The Case for Free Trade Additional gains from Free Trade Protected markets in small countries do not allow firms to exploit scale economies Example: In the auto industry an efficient scale assembly should make a minimum of 80,000 cars per year In argentina, 13 firms produced a total of 166,000 cars per year The presence of scale economies favors free trade that generates more varieties and results in lower prices Free trade, as opposed to"managed"trade, provides a wider range of opportunities and thus a wider scope for nnovation Copyright C 2003 Pearson Education, Inc Slide 9-8Copyright © 2003 Pearson Education, Inc. Slide 9-8 ▪ Additional Gains from Free Trade • Protected markets in small countries do not allow firms to exploit scale economies. – Example: In the auto industry, an efficient scale assembly should make a minimum of 80,000 cars per year. – In Argentina, 13 firms produced a total of 166,000 cars per year. • The presence of scale economies favors free trade that generates more varieties and results in lower prices. • Free trade, as opposed to “managed” trade, provides a wider range of opportunities and thus a wider scope for innovation. The Case for Free Trade