Correct Answer Explanation :

d. economies of scale exist for producers.

Economies of scale refer to the cost advantages that a business gains as its production levels increase. This means that as a company produces more units of a good, the cost per unit decreases. This is often due to factors like specialization, automation, and efficient resource allocation.

In the context of international trade, when producers engage in trade with foreign markets, they have the potential to expand their production levels. This expansion often allows them to take advantage of economies of scale.

By producing larger quantities for both domestic and international markets, they can spread their fixed costs over a larger number of units, leading to lower costs per unit. This can ultimately result in more competitive pricing for consumers.

Why the Other Answers Are Not Correct:

a. International trade affords producers monopoly power.

This statement does not align with the typical effects of international trade. Monopoly power refers to a situation where a single producer or seller dominates the market for a particular product or service. This often leads to higher prices and reduced consumer choice due to lack of competition.

International trade, on the other hand, tends to increase competition rather than granting producers monopoly power. When businesses engage in trade with foreign markets, they are exposed to a broader and more diverse market landscape with numerous competitors.

This heightened competition encourages businesses to operate more efficiently, innovate, and offer competitive prices and quality to remain relevant. As a result, it becomes more challenging for any single producer to establish or maintain a monopoly position in an open international trade environment.

b. National governments levy import tariffs and quotas.

Import tariffs and quotas can actually increase the costs of production and reduce the benefits of international trade. Tariffs are taxes imposed on imported goods, which can raise the cost of production for businesses that rely on imported inputs.

Quotas limit the quantity of a particular good that can be imported, potentially restricting access to cheaper inputs. These policies can hinder the benefits of international trade rather than enhance them.

While import tariffs and quotas can serve various policy objectives, they generally tend to increase costs for producers rather than leading to declining costs per unit of output. Therefore, option (b) does not accurately describe the relationship between international trade and production costs.

c. Producing goods entails increasing costs.

This statement contradicts the fundamental concept of economies of scale. Economies of scale refer to the cost advantages that a business gains as its production levels increase.

In a situation where economies of scale exist, producing more goods should actually result in decreasing costs per unit, not increasing costs.

When a company experiences economies of scale, it means that as they increase the quantity of goods they produce, they can spread their fixed costs (such as rent, machinery, and other overhead expenses) over a larger number of units. This leads to a reduction in the average cost per unit.

In summary, the correct answer is (d) because economies of scale play a crucial role in driving down costs per unit of output through international trade. The other options do not align with the economic principles that underpin the relationship between international trade and production costs.