Slide2:
Which goods will be produced at home?
Z is produced at Home if wa(z)<w*a*(z) or
w/w*<a*(z)/a(z)=A(z) Demand Side = fraction of income spent on Home-made goods domestic
income world
income
Slide3:
relative
wage w/w* A(z) z
Slide4:
GAINS FROM TRADE relative
wage w/w* A(z) z I. Autarky
Country H
II. Free Trade
Slide5:
Country H’s Exports Country H’s Imports Country F’s Exports
Slide6:
Country F’s Imports
Slide7:
z 1 2 An increase in Foreign Productivity Home is better off because:
(1) consistent Home exports p(z)=wa(z)
p’(z)=w’a(z) (2) consistent Home imports p(z)=w*a*(z)
p’(z)=w*’a*’(z)
Slide8:
w/w* falls proportionally less than a*(z) Transitional goods p(z)=wa(z) p’(z)<w’a(z)