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What are the determinatives of demand for a product? What are the determinatives of supply of a product?
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(2012). International economics. (Vol. 1, pp. 29-36). The McGraw-Hills Companies.
In-text citation
(International economics, 2012)
lnternational mics, 15th Edition 29
Chaptr:r’ 2 1-h,
thi: er:onottiics olelrigratioti :lttcl itnnigration ;1nd thgr rol
of giobal coinPanics ilt tltc
i:’ans iet’ ot’ re30ltl”ces. itrcludi ng techtlologl” brtu’eett cot t
We are enrbarkittg oll illl extelldeci er1:lltlt’ation af inte
ii.r thil c5apter.. ,”‘il”ai{e Is lilput’ttttt.” ltro’,it’rc:s itrirrl’trtaij
]alional ilade.
-l’he
f irst iltlx
n that seis lhe :;tage fir citlt-
la1rse oi’200q.” shotvs itilu’
clirt’ittg tlrir globirI f ittllltcin1
Ir)tlrll’y. il,e chapter”s seeolrd box. “‘llte
‘i’rarle N{ini-{l
t’lide JecLi’i:cl rrtirch ntole lh^tl gtllr:l”iil cc11ncl111i; sciiY
i
ilnd ecoriomic crisis
.
Lei’s ret,iitn’ llte tlctttttltlics r-r1′ d’;ttlirnd alrrl sLrppl,v be re tvf iiliilli’
the”;* fools io
lr,i be onl3r nbotli a single plocittct (iiet’r’:’ r;totorbikesl’ tt
l,)crra’4ers rri;ike cleJisiops aboltt brtyl’g titis prodLri
Sirl;1t1ier”s Llse rrlsollrcL-$ to prudtlce this oioduct” ancl
tlt
nrtrili:ikes arc llol :ivai1a’ble io 1:ri:ciuce othei’prodLrcts’
;rliy one pt-orlitct i’ciatir;e to *il oihtr gtiotls atlcl sttrvice
as ntticlt hitpprrtess or n’ell-br’iltg iin tcoitottlists’.jargoti
irrg thr: lirnitcd itictlttte riral tlre cilnslllller has availairle
,,’iir’,h a ccttsr,inler bu.vs ill a pr”r’iclltcl is the persoll’s ias
thc 1:ri:clttct. (,iivctt llte 1;elsotr’l; !a’q’cs, thc i:rice
of the p
rrtirci $roilttcts) aiso has ir ll-iaicr iltfllteitce t;tl hotl’ tl1Llc
Ai a higitcr pnce ibr lhis prorir-rct. lhe colrsrtrner usttltll’
qirantitv ptircltitserl” AnotJrt-t ntajoi: iltilrtertce is tlle cons
ct’s ittcoilte ittctelasi:s. the cot’tsritnc:’buvs tltorc oititatt’
iliore ol’this pt’oilLlt:t. ii ht-‘cr.ti’tstllllrrr tltivs nrilie if titis
is ror the onlli possibilirl” – qualtit.v 1:tlrchas*rlis uuclra
Lr::111i:tt-‘ itttc:i’ttlifional trarle. 1’1te procittct thit we Ltse ii5
i:issrilne rirat tirc r.nai’kct ibr Lilotorbik*s is coini-rctitive’
D*mand
Whal dete t’tuitte s horv ittttcit oi-a pt”oilrict is dematrcleci’/
$i’irtconir. antl qLrantity iltlcs citiwtl il’tlte priticit’tct 1s 3
aiitrost airva-vs exattline l)1llv i)orlltni goocls. :is \vc col151
ilitrv trtttclt iite e ottsrtttret’ rlcrnands t;l’ tl:e 1:t’tlrlttr:l
inilui:ltct;: tiisrds. tlte pric* o1’this prc;rlttct. ih* prices t
\\ie r,,liild like to bc rible lo pictitre clernancl. \&t da t
dt:tc;rnrii;aill, th* prr-rdricl’s prii:e. Ai’ler u’e acltl up a1i
rusi: lr ttral”i Ait i,rc,’casc in tlre prodLtor’s llrice (stt)’: ll”trl]l S l’000 pe
in :r tlecri.:ase in r-lulliltit-v- cle trtancicd iliorn (r-5’Ofi0 to 4t )
j/*ru’i. {‘l)is is it i:rove ttlettt along thc dettrartti e ut’ve bect
pl’icc. i lii: itteLr:ilsc irl ixrce i’esltlls tu.t’ 1*wci i:clire t*rrtiir) sr*.’itch to iLrLrstitLrte protllictr; (e’g” bic1″cle
i cxlttritle is moto:’bilti:s. We
Ithough the ltnalysis appllilrs
ctrra11,v is Ltroadei’ tltln tiris” re$oilLce s ttsecl itt pl*{{Liclllg itt thr’ cr,:ottotu””
coiisr,ltllel’s prciblem ls i{i get
utilitv) as liossibl’.: lry spond- re1 trflttive tr.i llr* Prites ci rler’s incoiite . Ilthe consil!1:- ttis tt tttu’rttu! ,qtttxl . llst:; lrit:riits’ .+4ot;cl ‘ ltt tltis tcxt rl,’e [‘ olhi:t’ pt’orlncts. atitl ittcoirtt’ rllurnrfs tithe Prcdltct. u’e nrl cltr””,c slcpes cloil’t.trvard. )00 rtrot0r”Lrikrrs pllre hase{i pcl
se of it ciiilngl itt 1lte pl’ilduc1″s i or niake do u’ith lcsg oi’tlte ,rr,-,r*.'”1r*,,sive prorl-ict (l’brgo brr-ving a secOttd il
lrrr i-rrralrort l’cit iil;: ijgt;r;lil11 ;1;1r.’1 ls Q. ‘)t’llOtl )ttP bo i.’.rii (]i;e
i )’.rit;tiriil ittli I
lr’1l1l:iril,r’:;
4ij
i :f I i”–*’**!- | -, ,.,’ l, i ‘-r I r, (ji rl; ‘*. \”‘\- ‘..,.t.. t.,i’;-t,.;,:/.
{.1.1Iire
i. .._._ . {Ji rantitV “.”–‘*”-‘*”-i
I i I I .1 l”i./” J ‘- il; “!
,! ,r
i-1ic rllilt[.:1 ili:tll;lrlii tt]!’1!i iili tilrriulltiirr.::iii)ilir (iilu’n\.iititi,.,t l*rrar.;,tii:,1 i..: lilltc. 1:ccl;Lisi,. 1;i’icL,: i:; itl tli:t 1,,ci’1ictl1 lt,ris). 1tr.,i1t'{tj,- 5loilrj iiteiir::rics !,,;r,i,r.r::il,.r;ti:;ii,i_.^- .’,’i i;ri:illiit’a i;l’tesi-rrritsiifJlrts:i lilill js “‘ririii-jir:i:”‘jr
li.,1,irt:::lV
ij r ire
i i ‘l — -.,’..,.*.. –‘-*… ‘.*-.’-J
:l l;ili’ilfrLtiis itt
ll)t: lii’/’r’;’iii tl;Ii ll ll.i.l is; lhr:) l’l{:’fr-rr”ir1 Llriilrllir in t;Ltirltiir,'(it’jnit*ltrri f Ir,rili!r1i”r il.o;r ir chiittli,: lli:riillr:r.j j:i ,,,lit.tlit’. if i!:c ilrlr c r:llrr:ijr’ilr ir ir ;,iitiril {:;cilttii,rl ilijtr.}i,rir.{iciij itt tJt’ittr’ itli.: 1iii: rle tttiiiirl rui \ r. r.’\’L’ ll;,slllrt iiritt iillrtr iiiingr ii:;ii r:iin ;t;llii,-.rii:i,’ ilns”lsumer Surplr*s ii;i:it t,:ii-i-.t:in,! js jjl(.’l’r:tjcij.;tijii r,’c flii It{.]it:jrJt.i: ltr-rii.i:tLu!.: ii iirr.ri.,lt:rrl:,.^ first motaibtke cleniatick:d tiie ittg lti pln lt sliglttl..’i()\\’r’r pl’i(‘u ClraPter 2 1h,
ctenrattd cuLv* ilt l]igLlre 0
axis.’l lte cletuatld c*rve 81, actding Ltlt all oi’the demancl crtrve lteight; fbr eit illeasrtres tire total valtte to col’lsltnlei’s i’rour bLlrl’ing thi
iirstance , i.or”40,0{}0 moiorbikcs the total value to cottsLt
arca {r ‘r t’r tt.’firis atit’;rtnt can lie calci-rla-ted as llte su ‘l’lt* nralketplace does not give awa.v’. lnoitlrl-rikes artii scrrlices that the bLLl’31” itlttst givc itp to brty this pio
of 52.flt)0 per ntotorbike. cr-rttsitruei’s irt-tv 40’000 lrolor lJccause rltauy collsittneLs va1′.ttt thc prodricl. lllortr i.l
bike. paving the going ttrat’ket prrce stiil leitves cotLslt A tritior llse {‘}1’c()ilstlinel stii’plus is to ll.leasLlr* 1ll th
tl’innp,ic (exttndtng clou’tl lo the S I .0{.}0 irric* line). is arca 1 -r l! .1’hi5 ilrs:rease carl ire calctrlsletl as lite ‘I hc ircreasc iu cottsttr lcnvtr piicc (at’cr ri ).
lnternational nomics, 15th Edition 31
iirolr L,l.ilrrrj I )rntatt,l ,rnt1 Sir1,1,l’;
1A iells trs that soucb*clY l1s us that sotriebod;” is r’r”iii-
ztucl s0 0n dclr,vn tlte cletnattei
h r”rn.it thiil is delnattded. rvc price atid qnantily. eqltal to r ol consurue t’s, il’ llecessarY, tiee. of corirse . bitYers
lv tlte valite ol olhet’ gocds ikes and paY 580 rnillit:rr itt
rhi,r, titatt S?.{J{10 pel’ trlt’}tl}r- ‘fhis
ilhr t-j{rotiriltiic itruii- beirig of’ r.its to bLlY tlte 1:rt’rdttct (itrea
belo*’ iltc tir’lnatttl cttri’e irripacl {lrt cotlsLllllers lif it 52.000 priec Iirie ) lo a lai5l*r ” eqrial ro ( i/21 x {$2.0C0 r sut’plus is S52.5 ntillion r’t’ iilt r’il I ,} illlrJ itll lllcl L’llic
rari n iit’lo i;trrchrsitig b-v the 32 lnternational Ecanomics – Vol. 1
:;* l*+
To *nderstand stories about haw trade warks. Hcw large is internationai trade? What prod- E.rports, 2{i09 {billioils of U.S. rlollars}
Tola Agrrcultural Ores Chemicals !ervices
ln 2009, worlci trade was computer andservices, including transportati ance, consuit- little more than hal{ of trade is manufaetured lit abaui evenly World
1>,/37 1,741 837A 55 I lndustrialiaed 9,369 698 5,’106 ?n1
1,288 $ t 6 tr;ll’on, ns. we can se€
ns 6,384 tr- 346 )/in :80 ce is tire eost of
nother unrt ol rts t ol another rrnit. i. t’i:
i: .:u
li{ ):i
Note: 5um of primary products, manufactured products, and services does not equal total Source: UNCTAD, U NCTAD5tdt.
on its production and sales activities. One int’lLtence ort how mucl Fol a coinpetitive film. if the price at rvhich the firnr can sell ihe point at u,’hich the price received.iust about equals the extra 5upply a llnn supplies is
supply’ that Lrnit because it makes a profit or: it. The firm then wili supply rittits up tct
extra unit ancl the that tiie broad ilanern of exporting irialized rountri*s has some differenees ;;;;;;; io, J*u*l”pir:s countr,res’ lounrri*, export relativety les: o{ ;;;;;’t,l; i;-ts anrl ores’ ln marrufacturecl uIu, in.irtttiuli z-ecJ tcuntries export “*arl*,”i.r’t,rvhiledevelopingcountriesexportrel–li”-iy -*t- cf textiles anci riotiring inclustrialized services’
*- *’li-ri. this kini af ob*ervaiion^-looking trade ocro-c: product cateq;ories*as *nf .o”‘nrti*s traric with each other’ traeie irr the
ecorrcrnies of varicirs countries? Hxp$rt$ Pl$s lrnp*r{s tui ;t Per”centage a country’s totai trade ie
{oun try’s gross dorfi esii.c
lnternational Ec
Ch.,Pter 2 l-ir.’ ii’ir;’
in this bcx examines one
tance of trade to a c(]unt
15th Edition 33
) i ‘.r1,. \rll’l’i!
rfleitsure of tfte irnPor- rts plus imports) lo the
u3ufi (GDP, e standard cornPletelY comParai:le
asure fuil sales values’ f comParing the irriPor vations about wltat lve
each of the cour.ltrle! onle lTlor€ i n-l Paria nt’
ance is one Part of the
-. in r.nyl”rich risirrg inr’et d. botir China arrd lrrtli.:
mosliY clo:ed to tradc !t:
nvoivecl. Tlre exPerit*res
sil Lr:r lircrtsittg on liLrrv add Lrtt aii prr-riirtcet’s cl’the
a,,rta 5 1!rr ntottllbtltrls itt .0ii0) LesLrils itt ”ili tttcieare
rorliiccti and soki PCr ,vtrar)’ Uniied Siale: Fianc* .Ai-isitaii.i
Derrr.lark Kcti.ta rg?{i ?009 37i 9!i? waY of measuring the st measureg are not rrylrile GDP measuies val
vicie a t’easonable waY
tancr 0f trade aerors tt
Hete ale a few oble
s*e in this table’ Firit’
:howrr in th€ table (anrj
internaiional lraci* has
Trade’s increasing imP
process of globalizati ltaies arrci .laPan)’ Titi what had been relativ sePnl aniies. Second, tracie te {or countries ra:ith s lier eccnomies nrJ sornewhat le*s itnPor- iant f or ..,s1y large eeo rnies ot Chlna and lrrdia in t rathsr cios* to !he a roach we i-*ina-cirring a nstlc I eionomY rrvtial rruili haPPeri wh*n W* \\’oil1{.1 iike t* L”e able to ptcttrre suppiY’ pri ce i,. t’ rltc prorlr; ct oi1″1′ ur”lill :i, :::ll’i1i: :’,,|nl|,l]i
anrj then dralving ou ill|.i,:l;: T r.igLrrc 2-.1n.., we Lrsut1l.v pr”csuine,that :11:::11i1;l;;11″1: l 1s :
‘ ‘ ‘it;;; 15’0i)0 ro 40’or:o tt-ttitorbikesin “ltliltlilt\’stllllllll-ti 1 .-_-1…….-,,,- trr * i,(ilt-lt):t;::;;’il;’;;”; aion.u the suppl-v ur’rt’\’e ‘ Itt a ciitrtp
n:nlurbikc iii o,tpptleti llllnt,rlr;t* .’*t’eit’ttl”Cowt.tl’€ can be p
or uiitrginal cosi. the tt ‘ ol’lri.’iit.’t;;i)’ ;;;” titrrts t’Lir c{}st i)f Protiucitlg tach uttit’
rclil,:ed r,rtlli’ at a risittg rxtt’ir
‘ uut ildditiiiilnl qtlilllillY sllp-
cr.rr’t e shcrvlng lhi: itrrtgirial
Iiri- eirr,t,ritotr ii:t 1ili:,:u1:lliy t-1’1ii”3 3r$
Part Clne
“l-he qiolrai crisis that began in 20il7 and deep- ‘r’voricJ of trade over riecaCes; then we’ll exemine the -lfie arrcl seivir*s and world prcc{ucticln o{ goods anei 166king at the entile iime pericd, the explo- factor’ of over 19. This is ailotner way to see ltrhat Horv iesponsive is cluantit-v sLrppliecl to a challge in the tttatl
lre.tsllttt responsiver-,ess is by the slope of the supply cilrve . f,Jlia
respotlsive il tlie slop’c’ is fl:ttter. A “unit-ticc” illL’astll’c is til(l’ incre;rsc iri ru2rket llrice. Qriatitity sLrlrplicil is lllt tllat rcrspoti in cllaiving tirc sr4rp11″ clir\re. 1ve rlsstlllle tltiit other things ir uct. Ilany ot’thcse othet’itt1’lili:ltces cliattges. tltett tlie enttt* stt
Frodueer Surplus suppl;y ctlt’Ye sho\4/s the loB’est possible pric* at wirich-i n’ei 1-L’rei rtg irtcreases.
,:ljli: iriirl|: :
:::::r);rr..:;.,,iil
The diagram aisc :hows t surprising rccer’tt world irade dec{ined hy a 1 1 percent. Th$ part of trade is in durable ds like machir-rerY and automobiles. ln a crt say, $t0o irr saleE
deciine in worki Produ(tion. assembiy. Thus, a decrease o{ The collapse in world tra was the trarie rease of severai f price’j) {lne wit/ to {luencittg bllpply aril rre rrtorllrc*r nottlct trrl-v ll n l()\iial lli’1ef trade in meteriais, comPon t:, anri the final recession deciine in wor{d P uction and final 1930s, when trade deciined il the four years from 1929 t0 1 I 3. Forti-rtratelY for
;i,:
‘;ltrf
* :lt
,.fl :lt”{ il € x 1,900
1, 700
i. 500
1, 300
1,100
. 9C0
700 10c .s ctr o.’ dlctl (‘i (l1 :,: ;
Source: World Bank’ V,,/arld Development lndlrafors’
Volume o{ World Trade arrd World Production’ 1
recent decline in tracie returned beginning lnternational l5th Edition 35
Chapter 2 fhc llrrsic r,lr1 l-rsing I).’atrntri rirril Srl/rJ;lr
&
n mid-2009 anci (ontinuing
rn c) the world, and f*r us, the Ib see this. consider I’irst the total ivariable )costs of roclLtcing ancl selling (iuantit.v that is actr,rally supplied’ We can nleasure this
rirotorblke supplied into the markel. the supply clilve-tn
proclticer rvaulrl be rvilling io sLrpply this for about $4{
ihe supply cnrve hits tlre axis. This alnount just covers selling tnls first r,rnit. The suppl-v ctlrYe tells us that sonl
the seroncl motcrbike fcr a slightl.r’ higlier price’ becar”t
unit is a little higher” and so txt’ of producing 15.000 motorblkes is equal to area; ln r
be ureasured as a llloney alnotll11. but fbr the rvhole ec
because resoltrccs are instead used to produce this The rotal revelllle received by ptoducers is the prod
qiiantit-v solcj. For instance. at a pdce of S1.000 per n1(
rnotorblkes^ so they l’eceive S I5 nrillion ilr fotal revellll
the whole area irnder the supply cLtwe (rtp to the total uantity cost ol’proclLrcing and selling this qtrantity of motorbi s. Ijor rst utrit Lry unit. For the f irst proclucer is rvrlling to sr’rpp1.v h unit supplied, rve f ind thnt
gLrre 2.18. l-his total cost can all 1 , ,: : .:: . .’ .:’–‘the value of other gtlods and rvices that are nct Pt”oduced of tlte tiiarket Price and the {eqrral t0 .rrea e } :}’ 36
Part One l’irr Tii”rrrr lf Jlit’rttiitiliiiii I ire \”larkei tcti’
\’l otoririke s:
llenrand anci
Suppl;”
i Becanse ixo{iucers wolllcl sotii
helou’ s I .000”*’*'”‘lJ Tiil’lil;i 11*, * T, Jt;ii’ Jlilrelou’ 5l.UUU’ !cLtrlY’iil ::_-.-‘.:;: .e,r ,ilai. is the dilfet’euce r]ti-11:t *alt
receivecl auii tlre “*t;’i;;;ted’ incrcase in ih* econo-‘i-‘t”tiir’-rug a * arker p, i ce h i grreL ;;| iP 1 “fff-;-‘: ]]ll’:,in ?;,]’;:: l, H-‘
ilotorLrikes al a P11ce between the t’eveltrtes to riell tlte l rorluct al
riirvtr i:rtt their’ -sLrPPl-v icer sLtLPltts is thrts Ij.ooi, i” lrigut’e 2′ ill^ tlie prodttctr Fot’il illill’Lu’l pllce or it I crist: (iit”elr:). I (area ):ll:].1:t,.,,,’,,* equal to.arel tr..llll il’*+, rnitlio’. *qu.r t” riii) >( is1.00{) e lrlicc linc. I’i’trdtic*t nroditt’r’t t oi’ ;’t cltiltt!’r”
icc s i2.rltl0 ittitc:rtl t’l-
artrl elecide ttt Prlrduce S uals 5?7.5 rnillion.’l’he
tt’t1,,’:’;,Jii,,1″” -in l;,il.,.i1. ,,,,.i.1,,s is 1o rlreas\$* tltt itttpitct
i rr tte’t kct pt’i ct ” t’ar t” ;;;; t-‘ ulri l: l::,”:-.ljl:l :tt;;ffJ::l LtceiYc a higlrer pt’tc
a*d se1 1 ttrcre’ Proclu;’;;pil; f l::.i:?:i::l’::,:lil’l:’;;1r1d sell lrrLir€. rrr:ur’; ;;il;;tria*gle {exteriding up t.r^tl
:::,:l,j,:ll T::i:::’ ‘ill ;l:i.n :* j:,:* jl i,; I iil,li;,,,., , j”ii.ild; – 15,000).'”h1:]l ‘,1’::.:;l:il,,i.lli”.i’i,i:’l::.., ;]:il’-i’i’ l,l*1il:y: ; ;’-‘ oJ’u’i’) r’ )
ieli^bei ng till’ Pt’cclttcers A National lVtarket with No lf D in Figur’* 2’lA represerrts th l.lB r’eplr::e trls tltL “)l”-li tti'”se
the natiortal ttra.rket tt;’iiti;;#it;’tt 111i’1”i trade. then equilibr-iurn’*t*” il wi th trati onat qua nri ntodrtct artci ‘5’ irl Figitle
,ito rhe singli’: Pictule l:ri’,.,r* is tro intcrnittional
rket cleals doinestit:ail-v’
a.,pU*d. in Figure Price
1,600
i 2,000l
400
0 D = Dernand
Qi-rarrtitY
40
curles ltl thi-s cr’irnlPlc’
{jt t,’lclrt. cilttililrr irttrl li lt
l)tltr’liiitt’ci lli’t ,lr,,rtrt’,’. ftlrt.t{ I. Jr’lr il,.r,., *;;;-t c att be p i*rircd, 1f which trrtv be a nalional “tt-tti”ttft lire nri
rrice oi!2’00t1 p*,. n”oto’lli”t’ I l-‘-”;^; 1′ ;r veal’)’ r-ntit”ittut corlditl-rlrs’ il;l’.l.r1.1. ;; i””‘l”’ “‘ ‘ttr rrltti :i’;”-.i-‘-‘ioorv u’** rrkc r.igLrrc 2-.1n.., we Lrsut1l.v pr”csuine,that :11:::11i1;l;;11″1: l 3r$
qllantlty (1
insteac! ol’ othel’ Prodttcts’
Iliat tl’e iti’i: strtdviitg is itcttt-
A l;asic rlelcrtpittani tr1’hot”‘
. preltr*nces. or uPittiotls ol
ot’the plr-rciuct ts purchastcl
cconoirtizes alltl l’cduces the
protlLrcts. probabl1” iilr:1 irdittg
seil ii’tlerltaud is ittrlep*ttde nl
er these til bc tltc Ltsrtal case’i
llis (lr’llell(it t)ir il Iltlttii’Ct 01
is by for;itsing oil t’)lltr jlla.lor
r urottx’bilies sllou’n as /J in
rrtotot’l-ril
nancler{ as pteriiit { soltr*n’l:ai
ike oia rli’iferent coiot’)
(;t P .r l,’l..iQ l
?rl
:jiiIilii ]i
.
‘llrilr
I n-. 1;ai!1).irl?1
I
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!i,’)ril1
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l
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i
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{lLl;rilijl\ dr’irlrrrrirtj.-l lir rrriirlift sLrl;Iiv curr,: liri iirrllii:jL.;r rloirt-.r irlrir;lrtl.
r a::1iits i i r ir lii l i,,’r’ (iIiitIi it.\ ::it.|l_1 I ir{.1.
ilf:is t’lrtJilililiil-\I i0 it rii:tttgc in prii.'{rlLriintitr’ti9L:s rrsri tltiitlt-ia tlriil prr;r:ii).,\ i’jliiir..r
11il[c it;riiil:tlr:; iiit]1’t’ lssjlr}ilsivi:ri.}i:rs. I 1u riol:i: i:; il lilt:tstiir: iiir i’i:rrl)(rti:1.,,!.tif,..,. r)l!r il
lilli al!(i l.:i itlisl,:i;tii:ii:. ii’,; alirfinir, tlri: Lni’l:r lls(.tii {-lt lIrr: arrts. lli; r.ii:lr;irrr.i {lii’rr..:: r.,ir1r
i;r,: ittltrli: lr; lt;ol.: llitl ijj si(::(tli”
!
I
I
r.:ti.ri li ii’, j
I
I
I
iil otrir \’;itiirilli: iitsitliiit,ii lirlrrt it I ;si.’t’r’t,tti ,ii;,;r’,. irl rlriilii,”r r,,rrrilriric. ‘j l;,_
I iii:ti:t-:itl iltt:t”‘ili:;it itt 1li’1c.-. ilrriirtiilv ijtlll *.lri.:it 1′,r’ir:r: urii’tl:,i:: iji’il:r, rl,,:r.rt;iirrj i:,,riyc
slr;i.ri:..r ilorlllviti’ll ). -{i’} llrc 1;r’ic* r:llrtitji\.,J1′(lai!l;liLl is;r iti:r,qilij1,l t)Ltj!tilr:.ili:rrlrlr!t rlLrr
{}liiiil rlrol,r 11:t’ ;it’.t1,,rri:’t,’\\’lli-rir \i’i-‘lillli iiix}ut ili. ll iiru i.;iilr r:1:rslii-:ilr i: ii llr1r.’1iri:5:lt-
t.liti:t I l. lilr::il (;ilililili.r’rli:titAt:i”ii:li i:i r:o1 iiial i’c:llli)nsi|1. iir:Ir:rtr{j i: i;ii’lo,rll.
Il!rlltiilli.i ir;rrlttc. otiti:i”]lt’irc:,;. iiir(i i;is1r-ti ij!.!ri i.rillslititl. Ij’;ttv rri i jrr, oili*;. jr;ilitr:iir:r.:;
r.:ltlitrgi:’rt” 1irL:l i’l.i,:: itiiliIL.’ili.t]iilii;rl trli.rr.t r,lrifi..
‘l itt: ;.ir,liit;ittr-i trit’.’t’ -\hi.)\l,s 1ii,: ‘,,;; !tir: lirili i-roisrintrrl’s Jljili:t ,,]i uiljlir r-ri’llri-. 1rr.’r,iri,’,1.
i’r6:;;ii1.5s iL iitiiiclilc.r iite ltiglrrr’sl Ttri{:it’ijrili ll|iltC ti)it}.iiirir:ri il t.iliirtr: li} ila\, llr1,iti:i.it
liilil. \at. itt:i ctlittpr:tilivt iilitii;t;i. coriijirlrirr^r lit-\, illtlv ihe r:$ing i.t.iri’licl t;l.ic,: {rr:. 1ir|si:
iti !;r-:c i.ilir c0t:”;idtr i’itsl iiir:.. lrhri, lir:ii {-‘{‘}ll;rtit.iiii i’1i1Lr’ili iitrt i{lt:il alLtii!tiil.1i ui’
r,r’ould t”re r,villing to pay a vrry
ihe dernanei curve hits the prir:e
crrrve iirr each aelditiorral unit’
high price {about 53’60
ibr the sccottd tttotortrike
st’e th:tt the rvhoie area ltadet’lhe detr:rnd curve {up to 1
1o rvtrrk n,ith: the arca 01’th* rectiingle I ‘i- ?’l i’olmed b:
52.000 x 40.000, plus tiie area ol triaugle r above’ thi
{3-3,6{}0 -* S2.ii00) x 40.000. {Recall tltal the area oi
ure-h;tllof the i:rroilLrct of its height and base’)’I’ltis tota
trlilney ilrrloutit” brrt it ultitnate15′ rcprcsents lite fillingrtc’
to fot^gc ct;ttsttitiitlg otltcr gooils attd scrvicc-s to bLry this
r]-lllst pay the tn:ukcr; price {a :l}ol1ev ail}ollnt. but itltinta
totai {price litttes cluatttit-v. er-1Llal tl} itrea { + lt}’
notnic i”,ell-being. l’he nct gain is the clifl-erence betlv
piaci on thi:r 1:rociitct and tlie paylilent thal thel’ nlust ll’
nr.f g;iiti is c;rife,-d : , ‘ fhg t:rereasg irt
cglslgilefs .,a,iiil are able tg buV the product at n nark
cst iriice ihat thr.’1′ ai’e rvilling a:ld ablc to pa,v ibr the
o1′ S2.000 iu FigLire 2.lA’ the ccilslllrilf sLtrl:1ris is tl.lt:
vrtlrre lc consiullers (area i’ + t -r tt) arlcl the fotal paytn
I -l- ir). Cottsluler sltrplLts thLrs is eiltlal to aiea (” the
iitrd itbot,c the price 1ine,’T’his eoltributlon to the ecollo
thrr:ugh tl.rc itsr oi’titis titarkel is $3?” nriiliorr. eqLial t
x 40″0ti’J.
chiinge irt titalket pi’ice. ljor instattc*. tviiat is the e lfect
plice of urctcrbikrrs is Sl.iili0 it;sleacl of $2.0ti0’i {‘oi
piry a lou’rrt’pt”ice anri ci*cide itl L;ttv nore. l{o*’ ntnch
incr*ases ll”orl a stttaller triartglc. (exlenclin.i: riorvn to
‘fhe
(52,000 – $ 1.000) X 40″000- plLrs the area o1’triangle r
S l”ilii{i) vi {{:i.t}tlO – 4t},tX}i};.
Iirc !on,,-:r rriit’ket price t’esrtlts irt bittlt a11 lllciease 1ll
sunlr-rs re’lto u’ouiil have bottglrt all-v\\raY at t[re higher
iu ect;lr:l,nic ..r’e11-being l’cr lhose collsl,ltllfl’s ‘,t’ilo iit’r
1he price just Lrelou’ rvltere
iotirl c0nsutrPtlon quantitY)
quantity of tttotcrbikes. [;rtr
rs is $ I 12 grilliop. rrqlral l0
trl’i\rtr ili’ca> ilirrt lttc eltsict
rcr-:tarig1e, eqrtai to (1i?i x
r tliangle lilce (‘ js eclititl tt:
rr&lue cnn bi: nrcasureli as a
procluct.
-X-ire
ruet). For ittstatlce’. al a p1’1ee
rers rvith t\ |1€t gLtitt iti cco-
n tiie valtte tilat eottsLttliers
ke to i:u,r.’ the Procluci.
pi’ice 1oil’c’t-tlran the higlt-
t’oditr’i. l:Ut’ ii ttiJt’kCl It’it u
il rence betu’eett lhe total
uc r.r,ell-bei tig cf cottsttttlers
(ir2i x iS3″600 * s2,t)00)
ll out’cxallple il’thc trarkct
unrers x1s $gtlilr oll’ tlte’-r
tter oti’J (‘ot tsittttcr -“i.11’plus
t L’ r'( G.\ ( i tt cl-tttsiltlt*t’ sLtrlll its
rea cri’t’ecfattgle L c:tiLiai llr
*
:ortr:inic rr:cl1-lie ing f-ttt’ coit-
it is useful to know some of the key facts about
tr”ade. A good start is a braad overview of tlre
products traded and trade’s growing importance.
ucts are traded? The table belour shows expol-ts
by majar product categories, fcr the world over-
all and for two broad economic groups of courr-
tries, tl’re industriaiized {or dev*loped} countries
and the deveioping countries.
Prirrrarv oroducts
F’rels
h,4a’r r-rfactureci F, oclLrcts
Vlachi,rery and tr’ansport equiprnent
Text;les and clothing
Other
with the industrialized c
about three-fifths of world exp
are traded across nationai s, 35 are meny
information services, as well as i
ing, and educatronal services.
r the wcrld, a
products, with the rest of trade
betu;een primary products and
paring the details across the col
ces. By com-
3,570
1,1 5C
679
1 Aa)
4 ?44
) 11?
3,415
Countries
1,512
482
333
1,093
) \)4
) a)o
eontributing
Most goods
tries
) nqa
1 f (o
? )f^l
1 ,719
825
ocq
the finn shoulcl
ources or lnputs
ir
:i
t,r
t:a
)n
:t:;.
.’#i
smail amcunt of unclassif ied goods.
the price that the f irnr receives for its sates. l-he otlter rnajor inilt
ploducing and selling the prodr.rct.
producl exceeds the extra (or marginal) cost of producurg it. t
The cost af producing another unit depertcl$ on two things: the
(such as labor. capital. land, and materials) needed to produce th
prices that hal’e ar be paid fbr these inpufs.
What deterruines horv much oia product is suptr;iied by a business irm {or” other pro-
ducer) intc: a nrarket’.tA firni supplies the product because jt is rg to earn a profit
by the indu:”
from.the
rndustriarized
prirnary products’
prod-
relatively n:ore
.”-“it;-, t* relatively stronq in exporting
at
we erarnlne
Ho’,’v iniportant rs itriernational
The -cecond table
*f G*P
j ‘.trlr,rlil rir’i
the i-atro ttt the luttt iit
0f a c(}uniry’5 ecr:nr:nY)’
adderl). 5till. theY Pro-
and across toilntritl’
or most cthe r countries)’
creasingiY link together
lltt:
rIr’s illl\r,ir'{1. \rl ittj”t’;t:i itr
fiftr,’ irltlrtrtrr^ trt ittiriititrttll
::Xtfil ctlsli 01′ pt’tldttcing and
Canada
JaP.”n
l-lrr i lecl i’.!tr qccrri
Cilna
1i’rdta
Erazil
11.1 25l
t2.0 59 1
2o 3 248
31 1 4?”a
4.:.[ ‘:j 8
‘,t: e /+A.1
57’3 9Lr’9
\.3 47 i
8.0 4\ 8
l4.9 ?-7 {‘:
.These
(exports arrd imPorb r
naiicnal transact’*ns I
havc i;orle frorn being
rnrrch more open en0
ate nalit-inai ecot t-
to be m*re imPortani
isttcir a:
Canada and Denmark)
(sirEh as’.lrc ”Jnile(i
past s*veral ti*cades are
will tske in Part
lr”‘ith no tracJe
frs:e tril,-le
irnel rve d
ihe c0untry 0pent up
li:;:;;;” ;’;’; (‘”),. iroi’ 51r{r00 n’l:l’ii’rbikt
(
l:li’:;’;ilt’–lii’iu.’i- LrLrit’ II’adtiitictial rtr.rits
f igft*t pt::- i: :t:::t::Ll]:tl-U:;
tci tic thu s:11]’re irs {
i” Q 1 il li)il i )ttP ‘;r:,r P
enecJ in late ?008 spread well beyond financial
markets. The crisis caused the first large-scale
cici.r:nturn in wcrid trade in mcre than half a
cenlury, *i”rding clecades in which, rreariy year
a{ter year, ;nternationnl tracje gre’u\i faste r than
pr-orJuction. First, let’s look at the growth
unexpected r’ri ni-coliaPse.
cliagrarn shows worlri exporls af goods
services, [ach is adjusteri for price inflaticn, so
we are se*ing rnhat happened to the quantity or
volume. Each is measured as an index number,
with its value set to be equai to 100 in 1960.
Using the incjex values, \^,/e aan see hcw each has
chalgecl during the past haif century.
sive growth c{ world exports is e lear’ 5ince 1960,
world proclLlciion has increased by a factor of
6 {fronr the initial 100 in 1950 to nearly 600 in
7010). Since 196A, warld trac/e has increased by a
we highlighted in the pre’rioLts bcx*the increas-
ing importance of trade.
, – ‘ the pel’cettt ittcr*ase itr qLtailtitv stri,’plicrl resltlritt
is inelastic if the price elasticit-v is less than 1. Quantity stt
responsive– supply is elastic’- iitlie price clasticil;” is greater tl
constanl. T’,|est,’ other thrngs ilclucic’ the c*itrlitiols ol availabi
tcchnolog,r, that ciele|mrrres rvhat inputs are tteeded to pl’Odtice e
-fhe
Ie r,l,illipg tg supply eac]l] unit. ProclLtcers actllally t.,ggl1ic’ th
|{:r ihcsc units. Irlorlucfrs ra’}ti-r rvcnld hlve lree* r,r,illing lti s
b,t_.nc1.ii li”onr selling a1 ihe urarket prrce. lncieed” we can tlle;
nq in late 20t)8,decline r:f worlci trade. Star
trade decline was much larger han tlte 2 pe rcent
driverr recessicn,
iikely to be pcst’
irr these prcducts
purchases of durahles are trer
poned or canceled, and tracie
collapses. Second, tracie inc asing;ly involves
qlobalsupply chains in wltich terifiis ar’td c0m-
ponents are ti’acied across rs beforc final
decline so large?-lwo sPecific
trade pattet’ns matter. I-irst,
of a final good cair resuh in a
hr-rndred dollars in th* cutitti
retted memcries of -rhe Great
atures of curretl.t
reiatively larqe
led v,*iue ,:f lhe
it.v sLrppiied is tnore
ilrv r:f-inputs and tlie
tra units ot-tlte Plod-
i1, i:urvc- shi11s
gr.ring Irtarl
lrrc lior,r’ Ittl,tclt ilteir
easons, th* trisis-goad itse lf. For both of the:e
in rivarld tracie .sales led to a rnagnified decli
in 2009 resur-
Depressi*n *{ the
25 pe!’c{}ilt tlutittg
il:
‘v:.
if;:
,.,4
.al:.
.jI-di
iii:
Ol
s,t
500
300
OLr]c)INOT’C> *Frcomdr
robust trade grawth in 2010′
(}<)
NN
was a mini-collapse, ancj
tite total
i
I31, aricling uf all of the’ supply curve heights for e
pro’
suPPlied) is the total
instance, the total cost
igure 2.lB tells us that some
. the price jusi abave rvltsre
extra cost of Producing ancl
rthe extra cost ofthe second
iom-v it r-rltim:ite1y represeiits
ct {nrotorbikes),
15.000orbike, Producers sell
-llial’
i
i
have been willinu to strppll’
fr.r’iit.ft *ionon’i* rveil-being’
rhis net gain i-s cailed
af prodrtceLs u’1to are atl
rcsttlts tt1 Lt t1(t gilttt
the
rplus is thc difltrcncr
a llral’KeL l]t’i’-.ill:.-“^,’
s
betrveeu totai rerrettt-te;
” 1,
rnd belo*’betrveeu totaI revsttt-t’:”}.’;;r;. the’s,rppt,v cunc :)nd beloli
srirplus in this cilse ls r – -. -.,-,.1rr. i* ro r’easute the impitct t
\+u{}} x l.-c.00t1.
atrt]lc (crt”rrlditiu LtP 1rt
j oo0 Pr itt lirrc ) l hr
– sl.tltltll x 15.()uu
ai
ilHltlf i:’;;j1;’;l’;t;;’ ott –the1″
.1,,,,’,,.,,’,] 9″T1ffi’
“‘i+o.oi,r,
pltts 1t t | / \ r-‘l’u!’ )ASf itt ec*uot,lc
i,’-;i; ,”ut’rr
priec (, ra ‘
nul r”tn its suppl icd ( atea
anci an iricrease in *’e11-
Trade
1he rurtitsttLi clenrand fi-rr
tt’oplv’ *c’e ali c(rllrl)illc
in Figirre 2’2′
at the price 31 1i;[]gh ihe
ty ie”til; *quoi to trati oital c1 r-t*ntltv
1bt’
2’2 this
l
i’i’: ilt* r ittlt’
t A r”l
Lr s].r]y,
r na*rl ;rnri sLilti
iro iutert”irtional tlade ”
.”in ou’ooo lrroiorbilies prcr:i.Lcecl
‘”
colISttl.ilers gei Lrollsll
c<1rt;rl i'r ;tr :r rt
tire si4rpl
li:;:;;;” ;’;’; (‘”),. iroi’ 51r{r00 n’l:l’ii’rbikt
1s :
‘ ‘ ‘it;;; 15’0i)0 ro 40’or:o tt-ttitorbikesin “ltliltlilt\’stllllllll-ti
(
1 .-_-1…….-,,,- trr * i,(ilt-lt):t;::;;’il;’;;”; aion.u the suppl-v ur’rt’\’e ‘ Itt a ciitrtp
n:nlurbikc iii o,tpptleti llllnt,rlr;t* .’*t’eit’ttl”Cowt.tl’€
l:li’:;’;ilt’–lii’iu.’i- LrLrit’ II’adtiitictial rtr.rits
can be p
or uiitrginal cosi. the tt ‘
f igft*t pt::- i: :t:::t::Ll]:tl-U:;
ol’lri.’iit.’t;;i)’ ;;;” titrrts t’Lir
tci tic thu s:11]’re irs {
c{}st i)f Protiucitlg tach uttit’
rclil,:ed r,rtlli’ at a risittg rxtt’ir
‘ uut ildditiiiilnl qtlilllillY sllp-
cr.rr’t e shcrvlng lhi: itrrtgirial
Iiri- eirr,t,ritotr ii:t 1ili:,:u1:lliy t-1’1ii”3
i” Q 1 il li)il i )ttP ‘;r:,r P
Part Clne
“l-he qiolrai crisis that began in 20il7 and deep-
enecJ in late ?008 spread well beyond financial
markets. The crisis caused the first large-scale
cici.r:nturn in wcrid trade in mcre than half a
cenlury, *i”rding clecades in which, rreariy year
a{ter year, ;nternationnl tracje gre’u\i faste r than
‘r’voricJ
pr-orJuction. First, let’s look at the growth
of trade over riecaCes; then we’ll exemine the
unexpected r’ri ni-coliaPse.
-lfie
cliagrarn shows worlri exporls af goods
arrcl seivir*s and world prcc{ucticln o{ goods anei
services, [ach is adjusteri for price inflaticn, so
we are se*ing rnhat happened to the quantity or
volume. Each is measured as an index number,
with its value set to be equai to 100 in 1960.
Using the incjex values, \^,/e aan see hcw each has
chalgecl during the past haif century.
166king at the entile iime pericd, the explo-
sive growth c{ world exports is e lear’ 5ince 1960,
world proclLlciion has increased by a factor of
6 {fronr the initial 100 in 1950 to nearly 600 in
7010). Since 196A, warld trac/e has increased by a
factor’ of over 19. This is ailotner way to see ltrhat
we highlighted in the pre’rioLts bcx*the increas-
ing importance of trade.
Horv iesponsive is cluantit-v sLrppliecl to a challge in the tttatl
lre.tsllttt responsiver-,ess is by the slope of the supply cilrve . f,Jlia
respotlsive il tlie slop’c’ is fl:ttter. A “unit-ticc” illL’astll’c is til(l’
, – ‘ the pel’cettt ittcr*ase itr qLtailtitv stri,’plicrl resltlritt
incre;rsc iri ru2rket llrice. Qriatitity sLrlrplicil is lllt tllat rcrspoti
is inelastic if the price elasticit-v is less than 1. Quantity stt
responsive– supply is elastic’- iitlie price clasticil;” is greater tl
in cllaiving tirc sr4rp11″ clir\re. 1ve rlsstlllle tltiit other things ir
constanl. T’,|est,’ other thrngs ilclucic’ the c*itrlitiols ol availabi
tcchnolog,r, that ciele|mrrres rvhat inputs are tteeded to pl’Odtice e
uct. Ilany ot’thcse othet’itt1’lili:ltces cliattges. tltett tlie enttt* stt
Frodueer Surplus
-fhe
suppl;y ctlt’Ye sho\4/s the loB’est possible pric* at wirich-i
Ie r,l,illipg tg supply eac]l] unit. ProclLtcers actllally t.,ggl1ic’ th
|{:r ihcsc units. Irlorlucfrs ra’}ti-r rvcnld hlve lree* r,r,illing lti s
b,t_.nc1.ii li”onr selling a1 ihe urarket prrce. lncieed” we can tlle;
n’ei 1-L’rei rtg irtcreases.
,:ljli: iriirl|: :
:::::r);rr..:;.,,iil
The diagram aisc :hows t surprising rccer’tt
nq in late 20t)8,decline r:f worlci trade. Star
world irade dec{ined hy a 1 1 percent. Th$
trade decline was much larger han tlte 2 pe rcent
part of trade is in durable ds like machir-rerY
driverr recessicn,
iikely to be pcst’
irr these prcducts
and automobiles. ln a crt
purchases of durahles are trer
poned or canceled, and tracie
collapses. Second, tracie inc asing;ly involves
qlobalsupply chains in wltich terifiis ar’td c0m-
ponents are ti’acied across rs beforc final
say, $t0o irr saleE
deciine in worki Produ(tion.
decline so large?-lwo sPecific
trade pattet’ns matter. I-irst,
assembiy. Thus, a decrease o{
of a final good cair resuh in a
hr-rndred dollars in th* cutitti
The collapse in world tra
retted memcries of -rhe Great
was the trarie
atures of curretl.t
reiatively larqe
rease of severai
led v,*iue ,:f lhe
f price’j) {lne wit/ to
it.v sLrppiied is tnore
{luencittg bllpply aril
ilrv r:f-inputs and tlie
tra units ot-tlte Plod-
i1, i:urvc- shi11s
rre rrtorllrc*r nottlct
gr.ring Irtarl
.s ctr o.’ dlctl (‘i (l1 :,: ;
Source: World Bank’ V,,/arld Development lndlrafors’
Volume o{ World Trade arrd World Production’ 1
recent decline in tracie returned beginning
robust trade grawth in 2010′
lnternational l5th Edition 35
Chapter 2 fhc llrrsic r,lr1 l-rsing I).’atrntri rirril Srl/rJ;lr
&
n mid-2009 anci (ontinuing
rn c)
(}<)
NN
the world, and f*r us, the
was a mini-collapse, ancj
Ib see this. consider I'irst the total ivariable )costs of roclLtcing ancl selling
tite total
(iuantit.v that is actr,rally supplied' We can nleasure this
rirotorblke supplied into the markel. the supply clilve-tn
proclticer rvaulrl be rvilling io sLrpply this for about $4{
ihe supply cnrve hits tlre axis. This alnount just covers
i
selling tnls first r,rnit. The suppl-v ctlrYe tells us that sonl
the seroncl motcrbike fcr a slightl.r' higlier price' becar"t
unit is a little higher" and so txt'
I31, aricling uf all of the' supply curve heights for e
of producing 15.000 motorblkes is equal to area; ln r
be ureasured as a llloney alnotll11. but fbr the rvhole ec
because resoltrccs are instead used to produce this
pro'
The rotal revelllle received by ptoducers is the prod
qiiantit-v solcj. For instance. at a pdce of S1.000 per n1(
rnotorblkes^ so they l'eceive S I5 nrillion ilr fotal revellll
the whole area irnder the supply cLtwe (rtp to the total uantity
suPPlied) is the total
cost ol'proclLrcing and selling this qtrantity of motorbi s. Ijor
instance, the total cost
rst utrit Lry unit. For the f irst
igure 2.lB tells us that some
. the price jusi abave rvltsre
extra cost of Producing ancl
proclucer is rvrlling to sr'rpp1.v
rthe extra cost ofthe second
h unit supplied, rve f ind thnt
gLrre 2.18. l-his total cost can
iom-v it r-rltim:ite1y represeiits
all 1 , ,: : .:: . .' .:'--'the value of other gtlods and rvices that are nct Pt"oduced
ct {nrotorbikes),
of tlte tiiarket Price and the
15.000orbike, Producers sell
{eqrral t0 .rrea e } :}'
36
Part One l'irr Tii''rrrr lf Jlit'rttiitiliiiii
-llial'
I ire \"larkei tcti'
\'l otoririke s:
llenrand anci
Suppl;"
i
i
i
Becanse ixo{iucers wolllcl
have been willinu to strppll'
sotii
helou' s I .000''*'*'"'lJ Tiil'lil;i 11*, * T, Jt;ii' Jlilrelou' 5l.UUU' !cLtrlY'iil ::_-.-'.:;: .e,r ,ilai. is the dilfet'euce
fr.r'iit.ft *ionon'i* rveil-being'
r]ti-11:t *alt
receivecl auii tlre "*t;'i;;;ted'
rhis net gain i-s cailed
incrcase in ih* econo-'i-'t"tiir'-rug
af prodrtceLs u'1to are atl
a * arker p, i ce h i grreL ;;| iP 1 "fff-;-': ]]ll':,in ?;,]';:: l, H-'
ilotorLrikes al a P11ce
rcsttlts tt1 Lt t1(t gilttt
between the t'eveltrtes
the
to riell tlte l rorluct al
riirvtr i:rtt their' -sLrPPl-v
rplus is thc difltrcncr
icer sLtLPltts is thrts
a llral'KeL l]t'i'-.ill:.-"^,'
Ij.ooi, i" lrigut'e 2' ill^ tlie prodttctr
s
Fot'il illill'Lu'l pllce or it I crist: (iit"elr:). I
betrveeu totai rerrettt-te;
(area
" 1,
):ll:].1:t,.,,,',,*
rnd belo*'betrveeu totaI revsttt-t':"}.';;r;. the's,rppt,v cunc :)nd beloli
equal to.arel tr..llll il'*+, rnitlio'. *qu.r t" riii) >( is1.00{)
srirplus in this cilse ls r – -. -.,-,.1rr. i* ro r’easute the impitct t
e lrlicc linc. I’i’trdtic*t
\+u{}} x l.-c.00t1.
nroditt’r’t t oi’ ;’t cltiltt!’r”
icc s i2.rltl0 ittitc:rtl t’l-
artrl elecide ttt Prlrduce
atrt]lc (crt”rrlditiu LtP 1rt
S
j oo0 Pr itt lirrc ) l hr
– sl.tltltll x 15.()uu
uals 5?7.5 rnillion.’l’he
tt’t1,,’:’;,Jii,,1″” -in l;,il.,.i1. ,,,,.i.1,,s is 1o rlreas\$* tltt itttpitct
i rr tte’t kct pt’i ct ” t’ar t” ;;;; t-‘ ulri
ai
l: l::,”:-.ljl:l :tt;;ffJ::l
ilHltlf i:’;;j1;’;l’;t;;’ ott –the1″
LtceiYc a higlrer pt’tc
a*d se1 1 ttrcre’ Proclu;’;;pil; f l::.i:?:i::l’::,:lil’l:’;;1r1d sell lrrLir€. rrr:ur’; ;;il;;tria*gle {exteriding up t.r^tl
:::,:l,j,:ll T::i:::’ ‘ill ;l:i.n :* j:,:* jl i,; I iil,li;,,,., ,
.1,,,,’,,.,,’,] 9″T1ffi’
j”ii.ild;
“‘i+o.oi,r,
– 15,000).'”h1:]l
pltts 1t t | / \ r-‘l’u!’ )ASf itt ec*uot,lc
i,’-;i; ,”ut’rr
‘,1’::.:;l:il,,i.lli”.i’i,i:’l::..,
priec (, ra ‘
;]:il’-i’i’ l,l*1il:y: ; ;’-‘ oJ’u’i’)
nul r”tn its suppl icd ( atea
r’ )
ieli^bei ng till’ Pt’cclttcers
anci an iricrease in *’e11-
A National lVtarket with No
Trade
lf D in Figur’* 2’lA represerrts
1he rurtitsttLi clenrand fi-rr
th
l.lB r’eplr::e trls tltL “)l”-li
tt’oplv’ *c’e ali c(rllrl)illc
tti'”se
the natiortal ttra.rket tt;’iiti;;#it;’tt 111i’1”i
in Figirre 2’2′
trade. then equilibr-iurn’*t*”
at the price 31 1i;[]gh ihe
il
wi th trati onat qua nri
ty ie”til; *quoi to trati oital c1 r-t*ntltv
ntodrtct artci ‘5’ irl Figitle
,ito rhe singli’: Pictule
1bt’
l:ri’,.,r* is tro intcrnittional
rket cleals doinestit:ail-v’
a.,pU*d. in Figure
2’2 this
Price
1,600
i
l
2,000l
400
0
D = Dernand
Qi-rarrtitY
40
curles ltl thi-s cr’irnlPlc’
{jt t,’lclrt. cilttililrr irttrl li lt
l)tltr’liiitt’ci lli’t
i’i’: ilt* r ittlt’
,lr,,rtrt’,’. ftlrt.t{ I. Jr’lr
t A r”l
il,.r,., *;;;-t c att be p i*rircd,
Lr s].r]y,
1f
r na*rl ;rnri sLilti
which trrtv be a nalional “tt-tti”ttft
iro iutert”irtional tlade ”
lire nri
rrice oi!2’00t1 p*,. n”oto’lli”t’
.”in ou’ooo lrroiorbilies prcr:i.Lcecl
I
l-‘-”;^;
‘”
1′ ;r veal’)’ r-ntit”ittut corlditl-rlrs’
colISttl.ilers gei Lrollsll
il;l’.l.r1.1. ;; i””‘l”’ “‘ ‘ttr rrltti
c<1rt;rl i'r ;tr :r rt
