The Automobile Market, with No Trade and with Free Trade
(Figure 6.4)

Figure 6.4 shows what is happening for the overall market for automobiles. It resembles a supply-and-demand diagram, but the interpretation is different. The price curve P shows the relationship between the number of varieties (or different models) available in the market and the price that a firm can charge for its variety. As the number of varieties increases, the price decreases, because the demand for each variety becomes more elastic (the demand curve facing each firm becomes flatter).
Press "Continue" when you are ready to move on.