International Economics
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Dominick-Salvatore-International-Economics
W
/P C = 2 / 3 (just as in the left panel of Figure 2.2). Distance 2 1 2/3 180 240 120 240 3/2 1/2 S W(US + UK) D W(US + UK) B B* 2 1 S C (UK + US) D C (UK+ US) B' B" P W /P C E' E Wheat Cloth P C /P W 0 0 FIGURE 2.3. Equilibrium-Relative Commodity Prices with Demand and Supply. In the left panel, S W ( US +UK) is the combined U.S. and U.K. supply curve of wheat. It shows that the United States could produce a maximum of 180W = 0B at P W /P C = 2 / 3 , while the United Kingdom could produce a maximum of 60W = BB ∗ at P W /P C = 2. D W ( US +UK) is the combined demand curve for wheat of the United States and the United Kingdom with trade. D W ( US +UK) intersects S W ( US +UK) at point E, resulting in the equilibrium quantity of 180W (all of which is produced in the United States) and equilibrium price of P W /P C = 1 with trade. The right panel shows equilibrium for cloth at the intersection of D C ( UK +US) with S C ( UK +US) at point E with 120C (all of which is produced in the United Kingdom) and P C /P W = 1. Salvatore c02.tex V2 - 10/26/2012 1:33 P.M. Page 47 2.7 Empirical Tests of the Ricardian Model 47 BB ∗ = 60W is the maximum quantity of wheat that the United Kingdom could produce at the constant opportunity cost of P W /P C = 2 (as in the right panel of Figure 2.2). Thus, 240W is the maximum combined total quantity of wheat that the United States and the United Kingdom could produce if both nations used all of their resources to produce wheat. As a result, the S W (US +UK ) curve is vertical at 240W. Suppose that, with trade, the combined demand curve for cloth of the United States and the United Kingdom is D W (US +UK ) , as shown in the left panel of Figure 2.3. D W (US +UK ) intersects S W (US +UK ) at point E , determining the equilibrium quantity of 180W and the equi- librium relative price of P W /P C = 1 with trade (the same as in the left panel of Figure 2.2). Note that, with trade, wheat is produced only in the United States, and the United States specializes completely in the production of wheat. We can do the same for cloth. In the right panel of Figure 2.3, S C (UK +US ) is the combined supply curve of cloth of the United Kingdom and the United States if both countries used all of their resources to produce only cloth. The United Kingdom can produce a maximum of 120C = 0B at the constant P C /P W = 1 / 2 and the United States can produce a maximum of another 120C = B B at the constant P Download 7.1 Mb. Do'stlaringiz bilan baham: |
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