A feasible effect of international trade is that a (an):

 Options:

a. Monopoly in the home market becomes an oligopoly in the world market b. Oligopoly in the home market becomes a monopoly in the world market c. Purely competitive firm in the home market becomes an oligopolist d. Purely competitive firm in the home market becomes a monopolist

The Correct Answer Is:

a. Monopoly in the home market becomes an oligopoly in the world market

Correct Answer Explanation:

International trade can have profound effects on market structures, altering the competitive landscape. The correct answer to the given question is:

a. Monopoly in the home market becomes an oligopoly in the world market

When a monopoly exists in the home market, it means that a single firm dominates that particular market, controlling the supply and setting prices without direct competition. However, with the expansion into the world market through international trade, the dynamics shift. Here’s why this answer is correct:

• Increased Competition: As the monopoly expands its operations internationally, it encounters other firms in various countries. These firms might have similar products or services, leading to increased competition. This competition prevents the monopolistic control observed in the home market, as other firms vie for market share.
• Formation of Oligopoly: Instead of being the sole dominant player, the firm now coexists with a few other significant firms in the global market. This forms an oligopoly, where a small number of firms collectively control the majority of the market. These firms might engage in strategic interactions, such as price competition or collusion, influencing market dynamics.

Now, let’s delve into why the other options are not correct:

b. Oligopoly in the home market becomes a monopoly in the world market:

In an oligopoly, a small number of firms control the market, allowing them to influence prices and competition. However, as these firms expand into the global market through international trade, they encounter other firms and competitors from different regions.

This expansion rarely leads to the formation of a single monopoly in the world market.

Instead, it usually results in the continuation of an oligopolistic market structure or potentially the formation of an oligopoly on a larger scale involving a few dominant players from different regions. The presence of multiple firms with significant market shares in various countries typically prevents the emergence of a single monopoly.

c. Purely competitive firm in the home market becomes an oligopolist:

A purely competitive firm operates in a market where there are many small firms producing homogeneous products, and each firm has minimal influence over the market price. When such a firm engages in international trade, it enters a more complex landscape with various competitors and market conditions.

However, the nature of a purely competitive firm, focused on producing standardized goods and lacking significant market control, makes it unlikely to transform into an oligopolist. These firms lack the strategic power, market dominance, and inclination to collude or control the market in a way characteristic of an oligopolistic structure.

d. Purely competitive firm in the home market becomes a monopolist:

In a purely competitive market, firms are price takers, meaning they accept the market price and have no control over it. These firms are typically unable to exert influence on prices due to the high level of competition and the homogeneity of products.

When entering the global market through international trade, these firms are more likely to face increased competition from various sources. The idea that such a firm could transform into a monopolist in the world market is improbable.

They lack the capacity to control prices or dominate markets, especially on a global scale where competition from different firms and regions prevails.

In summary, while international trade can certainly reshape market structures, the transformations are more nuanced and typically involve changes in competitive dynamics rather than a straightforward transition from one market structure (like a monopoly, oligopoly, or perfect competition) in the home market to another in the world market.

The impact of international trade often leads to increased competition and a diversification of market structures rather than the establishment of a single dominant firm in the global market.

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