Economies of scale and International Trade: An overview Models of trade based on comparative advantage(e. g Ricardian model) used the assumptions of constant returns to scale and perfect competition Increasing the amount of all inputs used in the production of any commodity will increase output of that commodity in the same proportion In practice, many industries are characterized b economies of scale(also referred to as increasing returns) Production is most efficient. the larger the scale at which it takes place Copyright C 2003 Pearson Education, Inc Slide 6-4Copyright © 2003 Pearson Education, Inc. Slide 6-4 Economies of Scale and International Trade: An Overview ▪ Models of trade based on comparative advantage (e.g. Ricardian model) used the assumptions of constant returns to scale and perfect competition: • Increasing the amount of all inputs used in the production of any commodity will increase output of that commodity in the same proportion. ▪ In practice, many industries are characterized by economies of scale (also referred to as increasing returns). • Production is most efficient, the larger the scale at which it takes place