Final answer:
An economy can benefit from both importing and exporting due to diversification and economies of scale. Scale is achieved when production volume reduces average costs, and international trade allows even small economies to reach such a scale. It promotes competition and variety in consumer goods.
Step-by-step explanation:
Economic Gains from Importing and Exporting
An economy can gain from both importing and exporting the same good due to differences in production costs and consumer preferences. For instance, a country may be efficient at producing cars for export, but still import certain models that are cheaper or preferred by consumers. This creates a diverse market satisfying various consumer needs and can lead to economies of scale where high volume production reduces per-unit costs.
Illustrating Economies of Scale
To illustrate economies of scale, we would sketch a curve showing the average cost of production decreasing as the quantity of production increases. This is demonstrated in Figure 7.9, where larger factories have lower average costs per unit. An economy can fully take advantage of economies of scale at a production quantity where the average cost is minimized, which might be at or beyond 90,000 semiconductors. A production quantity of 70,000 may also achieve economies of scale, but less so for 50,000 or 30,000 units as the average costs would be higher.
International Trade and Economies of Scale
International trade can help even small economies achieve economies of scale by expanding the market. It allows them to produce at a larger scale and lower the average cost of production while benefiting from competition and diversity of products. This trade also offers access to a variety of products produced by different countries, enhancing consumer choice and potentially lowering costs due to competition.