國際經濟學第六版克魯格曼-國際經濟學-課后習題答案

Instructor'sManual

toaccompany

Krugman&Obstfeld

InternationalEconomics:

TheoryandPolicy

SixthEdition

CHAPTER13

Introduction3

CHAPTER25

LaborProductivityandComparativeAdvantage:TheRicardianModel...5

CHAPTER311

SpecificFactorsandIncomeDistribution11

CHAPTER418

ResourcesandTrade:TheHeckscher-OhlinModel18

CHAPTER523

TheStandardTradeModel23

CHAPTER630

EconomiesofScale,Imperfectcompetition,andinternationaltrade30

CHAPTER736

InternationalFactorMovements36

CHAPTER842

TheInstrumentsofTradePolicy42

CHAPTER950

ThePoliticalEconomyofTradePolicy50

CHAPTER1058

TradePolicyinDevelopingCountries58

CHAPTER1162

ControversiesinTradePOlicy62

CHAPTER1269

NationalIncomeAccountingandtheBalanceofPayments69

CHAPTER1377

ExchangeRatesandtheForeignExchangeMarket:AnAssetApproach.77

CHAPTER1488

Money,InterestRates,andExchangeRates88

CHAPTER1596

PriceLevelsandtheExchangeRateintheLongRun96

OutputandtheExchangeRateintheShortRun105

CHAPTER17117

FixedExchangeRatesandForeignExchangeIntervention117

CHAPTER18127

TheInternationalMonetarySystem,1870-1973127

CHAPTER19134

MacroeconomicPolicyandCoordinationunderFloatingExchangeRates134

CHAPTER20144

OptimumCurrencyAreasandtheEuropeanExperience144

CHAPTER21151

TheGlobalCapitalMarket:PerformanceandPolicyProblems151

CHAPTER22157

DevelopingCountries:Growth,Crisis,andReform157

MathematicalPostcript165

CHAPTER1

INTRODUCTION

ChapterOrganization

WhatisInternationalEconomicsAbout?

TheGainsfromTrade

ThePatternofTrade

Protectionism

TheBalanceofPayments

Exchange-RateDetermination

InternationalPolicyCoordination

TheInternationalCapitalMarket

InternationalEconomics:TradeandMoney

CHAPTEROVERVIEW

Theintentofthischapteristoprovidebothanoverviewofthesubjectmatterofinternational

economicsandtoprovideaguidetotheorganizationofthetext.Itisrelativelyeasyforan

instructortomotivatethestudyofinternationaltradeandfinance.Thefrontpagesof

newspapers,thecoversofmagazines,andtheleadreportsoftelevisionnewsbroadcasts

heraldtheinterdependenceoftheU.S.economywiththerestoftheworld.This

interdependencemayalsoberecognizedbystudentsthroughtheirpurchasesofimportsofall

sortsofgoods,theirpersonalobservationsoftheeffectsofdislocationsduetointernational

competition,andtheirexperiencethroughtravelabroad.

Thestudyofthetheoryofinternationaleconomicsgeneratesanunderstandingofmanykey

eventsthatshapeourdomesticandinternationalenvironment.Inrecenthistory,theseevents

includethecausesandconsequencesofthelargecurrentaccountdeficitsoftheUnitedStates;

thedramaticappreciationofthedollarduringthefirsthalfofthe1980sfollowedbyitsrapid

depreciationinthesecondhalfofthe1980s;theLatinAmericandebtcrisisofthe1980sand

theMexicocrisisinlate1994;andtheincreasedpressuresforindustryprotectionagainst

foreigncompetitionbroadlyvoicedinthelate1980sandmorevocallyespousedinthefirst

halfofthe1990s.Mostrecently,thefinancialcrisisthatbeganinEastAsiain1997and

spreadtomanycountriesaroundtheglobeandtheEconomicandMonetaryUnioninEurope

havehighlightedthewayinwhichvariousnationaleconomiesarelinkedandhowimportant

itisforustounderstandtheseconnections.Atthesametime,protestsatglobaleconomic

meetingshavehighlightedoppositiontoglobalization.Thetextmaterialwillenablestudents

tounderstandtheeconomiccontextinwhichsucheventsoccur.

Chapter1ofthetextpresentsdatademonstratingthegrowthintradeandincreasing

importanceofinternationaleconomics.Thischapteralsohighlightsandbrieflydiscusses

seventhemeswhicharisethroughoutthebook.Thesethemesinclude:1)thegainsfromtrade;

2)thepatternoftrade;3)protectionism;4),thebalanceofpayments;5)exchangerate

determination;6)internationalpolicycoordination;and7)theinternationalcapitalmarket.

Studentswillrecognizethatmanyofthecentralpolicydebatesoccurringtodaycomeunder

therubricofoneofthesethemes.Indeed,itisoftenafruitfulheuristictousecurrentevents

toillustratetheforceofthekeythemesandargumentswhicharepresentedthroughoutthe

text.

CHAPTER2

LABORPRODUCTIVITYANDCOMPARATIVEADVANTAGE:THE

RICARDIANMODEL

ChapterOrganization

TheConceptofComparativeAdvantage

AOne-FactorEconomy

ProductionPossibilities

RelativePricesandSupply

TradeinaOne-FactorWorld

Box:ComparativeAdvantageinPractice:TheCaseofBabeRuth

DeterminingtheRelativePriceAfterTrade

TheGainsfromTrade

ANumericalExample

Box:TheLossesfromNon-Trade

RelativeWages

MisconceptionsAboutComparativeAdvantage

ProductivityandCompetitiveness

ThePauperLaborArgument

Exploitation

Box:DoWagesReflectProductivity?

ComparativeAdvantagewithManyGoods

SettingUptheModel

RelativeWagesandSpecialization

DeterminingtheRelativeWagewithaMultigoodModel

AddingTransportCostsandNon-TradedGoods

EmpiricalEvidenceontheRicardianModel

Summary

CHAPTEROVERVIEW

TheRicardianmodelprovidesanintroductiontointernationaltradetheory.Thismostbasic

modeloftradeinvolvestwocountries,twogoods,andonefactorofproduction,labor.

Differencesinrelativelaborproductivityacrosscountriesgiverisetointernationaltrade.

ThisRicardianmodel,simpleasitis,generatesimportantinsightsconcerningcomparative

advantageandthegainsfromtrade.Theseinsightsarenecessaryfoundationsforthemore

complexmodelspresentedinlaterchapters.

Thetextexpositionbeginswiththeexaminationoftheproductionpossibilityfrontierandthe

relativepricesofgoodsforonecountry.Theproductionpossibilityfrontierislinear

becauseoftheassumptionofconstantreturnstoscaleforlabor,thesolefactorofproduction.

Theopportunitycostofonegoodintermsoftheotherequalsthepriceratiosinceprices

equalcosts,costsequalunitlaborrequirementstimeswages,andwagesareequalineach

industry.

Afterdefiningtheseconceptsfbrasinglecountry,asecondcountryisintroducedwhichhas

differentrelativeunitlaborrequirements.Generalequilibriumrelativesupplyanddemand

curvesaredeveloped.Thisanalysisdemonstratesthatatleastonecountrywillspecializein

production.Thegainsfromtradearethendemonstratedwithagraphandanumerical

example.Theintuitionofindirectproduction,thatis"producing"agoodbyproducingthe

goodforwhichacountryenjoysacomparativeadvantageandthentradingfortheothergood,

isanappealingconcepttoemphasizewhenpresentingthegainsfromtradeargument.

StudentsareabletoapplytheRicardiantheoryofcomparativeadvantagetoanalyzethree

misconceptionsabouttheadvantagesoffreetrade.EachofthethreeHmyths"representsa

commonargumentagainstfreetradeandtheflawsofeachcanbedemonstratedinthe

contextofexamplesalreadydevelopedinthechapter.

Whiletheinitialintuitionsaredevelopedinthecontextofatwogoodmodel,itis

straightforwardtoextendthemodeltodescribetradepatternswhenthereareNgoods.This

analysiscanbeusedtoexplainwhyasmallcountryspecializesintheproductionofafew

goodswhilealargecountryspecializesintheproductionofmanygoods.Thechapterends

bydiscussingtherolethattransportcostsplayinmakingsomegoodsnon-traded.

TheappendixpresentsaRicardianmodelwithacontinuumofgoods.Theeffectof

productivitygrowthinaforeigncountryonhomecountrywelfarecanbeinvestigatedwith

thismodel.Thecommonargumentthatforeignproductivityadvancesworsenthewelfare

ofthedomesticeconomyisshowntobefallaciousinthecontextofthismodel.

ANSWERSTOTEXTBOOKPROBLEMS

1.a.Theproductionpossibilitycurveisastraightlinethatinterceptstheappleaxisat400

(1200/3)andthebananaaxisat600(1200/2).

b.Theopportunitycostofapplesintermsofbananasis3/2.Ittakesthreeunitsoflaborto

harvestanapplebutonlytwounitsoflabortoharvestabanana.Ifoneforegoes

harvestinganapple,thisfreesupthreeunitsoflabor.These3unitsoflaborcould

thenbeusedtoharvest1.5bananas.

c.Labormobilityensuresacommonwageineachsectorandcompetitionensuresthe

priceofgoodsequalstheircostofproduction.Thus,therelativepriceequalsthe

relativecosts,whichequalsthewagetimestheunitlaborrequirementfbrapples

dividedbythewagetimestheunitlaborrequirementfbrbananas.Sincewagesare

equalacrosssectors,thepriceratioequalstheratiooftheunitlaborrequirement,which

is3applesper2bananas.

2.a.Theproductionpossibilitycurveislinear,withtheinterceptontheappleaxisequalto

160(800/5)andtheinterceptonthebananaaxisequalto800(800/1).

b.Theworldrelativesupplycurveisconstructedbydeterminingthesupplyofapples

relativetothesupplyofbananasateachrelativeprice.Thelowestrelativepriceat

whichapplesareharvestedis3applesper2bananas.Therelativesupplycurveis

flatatthisprice.Themaximumnumberofapplessuppliedatthepriceof3/2is400

suppliedbyHomewhile,atthisprice,Foreignharvests800bananasandnoapples,

givingamaximumrelativesupplyatthispriceof1/2.Thisrelativesupplyholdsfor

anypricebetween3/2and5.Atthepriceof5,bothcountrieswouldharvestapples.

Therelativesupplycurveisagainflatat5.Thus,therelativesupplycurveisstep

shaped,flatattheprice3/2fromtherelativesupplyof0to1/2,verticalattherelative

quantity1/2risingfrom3/2to5,andthenflatagainfrom1/2toinfinity.

3.a.Therelativedemandcurveincludesthepoints(1/5,5),(1/2,2),(1』),(2,1/2).

b.Theequilibriumrelativepriceofapplesisfoundattheintersectionoftherelative

demandandrelativesupplycurves.Thisisthepoint(1/2,2),wheretherelative

demandcurveintersectstheverticalsectionoftherelativesupplycurve.Thusthe

equilibriumrelativepriceis2.

c.Homeproducesonlyapples,Foreignproducesonlybananas,andeachcountrytrades

someofitsproductfbrtheproductoftheothercountry.

d.Intheabsenceoftrade,Homecouldgainthreebananasbyforegoingtwoapples,and

Foreigncouldgainbyoneappleforegoingfivebananas.Tradeallowseachcountry

totradetwobananasforoneapple.Homecouldthengainfourbananasbyforegoing

twoappleswhileForeigncouldgainoneapplebyforegoingonlytwobananas.Each

countryisbetteroffwithtrade.

4.TheincreaseinthenumberofworkersatHomeshiftsouttherelativesupplyschedule

suchthatthecornerpointsareat(1,3/2)and(1,5)insteadof(1/2,3/2)and(1/2,5).

Theintersectionoftherelativedemandandrelativesupplycurvesisnowinthelower

horizontalsection,atthepoint(2/3,3/2).Inthiscase,Foreignstillgainsfromtrade

buttheopportunitycostofbananasintermsofapplesforHomeisthesamewhetheror

notthereistrade,soHomeneithergainsnorlosesfromtrade.

5.Thisanswerisidenticaltothatin3.Theamountof"effectivelabor"hasnotchanged

sincethedoublingofthelaborforceisaccompaniedbyahalvingoftheproductivityof

labor.

6.Thisstatementisjustanexampleofthepauperlaborargumentdiscussedinthechapter.

Thepointisthatrelativewageratesdonotcomeoutofthinair;theyaredeterminedby

comparativeproductivityandtherelativedemandforgoods.Theboxinthechapter

providesdatawhichshowsthestrongconnectionbetweenwagesandproductivity.

Korea*slowwagepresumablyreflectsthefactthatKoreaislessproductivethanthe

UnitedStatesinmostindustries.Asthetestexampleillustrated,ahighlyproductive

countrythattradeswithalessproductive,low-wagecountrywillraise,notlower,its

standardofliving.

7.Theproblemwiththisargumentisthatitdoesnotusealltheinformationneededfor

determiningcomparativeadvantageinproduction:thiscalculationinvolvesthefour

unitlaborrequirements(fbrboththeindustryandservicesectors,notjustthetwofbr

theservicesector).Itisnotenoughtocompareonlyservice'sunitlaborrequirements.

Ifa.<als,Homelaborismoreefficientthanforeignlaborinservices.Whilethis

demonstratesthattheUnitedStateshasanabsoluteadvantageinservices,thisisneither

anecessarynorasufficientconditionfordeterminingcomparativeadvantage.Forthis

determination,theindustryratiosarealsorequired.Thecompetitiveadvantageofany

industrydependsonboththerelativeproductivitiesoftheindustriesandtherelative

wagesacrossindustries.

8.WhileJapaneseworkersmayearntheequivalentwagesofU.S.workers,thepurchasing

*

poweroftheirincomeisone-thirdless.Thisimpliesthatalthoughw=w'(moreorless),

p<p**(since3p=p).SincetheUnitedStatesisconsiderablymoreproductivein

services,servicepricesarerelativelylow.ThisbenefitsandenhancesU.S.purchasing

power.However,manyoftheseservicescannotbetransportedandhence,arenot

traded.ThisimpliesthattheJapanesemaynotbenefitfromthelowerU.S.services

costs,anddonotfaceaninternationalpricewhichislowerthantheirdomesticprice.

Likewise,thepriceofservicesinUnitedStatesdoesnotincreasewiththeopeningof

tradesincetheseservicesarenon-traded.Consequently,U.S.purchasingpoweris

higherthanthatofJapanduetoitslowerpricesonnon-tradedgoods.

9.Gainsfromtradestillexistinthepresenceofnontradedgoods.Thegainsfromtrade

declineastheshareofnontradedgoodsincreases.Inotherwords,thehighertheportion

ofgoodswhichdonotenterinternationalmarketplace,thelowerthepotentialgains

fromtrade.Iftransportcostswerehighenoughsothatnogoodsweretradedthen,

obviously,therewouldbenogainsfromtrade.

10.Theworldrelativesupplycurveinthiscaseconsistsofastepfunction,withas

many"steps11(horizontalportions)astherearecountrieswithdifferentunitlabor

requirementratios.Anycountriestotheleftoftheintersectionoftherelativedemand

andrelativesupplycurvesexportthegoodinwhichtheyhaveacomparativeadvantage

relativetoanycountrytotherightoftheintersection.Iftheintersectionoccursina

horizontalportionthenthecountrywiththatpriceratioproducesbothgoods.

FURTHERREADING

DonaldDavis."IntraindustryTrade:AHeckscher-Ohlin-RicardoApproach^^(workingpaper,

HarvardUniversity).

RudigerDornbusch,StanleyFischer,andPaulSamuelson."ComparativeAdvantage,Trade

andPaymentsinaRicardianModelwithaContinuumofGoods."AmericanEconomic

Review67(December1977)pp.823-839.

GiovanniDosi,KeithPavitt,andLucSoete.TheEconomicsofTechnicalChangeand

InternationalTrade.Brighton:Wheatsheaf,1988.

G.D.A.MacDougall.nBritishandAmericanExports:AStudySuggestedbytheTheoryof

ComparativeCosts."EconomicJournal6\(September1952)pp.487-521.

JohnStuartMill.PrinciplesofPoliticalEconomy.London:LongmansGreen,1917.

DavidRicardo.ThePrinciplesofPoliticalEconomyandTaxation.HomewoodIllinois:Irwin,

1963.

CHAPTER3

SPECIFICFACTORSANDINCOMEDISTRIBUTION

ChapterOrganization

TheSpecificFactorsModel

AssumptionsoftheModel

Box:WhatisaSpecificFactor?

ProductionPossibilities

Prices,Wages,andLaborAllocation

RelativePricesandtheDistributionofIncome

InternationalTradeintheSpecificFactorsModel

ResourcesandRelativeSupply

TradeandRelativePrices

ThePatternofTrade

IncomeDistributionandtheGainsFromTrade

ThePoliticalEconomyofTrade:APreliminaryView

OptimalTradePolicy

Box:SpecificFactorsandtheBeginningsofTradeTheory

IncomeDistributionandTradePolitics

Summary

Appendix:FurtherDetailsonSpecificFactors

MarginalandTotalProduct

RelativePricesandtheDistributionofIncome

CHAPTEROVERVIEW

Theanalysispresentedinthepreviouschapter,demonstratingunambiguousgainsfromtrade,

mayleavestudentswonderingwhyfreetradeissuchapoliticallychargedissueandwhy

protectionismissoheatedlydiscussedinthepress.Thereasonforthisisthatthedebates

concerningfreetradefocusonitsdistributionalratherthanitsefficiencyeffects.Aformal

examinationoftheseeffectsrequiresamodelwhichhasfactorsofproductionlinkedto

producingcertaingoods.Twomodelsofthisnaturearepresentedinthischapter.

Thefirstmodelincludesfactorsofproductionwhichareinexorablytiedtoproducingone

andonlyonegood.Theparticularexamplepresentedinthetextinvolveswinemakersand

cheesemakers.Theimmobilityoflaborpreventsequalizationofwages.Theproduction

possibilityfrontierofthiseconomyisarectangleandtherelativesupplycurveisavertical

line.Anequilibriumrelativepricecanbedeterminedwhentherelativedemandcurveis

specified.

Considertheeffectofintroducinganothercountrywhichcanproducethesamebundleof

goods.Thesecondeconomysharesthesameproductiontechnology,buthasdifferentrelative

amountsofeachtypeoflabor.Tradebetweenthesetwoeconomiesbenefitseachinthe

aggregatesincethepossibleconsumptionsetofeachcountryexpands.However,

distributionalissuesarisewhentradeispermittedsinceworkersinparticularsectorsmaynot

gainfromtrade.Therewillbenogainforthelaborineacheconomywhichwasrelatively

scarcepriortotradeascomparedtoaftertrade.Thetypeoflaborrelativelyabundantina

countrywillgainfromtrade.Thesourceofthiseffectisthemovementinrelativeprices

whichfavorsthegoodwhichwasrelativelyabundantineachcountrybeforetrade.The

generaloutcomeisthattradebenefitsworkersintheexportsectorofeachcountryandhurts

workersintheimport-competingsector.

Next,amoregeneralmodelispresentedtoinvestigatethedistributionaleffectsoftrade.

Thisspecificfactorsmodelallowsanexaminationofthedistributionaleffectsoftradeon

factorsinexorablytiedtotheproductionofaspecificgoodaswellasonafactorthatcanbe

usedtoproduceeithergood.Thethreefactorsinthismodelincludetwospecificfactors,

landandcapital,aswellasoneinter-sectorallymobilefactor,labor.Thefixedamountof

eachspecificfactorresultsindiminishingreturnstolabor.Themobilityoflaborensuresan

equalwageintheproductionofeithergood,andperfectcompetitionensuresthatthewage

equalsthevaluemarginalproductoflaborintheproductionofeachgood.

Agraphicalanalysisdemonstratesthedistributionoflaborbetweensectorsaswellasthe

returntolabor.Internationaltradealterstherelativepricesofgoodsandthustheamountof

laborusedineachsector,therealwagetolaborandthereturnstocapitalandland.The

resultsofthismodelaresimilartothatoftheimmobilefactorsmodelinthatownersof

factorsspecifictoexportsectorsinfromtradewhileownersoffactorsspecifictoimport

sectorslosefromtrade.Thismodelalsoshowsthattradehasanambiguouseffecton

mobilefactors.Toreinforcetheimportanceoftheseconcepts,theinstructormaypresentdata

onwholobbiesforprotectionandinwhichindustries.Newspapersandmagazinesareoften

usefulandtimelysourcesofrelevantinformation.

Themodelspresentedinthischapterprovideaframeworkforapreliminarydiscussionofthe

politicaleconomyoftrade.Thegeneralsupportforfreetradeamongeconomistsdespiteits

incomedistributionaleffectsisjustified.Onereasonforthissupportisthatthebenefitsof

freetradearewidelydispersedwhileitscostsareconcentrated.Economistsmaybetterserve

thecountryasadvocatesforthegeneralwelfaresincethereisnoshortageofadvocatesfor

particulargroupsinjuredbytrade.Theissueofthepoliticaleconomyoftradereappears

throughoutthebook.Anappendixprovidesfurtherdetailsonthespecificfactorsmodel.

ANSWERSTOTEXTBOOKPROBLEMS

1.TexasandLouisianaarestateswithlargeoil-producingsectors.Therealwageof

oil-producingfactorsofproductionintermsofothergoodsfallswhenthepriceofoil

fallsrelativetothepriceofothergoods.Thiswasthesourceofeconomicdeclinein

thesestatesin1986.

2.Toanalyzetheeconomy'sproductionpossibilityfrontier,considerhowtheoutputmix

changesaslaborisshiftedbetweenthetwosectors.

a.Theproductionfunctionsforgoods1and2arestandardplotswithquantitiesonthe

verticalaxis,laboronthehorizontalaxis,andQj=Q^K^Lj)withslopeequaltothe

MPL],andonanothergraph,Q?=withslopeequaltotheMPL2.

b.Tographtheproductionpossibilitiesfrontier,combinetheproductionfunction

diagramswiththeeconomy'sallocationoflaborinafourquadrantdiagram.The

economy'sPPFisintheupperrighthandcorner,asisillustratedinthefourquadrant

diagramabove.ThePPFiscurvedduetodecliningmarginalproductoflaborineach

good.

3.a.Tosolvethisproblem,onecangraphthedemandcurveforlaborinsector1,

representedby(w=MPLj=demandforL|)andthedemandcurveforlaborinsector2,

representedby(w=MPL2=demandforL?).Sincethetotalsupplyoflaborisgivenby

thehorizontalaxis,thelaborallocationbetweenthesectorsisapproximatelyL|=27

andL2=73.Thewagerateisapproximately$0.98.

Figure3-2

b.Usethesametypeofgraphasinproblem2btoshowthatsectoraloutputisQ[=44

andQ2=9().(Thisinvolvescombiningtheproductionfunctiondiagramswiththe

economy'sallocationoflaborinafourquadrantdiagram.Theeconomy*sPPFisinthe

upperrighthandcorner,asillustratedinthetext.)

c.Useagraphoflabordemands,asinparta,toshowthattheintersectionofthe

demandcurvesforlaboroccursatawagerateapproximatelyequalto$0.74.The

relativedeclineinthepriceofgood2causedlabortobereallocated:laborisdrawn

outofproductionofgood2andentersproductionofgood1(Lj=62,L2=38).Thisalso

leadstoanoutputadjustment,wherebyproductionofgood2fallsto68unitsand

productionofgood1risesto76units.

d.Withtherelativepricechangefromp2/pi-2top2/pi=l,thepriceofgood2hasfallen

by50percent,whilethepriceofgood1hasstayedthesame.Wageshavefallen,but

bylessthanthefallinP2(wagesfellapproximately25percent).Thus,therealwage

relativetop?actuallyriseswhiletorealwagerelativetopjfalls.Hence,todetermine

thewelfareconsequencesforworkers,informationisneededabouttheirconsumption

sharesofgood1andgood2.

4.Theboxdiagrampresentedbelowisausefultoolforshowingtheeffectsofincreasing

thesupplyofthemobilefactorofproduction,labor.

a.Foraneconomyproducingtwogoods,XandY,withlabordemandsreflectedbytheir

marginalrevenueproductcurves,thereisaninitialwageofW]andaninitiallabor

allocationofLX=OXAandLy=OyA.Whenthesupplyoflaborincreases,theright

boundaryofthisdiagramispushedouttoOy'.ThedemandforlaborinsectorYis

pulledrightwardwiththeboundary.Thenewintersectionofthelabordemandcurves

showsthatlaborexpandsinbothsectors,andthereforeoutputofbothXandYalso

expand.Therelativeexpansionofoutputisambiguous.Wagespaidtoworkersfall.

Figure3-3

b.FromtheshapeoftheMPLcurves,itisclearthatlaborwillcontinuetoexhibit

diminishingreturns.Usingafourquadrantdiagram,youcandemonstratethatthenew

productionpossibilityfrontierismoreconcaveandsteeper(flatter)attheends.

Usingthenumericalexample,Ljincreasesto90from62andL?increasesto50from

38.Wagesdeclinefrom$0.74to$0.60.Thisnewallocationoflaboryieldsanew

outputmixofapproximatelyQj=85andQ2=77.

FURTHERREADING

AvinashDixitandVictorNorman.TheoryofInternationalTrade.Cambridge:Cambridge

UniversityPress,1980.

MichaelMussa."TariffsandtheDistributionofIncome:TheImportanceofFactor

SpecificitySubstitutabilityandIntensityintheShortandLongRun."JournalofPolitical

Economy82(1974)pp.1191-1204.

J.PeterNeary."Short-RunCapitalSpecificityandthePureTheoryofInternationalTrade."

EconomicJournal88(1978)pp.488-510.

MancurOlson.TheLogicofCollectiveAction.Cambridge:HarvardUniversityPress,1965.

Dav