International Economics
partial equilibrium analysis
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Dominick-Salvatore-International-Economics
partial equilibrium analysis . This holds constant the rate of exchange between the two currencies, the level of income, and everything else in the two nations, except the amount produced, consumed, and traded of the commodity under consideration. This is shown in Figure 6.5. In Figure 6.5, the common vertical axis measures the dollar price of commodity X in Nation 1 and in Nation 2. Increasing quantities of commodity X are measured by a movement to the right from the common origin (as usual) for Nation 2. Increasing quantities of commodity X for Nation 1 are instead measured by a movement to the left from the common origin. Note that Nation 1’s demand curve for commodity X (D X ) is negatively inclined (slopes downward), while its supply curve of commodity X (S X ) is positively inclined, as we move from the origin to the left , as we should, for Nation 1. In the absence of trade, Nation 1 produces and consumes 50X at the equilibrium price of P X = $5 (given by the intersection of D X and S X in Nation 1). Nation 2 produces and consumes 50X at P X = $11. With the opening of trade, Nation 1 will export commodity X to Nation 2. As it does, P X rises in Nation 1 and falls in Nation 2. With a transport cost of $2 per unit, P X in Nation 2 will exceed P X in Nation 1 by $2. This cost will be shared by the two nations so as to balance trade. This occurs in Figure 6.5 when P X = $7 in Nation 1 and P X = $9 in Nation 2. At P X = $7, Nation 1 will produce 70X, consume domestically 30X, and export 40X to Nation 2. At P X = $9, Nation 2 will produce 30X, import 40X, and consume 70X. Note that in the absence of transport costs, P X = $8 in both nations and 60X are traded. Thus, transport costs reduce the level of specialization in production and also the volume and gains from trade. Furthermore, since with transport costs the absolute (and relative) price of commodity X differs in the two nations, its factor price will not be completely equalized even if all the other assumptions of the H–O model hold. Salvatore c06.tex V2 - 10/16/2012 9:50 A.M. Page 177 6.6 Costs of Transportation, Environmental Standards, and International Trade 177 P X ($) S X S X D X D X E E X X 0 30 50 70 100 100 70 50 30 3 5 7 9 11 13 15 Nation 1 Exports Imports Nation 2 FIGURE 6.5. Download 7.1 Mb. Do'stlaringiz bilan baham: |
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