Gomory baumol ricardo_china

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Gomory baumol ricardo_china

  1. 1. Two Country Ricardo Model Inputs England-Portugal Wine-ClothProductivities q(i,j)=e(i,j) li,jSpending Preferences Cobb Douglas d(i,j)Size of Labor Forces L1, L2
  2. 2. Outputs• Which goods are made in which Countries• Quantities Consumed• Prices• National Incomes• Utilities (weighted measure of consumption)
  3. 3. Three Different Equilibria as Portugal Develops• Demand (Cloth, Wine) = (2/3,1/3)• Starting Productivities (Cloth , Wine): England (1.0, 0.4) Portugal (0.4, 1.0)• Then Portugal Improves in Cloth, increasing from 0.4 to 0.7 to 1.0
  4. 4. Portugal Cloth Productivity = 0.4 1.000 0.900 0.800 Portugal’s 0.700 0.600 0.500 0.400 0.300 0.200Productivity 0.100 0.000 Utility Income Cloth Wine in Cloth 1.000 0.900 Portugal Cloth Productivity = 0.7 0.800 Improves 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 Utility Income Cloth Wine Effect on Portugal Cloth Productivity = 1.0 1.000 Portugal 0.900 0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 Utility Income Cloth Wine
  5. 5. 1.000 0.900 0.800 Portugal’s 0.700 0.600 0.500 0.400 0.300 0.200Productivity 0.100 0.000 Utility Income Cloth Wine in Cloth 1.000 0.900 Improves 0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 Utility Income Cloth Wine Effect on 1.000 England 0.900 0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000 Utility Income Cloth Wine
  6. 6. Three More Equilibria -England England Consumption England Consumption1.000 1.0000.800 0.8000.600 0.600 Trade Trade0.400 0.4000.200 0.2000.000 0.000 Utility Income Cloth Wine Utility Income Cloth Wine England Consumption1.0000.8000.600 Trade0.4000.2000.000 Utility Income Cloth Wine
  7. 7. Three More Equilibria - Portugal Portugal Consumption Portugal Consumption1.000 1.0000.900 0.9000.800 0.8000.700 0.7000.600 0.6000.500 Trade 0.500 Trade0.400 0.4000.300 0.3000.200 0.2000.100 0.1000.000 0.000 Utility Income Cloth Wine Utility Income Cloth Wine Portugal Consumption 1.000 0.900 0.800 0.700 0.600 0.500 Trade 0.400 0.300 0.200 0.100 0.000 Utility Income Cloth Wine
  8. 8. Point Pair Shows Equilibrium Income Share, and Utilities of Country 1 and Country 2 Utility  Income Diagram U 2 U 1 1 1 0 .2 .4 .6 .8 1 Z 1Z1 is Country 1 Income
  9. 9. Previous Equilibria Income  Utility DiagramU 2 U 1 1 1 0 .2 .4 .6 .8 1 Z 1
  10. 10. More Equilibria Income  Utility DiagramU 2 U 1 1 1 Z C 0 .2 .4 .6 .8 1 Z 1
  11. 11. Regions of Equilibria and Their Boundaries Income  Utility Diagram U 2 U 1 England Equilibia Boundary Portugal Equilibia Boundary 1 1 Z C 0 .2 .4 .6 .8 1 Z 1
  12. 12. World Equilibria Boundary World Equilibia U 2 U 1 World Equilibia Boundary 1 1 Z C 0 .2 .4 .6 .8 1 Z 1
  13. 13. Three Important Points Wine Cloth All Equilibria U 2 U 1 1 1 Z C 0 .2 .4 .6 .8 1 Z 1
  14. 14. 6 Good Model
  15. 15. 11 Good Model 11 IndustriesU 2 U 1 1 1 Z C 0 .2 .4 .6 .8 1 Z 1
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