1. Allowing free trade in a labor-abundant country will push wages down for unskilled labor. Over time, workers will develop specialized skills which will both increase their efficiency and their desirability in the market. This will encourage upward movement in wages overall, which will have a beneficial effect across the economy (Markusen & Venables, 2009).
Lacking capital means that the economy is not necessarily able to generate the jobs that are required to ensure full employment. However, while there may be individual benefit to workers moving to other countries where jobs might be more plentiful, the economy then loses that human capital forever. A better approach is to attract capital, which can be done by marketing the abundant labor in the country to foreign companies in need of labor (Bronfenbrenner, 2000).
Free trade is like to make the economy better off in the aggregate by promoting comparative advantage and economies of scale, but not everyone will benefit. Workers who might lose jobs to imports, for example, will be worse off. Similarly, companies that compete against cheap imports will also be worse off. Still, free trade offers significant benefits that can offset many potential negative effects, including creating new jobs and opportunities (Walker, 2007).
2. Internal economies of scale refer to the situation where a company's output increases more rapidly than its inputs. Thus, for example, an additional $1 of input might lead to $1.50 in output. Companies are eager to achieve internal economies of scale in order to realize greater profit potential from their activities ("Economies of Scale," n.d.).
External economies of scale are those savings that result from a company being located in a specific industry in a specific location, or doing business with companies that support a specific industry. These economies of scale come about as the workforce develop...