Efficiency gains and losses with economies of scale

When economies of scale and imperfect competition exist, additional efficiency effects from trade liberalization exist. We identified these concepts in Chapter 6 and find them relevant when we discuss preferential trade liberalization, too. We list them separately:

1 a shift in output, where price exceeds average cost and economic profits are received; 2 a scale effect, where firms’ average costs of production fall as output expands; 3 a variety effect, where trade allows a greater variety of final goods and intermediate

inputs to be purchased.