Consider two hypothetical countries called Cassvania and Koopmansville. The coun

Question

Consider two hypothetical countries called Cassvania and Koopmansville. The countries have similar production technology, and yet they specialize and trade with each other. Read the following details and determine why international trade is possible between these two countries All of the residents of Cassvania enjoy smoking cigarettes, while only a few residents in Koopmansville smoke. Cassvania has become a major exporter of cigarettes because many tobacco firms have chosen to locate their factories in Cassvania to cut down on shipping costs to most of their consumers. Koopmansville has put its resources toward producing sugar, a good it exports in exchange for cigarettes internal external Despite their differences, Cassvania and Koopmansville are able to trade because of external economies of scale

Explanation / Answer

External economies of scale, as the entire industries are getting benefitted and not a particular firm.

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