External Economies Magnify an Expansion in a Competitive Industry
(Figure 6.5)

To bring out points about international trade, let us imagine that opening up a new export market shifts demand outward. Press "Show D2" to illustrate the demand shift on the graph. Each firm would respond to the stronger demand by raising output. If each firm acted alone and affected only itself, the extra demand would push the market up the supply curve S1 to a point like C. Yet the new export business raises the whole industry's output and employment, bringing additional external economies. This means, in effect, a sustained right-hand movement of the industry supply curve. Press "Show S2" to show the shift of the supply curve. To show cost-cutting conveniently, the average cost curve including external economies is used. Demand and supply expansion catch up with each other at point B, a new equilibrium.
The "Reset" button will clear the graph.