Reference no: EM133182875

Use a scenario to show the relationship between specialization, economies of scale and production efficiency in international trade. (Hint: you can use a 2 country, 2 products scenario) this is the scenario I gave and the response I received from my professor:

ANSWER: South America has the resources, naturally, to produce bananas. Because of this, they have become the leader or expert in banana harvesting. They can specialize in banana harvesting and export their goods to other countries. On the other hand, they do not have the natural resources to develop machinery, like say, North America does. Because North America specializes in machinery, South America imports machinery to further develop its industries.

PROFESSOR RESPONSE: Before we answer this question we need to define the key terms in the question. What is specialization? What does it mean to achieve economics of scale? What is efficiency mean in terms of production?

You are on the right track with your scenario, but let's expand on it a little more. After defining these key terms let's add them to your scenario.