world's population.
Economies of Scale
Economies of scale refers to the phenomenon of decreasing per unit costs associated with increases in output. A company experiences economies of scale as it specializes and is able to produce extra goods with fewer and fewer input costs.
According to economic theory, economies of scale are the natural consequence of specialization and the division of labor. It is one of the chief drivers of economic growth. However, firms do not constantly make economies of scale ; there is a maximum level of efficient output for any given inputs, and operations may sometimes extend too far and cause diseconomies of scale.
With access to new inputs and potentially more profitable markets, globalization can increase specialization and operational efficiency. The practical consequences of globalization include lower costs to consumers, access to capital for wealthy countries, access to jobs for poorer countries, increased competition and higher global productivity.
As globalization spreads the division of labor to a global scale, countries are able to export labor and production processes that they are relatively less profitable at and instead specialize in labor that is relatively more profitable. This result can be seen in factory jobs being driven out of the United States, which frees up capital for highly technical, highly productive fields such as IT. Companies are able to pursue higher degrees of efficiency and increase their economies of scale.
Read more: How do economies of scale work with globalization? | Investopedia http://www.investopedia.com/ask/answers/013015/how-do-economies-scale-work-globalization.asp#ixzz4Dou9wiFn
Syllabus: Explain the concepts of trade creation and trade diversion in a customs union.
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