1. Slide 2-1Copyright © 2003 Pearson Education, Inc. PPF H PPF F R S R D Relative price The pattern of trade The gains from trade equilibrium The Ricardian Model PPF F Relative price

2. Slide 2-2Copyright © 2003 Pearson Education, Inc.  Determining the Relative Price After Trade What determines the relative price (e.g., P C / P W ) after trade? –To answer this question we have to define the relative supply and relative demand for cheese in the world as a whole. –The relative supply of cheese equals the total quantity of cheese supplied by both countries at each given relative price divided by the total quantity of wine supplied, (Q C + Q * C )/(Q W + Q * W ). ( 本國判別式 ; 外國判別式 ) 本國判別式 ; 外國判別式 –The relative demand of cheese in the world is a similar concept. Trade in a One-Factor World

3. Slide 2-3Copyright © 2003 Pearson Education, Inc. 本國判別式和外國判別式 : then Home will specialize in the production of cheese. PCPWPCPW a LC a LW > If : then both goods be produced. : then Home will specialize in the production of wine. : then Foreign will specialize in the production of wine. : then Foreign will specialize in the production of cheese. : then both goods be produced. 返回 返回 If PCPWPCPW a LC a LW = If PCPWPCPW a LC a LW < If P C * P W * a LC * a LW * < If P C * P W * a LC * a LW * = If P C * P W * a LC * a LW * >

4. Slide 2-4Copyright © 2003 Pearson Education, Inc. 解釋 RD' Q'Q' 2 解釋 解釋 RD 解釋 解釋 1 解釋 解釋 a LC /a LW a * LC /a * LW RS 解釋 解釋 Figure 2-3: World Relative Supply and Demand Trade in a One-Factor World Relative price of cheese, P C /P W Relative quantity of cheese, Q C + Q * C Q W + Q * W L/a LC L * /a * LW 解釋 解釋 均衡 均衡 6/3=2 解釋 1/2 解釋

5. Slide 2-5Copyright © 2003 Pearson Education, Inc. Therefore, (Q C + Q * C )/(Q W + Q * W ) = World Relative Supply L a LW L * a LW * + 0+0 Because P C / P W < a LC / a LW, Home will specialize in the production of wine. Q C =0 ; Q W = L / a LW.  If PCPWPCPW a LC a Lw < : Because P C / P W < a LC * / a LW *, Foreign will specialize in the production of wine. Q C * =0 ; Q W * = L * /a LW *. 回圖形 =0.

6. Slide 2-6Copyright © 2003 Pearson Education, Inc. Therefore, (Q C + Q * C )/(Q W + Q * W ) = 回圖形 回圖形 World Relative Supply L a LW L * a LW * + 0+0 + 0 L * a LW * L a LC +0 L /a LC L * /a LW *. PCPWPCPW a LC a Lw = :  If Because P C / P W = a LC / a LW, both goods be produced in Home. Home will be willing to supply any relative amount of the two goods. Because P C / P W < a LC * / a LW *, Foreign will specialize in the production of wine. Q C * =0 ; Q W * = L * /a LW *. 0

7. Slide 2-7Copyright © 2003 Pearson Education, Inc. World Relative Supply Therefore, (Q C + Q * C )/(Q W + Q * W ) = 回圖形 + 0 L * a LW * L a LC +0  If PCPWPCPW a LC a Lw a LC * a Lw * << : Because P C / P W > a LC / a LW, Home will specialize in the production of cheese. Q C = L / a LC ; Q W =0. Because P C / P W < a LC * / a LW *, Foreign will specialize in the production of wine. Q C * =0 ; Q W * = L * /a LW *. L /a LC L * /a LW *. =

8. Slide 2-8Copyright © 2003 Pearson Education, Inc. Therefore, (Q C + Q * C )/(Q W + Q * W ) =. 回圖形 World Relative Supply L a LC L * a LC * + 0+0 PCPWPCPW a LC * a Lw * > :  If Because P C / P W > a LC / a LW, Home will specialize in the production of cheese. Q C = L / a LC ; Q W =0. Because P C / P W > a LC * / a LW *, Foreign will specialize in the production of cheese. Q C * =L * /a LC * ; Q W * =0.

9. Slide 2-9Copyright © 2003 Pearson Education, Inc. World Relative Supply PCPWPCPW a LC * a Lw * = :  If Because P C / P W > a LC / a LW, Home will specialize in the production of cheese. Q C = L / a LC ; Q W =0. Because P C / P W = a LC * / a LW *, both goods be produced in Foreign. Therefore, (Q C + Q * C )/(Q W + Q * W ) = 回圖形 + 0 L * a LW * L a LC +0 L a LC L * a LC * + 0+0 L /a LC L * /a LW * L a LC L * a LC * + 0+0.