What are the benefits of international free trade? Do all parties gain if there is free trade between countries? Use the trade between the US and Mexico to explain your answer. International free trade between two different countries like the United States and Mexico allows each country to maximize their GDP. When free trade is aloud a country is can specialize in producing a particular type of goods over others. When this happens this allows other countries to specialize in goods they produce best leading to a maximized GDP. Free trade also allows for the most efficient forms of production in terms of exporting and importing. A country like the United States can produce a certain number of goods for our level of consumption; but with free …show more content…
This is do to the fact that more people will want to exchange their own more for that nations money in order to buy their goods. A nation that is not stable and whose economy is collapsing would have a low exchange rate. In terms of the United States and Mexico the United States produces more goods and imports them to Mexico causing the United States the have a higher rate. If someone in the United States brough 1 USD to mexico they could spend about 18 pesos. In reverse if someone from Mexico came to America they would need about 18 peros to buy something that costs 1 USD. The USD would depreciate with respect to the peso when Mexico started imported more stuff in to the united …show more content…
Explain your answer. Economies of scale says that larger firms can produce goods for a lower cost than smaller firms when producing the same amounts. As a firm increase its production and grows its cost per unit of an item will go down. Over time fixed cost will go down as a firm produces more goods per fixed cost amount. For instance, if a firm buys a machine to make boxes that costs 50,000 USD and they make 1000 boxes their fix cost of each box is 50 USD. When talking about the scale if that same firm produced 100,000 their fixed cost of each box would be .50 USD. The same idea can be said to save money by shopping at bulk stores. If a firm produces more they can save money buy buying items in bulk There are many ways to measure the economies of scale, but the overall idea is that the more a firm makes the less it costs to make each unit. In the long run, why do we expect that firms in perfect competition will earn zero economic profits? In the long run we would expect a firms in perfect competition to earn zero economic