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Concept of External Economies and its Types

Here we learn about the Concept of External Economies and its Types in detailed.

Concept of External Economies and its Types
First of all we understand the meaning of External Economies:
External Economies:
External economies are those economies which are available to all the firms in the industry irrespective of their size. These economies are general to all the firms and arise with the growth of the industry, mainly the result of localisation of industries.
As an industry grows, a number of economies become available to all the firms and these are known as 'external economies'.
Now we will discuss about its types in details as follows:
Types of External Economies:
  1. Economies of Concentration: When an industry gets localised in a particular area or region, all firms constituting the industry get certain benefits like the availability of skilled workers, provision of better transport and communication facilities, better credit and banking facilities, better power facilities etc. If the firms are scattered, they cannot enjoy such economies.
  2. Economies of Information: When an industry gets localised in a particular region all the firms engaged in it derive the benefits from the publication of trade and technical journals, central research institutions. In a localised industry, research and experiments are centralised; it is not necessary for each individual firm to incur expenditure on research. It can get the benefits of research and other inventions by contacting the central agency. For example, the benefits of research in textile manufacturing and the invention of new productive processes by the Ahmedabad Textile Industry Research Association (ATIRA) are enjoyed by all the Textile Mills of Ahmedabad.
  3. Economies of Disintegration: When an industry gets localised in a particular region, it becomes possible to split up the various processes of production which may be taken over by specialist firms having special technique and knowledge. Each process comes to be performed by a specialist firm. For example, the supply of machinery and raw materials, the utilisation of by-products, etc. may be undertaken by such specialist firms. This process of disintegration is beneficial to all the firms in the industry and to industries as a whole.
Concept of External Economies
Types of External Economies
Economies of Concentration
Economies of Information
Economies of Disintegration
Concept of External Economies and its Types.
Kinnari
Tech writer at NewsandStory
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