Evaluate the following statements thoroughly: (8 marks)

1. Trade based on external economies can have ambiguous effects on national and world welfare.
2. The existence of dynamic increasing returns to scale can potentially provide a ground for protectionism and validate the infant industry argument for protecting a domestic industry.

You will need to provide answer on how these statements would happen.

NOTE:

1. It is expected that you will draw diagrams for the illustrations of your points. You are, however, NOT expected to produce the diagrams as part of your answer. All you are expected is to present your points utilizing suitable examples.