Sometimes a particular product requires such huge investment in machinery and in
developing a skilled labor force that the resulting output can be sold at a low enough
price to be competitive only when some enormous amount of output is produced, because
of what economists call “economies of scale.”
If General Motors produced only a hundred Chevrolets, the cost per car would be
astronomical, since all the expensive machinery and all the engineering research and
development that went into creating the automobile would have to be recovered from the
sale of just 100 vehicles.
It has been estimated that the minimum output of automobiles needed to achieve an
efficient cost per car is somewhere between 200,00 to 400,000 automobiles per year.
Producing in such huge quantities is not a serious problem in a country of the size and
wealth of the United States. But, in a country with a much smaller
population—Australia, for example—there is no way to sell enough cars within the
country to be able to develop and produce automobiles from scratch to sell at prices that
would compete with automobiles produced in much larger quantities overseas.
If you take small countries like South Korea and Taiwan, they have to depend on
international trade to be able to produce on a scale far exceeding what can be sold
domestically.
International trade is necessary for many countries to achieve economies of scale that will
enable them to sell at competitive prices. For some products requiring huge investments
in machinery and research, only a very few large and prosperous countries could reach
the levels of output needed to repay all these costs from domestic sales alone.
International trade creates greater efficiency by allowing more economies of scale, as
well as by taking advantage of each country’s absolute or comparative advantages.
Whatever the merits or demerits of various political proposal, what must be kept in mind when evaluating them is that the good fortunes and misfortunes of different sectors of the economy may be closely related as cause and effect - and that preventing bad effects may prevent good effects. It was not accidental that Smith Corona was losing millions of dollars on its typewriters while Dell was making millions on its computers. It was not accidental that Safeway surged to the top of the grocery business while A&P fell from its peak to virtual oblivion. The efficient allocation of scarce resources, which have alternative uses, means that some must lose their ability to use those resources in order that others can gain the ability to use them Typewriters were no longer what the public wanted after they had the option to achieve the same end result and more with computers. Scarcity implies that resources must be taken from some places, in order to go to other places.
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