3. The world consists of two countries, K and H. The The Market for TV Dramas fi

Question

3. The world consists of two countries, K and H. The The Market for TV Dramas figure on the right shows the demand in each for television dramas, production of which are subject to significant external economies of scale. Assume production is located only in K and that initially there is no trade. P (S) 10 Will the gains from trade in this case be greater, less, or the same relative to a constant cost industry, i.e., an industry that is not subject to external economies of scale? Briefly explain. a. 2 b. Once trade opens, will the gains from trade be greater if demand in K is represented by D, and H by D, or if demand in K is represented by D, and2 3689 H by D? Briefly explain. Q (M. of units

Explanation / Answer

Ans

A will be greater because more is produced at less cost and consumer surplus plus producer surplus is now greater

B if demand in k is represented by D1 and H by D2. This is because more trade occurs and thus there are more gains

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