Congratulations to Paul Krugman, who won this year’s Nobel Prize in Economics for his work on international trade and economic goegraphy. According to the Nobel Prize Committee,
Krugman’s approach is based on the premise that many goods and services can be produced more cheaply in long series, a concept generally known as economies of scale. Meanwhile, consumers demand a varied supply of goods. As a result, small-scale production for a local market is replaced by large-scale production for the world market, where firms with similar products compete with one another.
Traditional trade theory assumes that countries are different and explains why some countries export agricultural products whereas others export industrial goods. The new theory clarifies why worldwide trade is in fact dominated by countries which not only have similar conditions, but also trade in similar products – for instance, a country such as Sweden that both exports and imports cars. This kind of trade enables specialization and large-scale production, which result in lower prices and a greater diversity of commodities.
Interested in more Krugman insights? Head over to his blog, The Conscience of a Liberal.
And for just for fun, try the Journal of Improbable Research, which specializes in publishing work that “makes people laugh, then think.” It awards its Ig Nobel Prize every year in anticipation of the Nobel Prize Award.