The 2008 Nobel Prize in Economics has been awarded to Paul Krugman(USA) “for his study on trading methods and location of economic activity(expanding business)” as described by nobel foundation. He secured nobel prize for his contribution to analyse economies of scale( are the cost advantages that a business obtains due to expansion).All the consumers get satisfied for diversity of business and on location of economic activity(any trade can be done in any country).
Krugman proposed New Trade Theory. According to this theory (for trade between rich and poor country), based on the comparative edge, that is, a company or a firm producing products at a cheaper cost than other company, poor country should export agricultural goods to rich country in exchange for industrial goods. Krugman in his theory explains how each country should specialize in producing a few brands of any given type of product, instead of producing in different types of products. If people of different countries wish to buy BMW (Brand car), then it is not profitable to produce BMWs in all countries, as it is very expensive one. It should be produced in few countries (or one) and should be sold in other countries. He also explains in his theory about transportation costs, which lead to the concept of “Home Market effect”. The concept Home market effect is, a country should have a huge demand, goodwill, should be in a position to produce excess goods and export all the excess goods. Krugman always supports globalization, that is, all national economies coming together to form international economy by trade and foreign direct investment.
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Nobel Prize in Economics 2007
Nobel Prize in Economics 2009
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