62.,: .,,,i. :, rln!.e|n ali-enalEcsnsmics' Vol. :l :::t ..Part One : Ilre I leory lrJ lrurrnctiorkrl.li'rrdc of,corrlparatirre in'thq prodrrctisn of diffe{ent, pro duf ts. i*i.,3.d3 ili {i{ €, $ Li ru wt,g,b$, $ sf {e fi .e $' t ru {,t, ffi & ffi # a gd &t { *,*T5 'laee the-constartt istic,,asslrnp*ig-n abo ut, rrrar$inal- eosts.:,They..assgg?€.ictrt€*S+rtg : r**rg!r:reJ expandq a! the,expense ,orf,0thers., jnctealinA a*tounts ,of,the.o given up, tg. gef.,each,e.rrira unit of.the, expalrQug,in{.ustryrs,:p ,, ' :.R€{a11,'fra*,,*OuOo.-3,,.fut, 4,,ea.uatryl$ $:rs}d*e,ti{}{1, tiitg *;*s:.''*,,tppS} ntrg.fiin,pro Lrtg., iible': Br.o.dqetiYirics i is. lb-orl.'ed :oulll. a$ sho+l's ,increasing n:ialginal,,cosf,s; eonsidet what liapp,el to: tbe:.$larginal, ea$t otr ing'an,axilt:uni,! o - cr th pro'd4* * ,[email protected],6L*iu pr.c. due,f ion.,possjbilitv'cttrv:e,iit p,o iln! l$.us..jhaf , ory€,ex.ha imit'could,i'be mt e oitsare'b;, m4lie',. aqd-aatural. re*oqrces), Diff.ere_ltc-€I ld',fac,tor 'availabii.ig..are b ad,V-a*tage'begaUsqtJreje.,arcalsqdiff,erences.,in*,heuse,of,dach, in,fie-standard mo ry.sfiaii*a,lional ftade, econornists cos:!.a$sunrp,ti*r1 t1sg'Cl';in.fhs:,&jcA{.di€n.,a.pproac.h,,,:r+i1h.a:llro::e. shs*s fhe,,e, ojnb'inatiols: dQglog,nis,bf d.if?erent Brodqcts..thal,a $iven dre{0urtt4yl$-gvailable,fla.e1Q{:les .urces.a*d::merirnunr-. fi .Wtraj'does:.,fhe'ppe.lcok.l,ihe,,ivjfi.,inq,feasir1g'marginal'.c0si*'?.. shows,irr ,tlte.]ry half.,of Figuie.4.tr,,,.forsee why a borved-out 1 pf cioth,as wq.5t1 ifl,,,n?.tlrqft d.,q4o.fe,1e.s.0-u,r-e-es,:flo m.wheacpr,o dt ti'g4:,:-lVlen.,the econrxry*.prdducing.oiil'26.,,iiitrf ioa.unjtsd, . . -.: ' ,..: each yearigefi,ing.the,reso*rqes,to,tnake'an.oihertipth,*nituyear un'it$ of$rh*at . as, $howtr by.tlrestleper,slqpe'at,point {,To ;:As ,pne:irrdusfiy produc,.l$, rnu$r be ial]s g:v!19w.fwo o:thlB1odgetion {p t$ thatrije'iis::t{:ree s-luftp.inS,re4s-l4g ;,u:n it riisesrif f iojn m clue€rs: :r+'cu,l d u.$ e thfti$ilp-pb{,Ate.a&rh g:mai'gina] sts:.irn ,to' 6 0' liilii otr:cloth lirri.ts per year recuige_q,.giylr uB, w}ieat.ia, at nthe-ar nniig,,:im.xhe'lait unit ot- clath. 1::: "'' " r'.::' rr rr:r: :.::: wheat,::Wbetff e,,ltaf$.fiq,a.dqt$,..on1y..ecoriorny,.atitro-int,S; arnounts of resources into glowing wheat, the cost of an extra ' 113: c,l oth"u4it,at€, ta...:l . eJo# irnir,*Si,, 1. .1 ot n un it at,5,. m d .:', : The i n crc4si ng rn afut n6 [. sqs1g :.leappear :iJx. a. faniliar... fo,rrn $lqes]a..tl e rtpp.er*alf .o1-.th'er{igure," Tlie,.re.lul ing sury-e, a. s {s1tg. h,as,rre used.in-Ch€pterr2}-.Iheje,t'o,t,qcnlpetiiiys,.U.S,,.clq th Figure,{:l.,,show the' 1i .be-t,i*:eenr fhe' fwo.ptsduei.acalygls.:{ contiilrrcd here) and the one-pr:oduct focus o1'Chapter 2. country ?, \V-, 1r a re. inerealilg. g b st'e:11q,1e,sJ b6N1ed-aut in sJ: ap e) .c o nSlant-c oir, [stralg1it'lins] *,Bds: orf &apter 3 ? ..-,A;ecun{ry:$pro4uc:ti.*11*g$i.,bi1j1y.e1''1ae-i$.dti.riWd,{r'oF.

1. 62.,: .,,,i. :, rln!.e|n ali-enalEcsnsmics' Vol. :l
:::t ..Part One : Ilre I leory lrJ lrurrnctiorkrl.li'rrdc
of,corrlparatirre
in'thq prodrrctisn
of diffe{ent, pro duf ts.
i*i.,3.d3 ili {i{ €, $ Li ru wt,g,b$, $ sf {e fi .e $' t ru {,t, ffi &
ffi # a gd &t { *,*T5
'laee
the-constartt
istic,,asslrnp*ig-n
abo ut, rrrar$inal- eosts.:,They..assgg?€.ictrt€*S+rtg :
r**rg!r:reJ
expandq a! the,expense ,orf,0thers., jnctealinA a*tounts
,of,the.o
given up, tg. gef.,each,e.rrira unit of.the,
expalrQug,in{.ustryrs,:p
,, ' :.R€{a11,'fra*,,*OuOo.-3,,.fut, 4,,ea.uatryl$ $:rs}d*e,ti{}{1,
tiitg *;*s:.''*,,tppS}
ntrg.fiin,pro Lrtg.,
iible': Br.o.dqetiYirics i
is. lb-orl.'ed :oulll. a$
sho+l's ,increasing

2. n:ialginal,,cosf,s; eonsidet what liapp,el to: tbe:.$larginal, ea$t
otr ing'an,axilt:uni,!
o
- cr th pro'd4*
*
,[email protected],6L*iu
pr.c. due,f ion.,possjbilitv'cttrv:e,iit p,o iln! l$.us..jhaf ,
ory€,ex.ha imit'could,i'be mt e
oitsare'b;, m4lie',.
aqd-aatural. re*oqrces), Diff.ere_ltc-€I ld',fac,tor
'availabii.ig..are b
ad,V-
a*tage'begaUsqtJreje.,arcalsqdiff,erences.,in*,heuse,of,dach,
in,fie-standard mo ry.sfiaii*a,lional ftade, econornists
cos:!.a$sunrp,ti*r1
t1sg'Cl';in.fhs:,&jcA{.di€n.,a.pproac.h,,,:r+i1h.a:llro::e.
shs*s fhe,,e, ojnb'inatiols: dQglog,nis,bf d.if?erent
Brodqcts..thal,a
$iven dre{0urtt4yl$-gvailable,fla.e1Q{:les
.urces.a*d::merirnunr-. fi
.Wtraj'does:.,fhe'ppe.lcok.l,ihe,,ivjfi.,inq,feasir1g'marginal'.c0si
*'?..
shows,irr ,tlte.]ry half.,of Figuie.4.tr,,,.forsee why a borved-out
1
pf cioth,as wq.5t1 ifl,,,n?.tlrqft d.,q4o.fe,1e.s.0-u,r-e-es,:flo
m.wheacpr,o dt
ti'g4:,:-lVlen.,the econrxry*.prdducing.oiil'26.,,iiitrf ioa.unjtsd,
. . -.: ' ,..: each

3. yearigefi,ing.the,reso*rqes,to,tnake'an.oihertipth,*nituyear
un'it$ of$rh*at . as, $howtr by.tlrestleper,slqpe'at,point {,To
;:As ,pne:irrdusfiy
produc,.l$, rnu$r be
ial]s g:v!19w.fwo
o:thlB1odgetion {p
t$ thatrije'iis::t{:ree
s-luftp.inS,re4s-l4g
;,u:n it riisesrif f iojn
m clue€rs: :r+'cu,l d u.$ e
thfti$ilp-pb{,Ate.a&rh
g:mai'gina] sts:.irn
,to' 6 0' liilii otr:cloth lirri.ts per year recuige_q,.giylr uB,
w}ieat.ia, at
nthe-ar nniig,,:im.xhe'lait unit ot- clath. 1::: "'' "
r'.::' rr rr:r: :.:::
wheat,::Wbetff e,,ltaf$.fiq,a.dqt$,..on1y..ecoriorny,.atitro-int,S;
arnounts of resources into glowing wheat, the cost of an extra '
113: c,l oth"u4it,at€, ta...:l . eJo# irnir,*Si,, 1. .1 ot n un it at,5,.
m d
.:', : The i n crc4si ng rn afut n6 [. sqs1g :.leappear :iJx. a.
faniliar... fo,rrn
$lqes]a..tl e rtpp.er*alf .o1-.th'er{igure," Tlie,.re.lul ing sury-e,
a. s
{s1tg. h,as,rre used.in-Ch€pterr2}-
.Iheje,t'o,t,qcnlpetiiiys,.U.S,,.clq th

4. Figure,{:l.,,show the' 1i .be-t,i*:eenr fhe'
fwo.ptsduei.acalygls.:{
contiilrrcd here) and the one-pr:oduct focus o1'Chapter 2.
country ?, V-, 1r a re. inerealilg. g b st'e:11q,1e,sJ b6N1ed-aut
in sJ: ap e)
.c o nSlant-c oir, [stralg1it'lins] *,Bds: orf &apter 3 ?
..-,A;ecun{ry:$pro4uc:ti.*11*g$i.,bi1j1y.e1''1ae-
i$.dti.riWd,{r'oFl:infa:
fheJi:r {reqpLri{re.). s,!pp1]€,.s:a$*{fu.s,px.o-duqrtipn
fuii'eti*cs.ihat-ri*die
The,.itrc.r,*a*i11g,,cOsr!:.of.i-
.'rtra',,cl,o,th.'areial*o,ill,e.ritrsing,' s of,$lorfucin ex**
tlie:lowel J:alf'bf
; ':, r'::: Figut$:4,1-,-lJete1hc,.verljeal,axis-.$:h,Qw.*-' *rsr-gir
,c-oat$of clotir hi*'h.'ai'e:t6e-
!y, :e,ut,,y€:.fb r.cl ojh.'
thgnlargiiel eos'ts pfpr.o-
duCi.lg,e.xtr,adoih:tor:4epl'dq,h,ow.trfnqE.e
p.o.ss'ible,lnar-f<etpriee,ofi-qlfi h,,Tl.tg,o.wleys,of piqt-td-{9,,i
,., ,, ::. -.llll ,att$,:Bahind,i,hg Frodu li,ty{lrf ,f v,,€?.:,,r..r.
Whst lnforitlatiotl .do,1v91 rnee*,f.o,'.de,iive-
&e,,r*.::o&retion.p.os$i' 1ily,.eur*9,,., of .,ea$,11
realistie tban th*
i 9,1.e,[agteL'3,' arlel
ion'on,bofh.,totai
can:be uiedJo:.Fr:ofue otit ut*,ia:v:ari s,,urdusfies:..la:Appe,q$j

5. lrorv f,.a gt61..E1p61q
w€,shorv,how,tLrg
l5lh Editionlr 6.3
{h.agter 4: ?ralr: Frrct<ri Ar"*rir *r.nl FtrCtlu, Pr1:1r*t:iirjn$
Ar'e Kt'r
i- iii 1 1j g.if: . {:. :: .
Productiotr ,
Possibilities
!fldel lneFasing
Ct]sts
::
ll:.
t;
t,
fnaeesing -appotta;ritSicoq i,canrbe sl.lori'l,
in ejther ofltwo "
eqiiv€leilt walrsi.a Eherglngqlopet.nlalgra-bqqgd:oul I'
production-possibility curve or as an upward-stoping
sgpplyi*r.-ralglngJlgto5{J,eurt€,,]' " :'. : " :
.Note;- Fnr the'analyiis iithelpio{qetiiiir'poss.ibility ctli'r:e;rwe
,ignore,lhe fact.that Jh* siopes ol:lhertengeF: lirres ale
.qeglt.ive'

6. prodr}gfi po$si:bliLi1ry,,q e5.,are,:def1v,q4,undel:
i:radricii.otr futletions in,individui*'iadustr!e;',,,,.
t:' ,tt, ..
1. co.$Iner, assrullptio.ns .:abgtlt
we tan.itetnh the- explanation fu the reelismrof i tsiflg easts-
(and, the rb-orv,ed'
out shape) even rvifhout a tigorous demonstration' starting
points are lhat
- . 1l,elg are. severa-l f.inds:of factar iriput$ {land. Ekill
and so lbrth).
o l, Di fferer:t pfadu ct$ $le ,faepi
:rnp. g! : in:'diil-erent
b:k
labor. unskilled.labo:.' capital"
("+
Pa:t Or'e '..:
Iit slllr ';th ottl'nhr':lt-lt1'!ti-tirilh c.tlit.tti-rl*. tt'helt Lls(rs
lclali€lv tllore lancl and k'ss
llrbr.il thigr cloth. qlrr.rhL-i'the rrrn tbr the cloth col-lles fi'orn
s!'.r'rlitetic fitre|s or 1l'oll.)
}}.}lLllll1'jbcis.rLrcitasC0tt0i}o1.Si1k,

7. 'l'his
Lrasic Ylriation in iilpui pr0plutialns r-irn set up itil
ittc|c?:'ittg-cost (b0rvr-:<.1-ottt)
plorluction*possibilitv curve cveti il'cr-rttstrirtt r-tllrlts to
scahiexisl in eaclt indLtslrl'.
ihen resrtLrrces arg releasecl it'onr clolli ltLoihrction ilnd are
shifteil into ri h';ltl prodtlc-
tion. th*.v rvill bi: r'clc:iseel il plr4tortiols dilterenl liom lliosb
initiallv prc'fiiljlls iil
it,hr':rl proilLirrtiotr,
-l'he
cloth industn: rliii re leir:e a itit oJ'labor And tl0t lntlcll iattc[,
Btrt
u,irerr prcrhtctictr genr.rtlh'rcqrrires a lnt o1'lanrl arrd not
ttrttclj litbor. Io etitlliov thrsc
lactol's" the ivheai ir:ciLtstrl'tttttst sh.ift ton'atd r-tsing luore
labQr-irttetlsive tecltttiqrtes'
-l-he ctlect is close tcl ihat ol'the larv of clinrinishinll ietultls
(+hich. sirictlv speitkitlg.
rcf-ers to tlie casc o1'acleling rlore of or.ti: titctor-to fixccJ
atrtotttltf o1'the tithel's): ,'dding
so nruc| 1a|1Lrr to slrru'}1, changilg itJl'rc)Lnits of,lanc1
causes the igairls it: n'ltclti proditc-
lirtu 1o rieclirre as ntore anct urole resrlurces. mililtl,v labor^
drc releilserl lionr clotit
production."l'hus. ierver ancl ftn,er exlra ttttits ilf rvlt*at
produe{itrn lre gltincrl brv *ar:h
ef,tril luril ol'lo"*t eloth ptoduction.
;

8. What Prsduction Combination ls Actuall-v Chosen?
OLrt olall rhe possiblc produetior: poinis alotts tiie
1tt'odttction-1i*ssiirility ctlrYe" wtriclt
oge poili {r-.1es the iiatiru seii:ct'"'fhai cicpencls on lJte price
ratig tltat e onti:r.'titive firnls
trrce. SLrppos.: th:rt the mlrl<et pt'ice rif cloth irt terttls
olrvhr'aq )s2 t|:i(.ll,vou are a
coinpctiiii,c iirrl r,y,lng with other fit'nts aroLttt{l .,oll. 1'ou
t'i11; srlc or}e of thcse thiee
crxrdilions itt :lll,Y prorlttction poiut:
{1. the r4rportrrni{v cost of plorluciug atrotltcl r-ttrit tlF cloth
lis li:ss tiitttr thc 2 !/i ('
thaL voii i:atr scll it tilr' thcri 1lY to tllakc ttrore clotlt (and
tak€ lesoLlfces zru'lty lurll
q,5citi). frirns rvoLt[i react lhis 'ay al a point like 5' ln Figurc
4' i. rvhcrc fte oppor-
tunit-r,cost rs le,ss {tlrt'slope of the tr:pc is l'latter) than2lYi('
Ilthe oppor.tuuity cost of producrng another uuit of cloth is
rrlt;it'tltatl lhe 2 Llrl('
rhai you can sell it 1br. then trv to nrake less cloth (arld
shiftr|esollrcl's into urott'ilts
tr,1cat1. i:irnrs rvolrlcl retrct this *,a)' ii1 a point like 5..
t4ri.'rr: tlte oppot'tunity ctst ir
greirtt:r'1iirr: slope of thc' ltpc is stecpel') lhart 2 l'l','{-. j
II'thi.: 31t1rot'lunitv cost olptociLrcirtg anofhel urtii olclotlil is
ctltttt/ ttt Tltc 2 trtrli (-
thaf .yo1l can se ll it lbr. rhe11 vou are prodircirrg tlte right
ati,rorttlt. l lle lc is tto rea-
,,rn io shili an1'productigrr lrefneett clctlt anci u,heai. Firtns
tlnLt]ri r*aer fhis *';iy
at poittt , ,.

9. B-v choosing to proctrc:c- fil .5;, (40 !;illiorr cloth and 50
billiol whcaf) tr'ltcn llie
price is 2lI'/('. i'jrrris eld up ltlixiirrizirrg the value of tlatiotliill
pt'cilltt--liott. Iirc pricc
is i'e13resenterl by a price linc nhose slopr: is 2 |'lliC.
'lhr,'prrice';line rl'itli tltis slope i,s
talgetrt to thc i:)pc at.!,,.
I flre tangeilt prtint is irtpot'tanf. ltor the ;:t'ice sitorr'n by tht'
slope olrhe prii'e t;nc. ),ou c:rnnol increase the r,:rJue of
nationiill pt'i',clttclioil. t:leasttreci
r:l-i:ts (airii silriil:l iine: iti.i.':.;n;..;e,ii: i: .r l-rla), e,,'t'rt
iiici;lfr il-r,.r 5i.JlJ.rs '..rfe i)..itrFliy rleij<rll,rar.
:
55
:
Chapter 4
'iirtii"; ptlt'1.'; {r'iiil"i'iljtJ !tl'i fiiti'li'i
1"' '' ' 1' - : -
irr rirlrcr t.lrlir rrrrils
()r 'hclrt tlllil:'" bY llrtr;ing
t() illi!' dlltet'Poitrt t"t
ltlt
|,t"i ''

10. o"t.iitii',r' tttt-
'
.^1..+i.,^*."i,.o,rtclothdec1ineitei I lL{l'l liith
a l'riri i''r-.:
' irrr iviiI lapircrr.i!'tlrc l'cllriivc Pt
iec'11..,t1r
6..,.*"oc. the,'.'r,,,,t.1*,
i't'lt:J"'rl .-' .
;l;l;.1;l';.;;,.;;ll,.:i'll'ilil:lili:.','1,'l)'-'^;
i,n'r"l'i"* 1:'r )';ll*.''
()'[rri-.ri i ':' :..''
,rti., , 1,crio,r .'r ",."'l'i""
'i'''i''g
'ur'i:'f ii:i*iin]lli':t llll lli'lilill il: '"
;;',;;i-"t i*d'sr'-v. tlie pt'tttltrctitt'l t':l'1";;;xj';fut;'rs a nef
irt^iee lin':
!:':
. llre larlsellt tirrt t'"si llrr' 'r
slope ()f l' l''' ill)(l rdfrcs('1115'i
l)r(r(lrtcti()ri .,.,,,,1ri,,,,ri',',,','f
i.,',rr",t l'ti le ss .tt,," i:ni lttrl"tttoit
1v|1''111 (ii() i
tl

11. -:..,.li
r lrc rrr.r,rritrcliurr-possihilir),
crrrr.r picru.cs.rirr'
'ttttltrt'tirrtr
-'t':.t].1'i
;ll lil,:,1;, lLrrl5 r)t
fo et,trtpittc ri't pit"'" t'tl''l'*
*ttlltolll)' u ttcett a
va'v 1o (lil)l
.l",r',a,,d for trvtt p'oirt'ttt
sinrultaueoutll",
1r.gin ,tt* ]:l:"::t:::,1::::i::Xtil,:ti':l:"- i,;;';', i'cri'iri.rr,
ccortotttisis
tup't'lll';y;liou,
.,unr.,,,',li,rt.).,,.,,_,.,eirrr:
1. i*r(]r.rs
*:jlulix:1"5'::1.'iil:'il::-;i""'ir''.liliil'il
;*.trrivitrtrirr l'"''i,,.i".,'i oi rr*tu'i'g
t)i'1iv* g.oris' '*-"i'ii'1"i,.'i'r
-1"'ii
"llli]]',i;1il'.Xff.i,iliJlTi;i-'i;;;;;:
J:"'l'lll::1-
ii,- i..-r
"rweli-being

12. t':.::.tilil:llli:::i:]"i;';, f,1,i,o,,,,,,., : :i!':;: shorr's
thc,r'aLto'Lts
,i,o*.,l,,uuLs ratlecllntirllcrcilcc
t'.'].:':],f,i|..
*,*is autl sloth) tlnt
lcitl to tltc srttttc
iill ltu *i
";
ll'lll$',i: :: lllr ::i itr;,'' i i :ln; ti : ll' i i i, lr::i' r ii:Ilx
irrrlir,irlual is intli,filei'atrr
L-'ttt"ttn !:'itttt 1r;,,r, Lre eciugll,v rroppu'l,r,i,-tttting '(i)
t'tuits of
*llintr ;ll ;l Jh,:lli:l' Ji,;"T'':''
io
"5 ;"i'-:: :"l,lil,i'': :' ; * :':^'1"
ittv tttttstttt'n"nu'1u'i'"
heiort' 'l"l l:'Jli;:lJlt':l,l:Jl:.';;:;
'r';''
'' ' "nri' poi't
*r** ,l,t it,it iriti'i'iOurtl'
I'oittts abor'e,ittttt
d" o. t'e t.,*ite,. irilir*rrllce
ctrrYc, . r'i"ull rtitit-t itltt

13. trl ltappirres- iit'tit -
l t-'' li or
i1
;::;iiil'i.,llilr,:i:l,rliJ:jiiJ:ii,-ll;.,,,,,'.,,
::,1^,:,1,:1,.1:):":liill':,it,;rilll,l:
t** f igttrt' ,,'t t"tli'it"'oi i"'*-an'ini'rnitc
tttttriircr (a coLtrpr"-*'i"gl u"'1 =lto]l'l'1,:.,th*
c,,rvcs" '*p'*'*"'lTs'i*?i'u"'i'"11:::l'l'"1lillfiil;':
iili:j ;;;;i'i"' ""' :il'..'-i:'no
;;; ;;;;' ;*rererrces
regariling varrolr"r
''";:il".Jl:ll :*: :ililll';:l'il'iilHTIu,'+*tliiiliiji'i:i. ':'i;li1
si.r ro.sr.ai,,, ,';.;;;;i'-'::1"- 1l:.'j':,;'il.-'ll:,1l]:,ll':j:ii"'fii'rg.'1 -
"'::i:'1i'ii::r
i:
;;. ;i";;; tl't" 1'"n'lttcls
ittiti tlte pttc;: lrr trr r/' "'-
l'',. i.'t,.1.:':1 l'|'rlv-xielrttli:'il
1':'Y j|.,//(.t)]|LeillClIi;rtt|'oi'i]S:]lt::'.,.a''t1.';
rl.ll ,:li''
" '1'i 'l'i l i'''""^'u"'1"'i'i'"'i';'''""' f:11i'j;;;:;t:;:;';: '":l: -":''l '';;;''
.irri,"., plrs rictir, i:xl-'re:':e
rl rs ilre '-r; cLltt,nt]t,'""*i,,"'.i ii .' :::::jliT;:] ll#i'*:::, ..,
,l.i ,, ,',....;ir;i;igri ii'rt-rrii,'lr1'!'clrri

14. ii nt'"
,,,,', ,,.,.,i,,,.r,crr,rre,,.',i,;1 ,r!,.oilr,.ji ri;. ,,::i.l
, i,,=,,,,,: , , ,.,:irr :, ".::
-;,: jii ;il:," ,; ,'] ;:,, ,,;;: '',-r,.,,,, '' "'. ' illrrl' ':'r- r ;r i:'rr
r"Lr' - '-' ' .1 i,, i r,'rtf
,r',,.n U"* ii'"t''''tli''
ii.'i' clther polni) is I !"4r'
,
,
i u.'*;;* 1ry nlnt'
norrravgl, and rve wlt-ai!,C-$ @e'i1,'ti ern'p'arag14r;, .,,,, .r:., -
- ; j.,,*.-. *-** o, ..i;i# ;i.**o.o l is. [email protected]'
t4i;ff;;;ves tor a group of.people is remari<aoty
u
,W€,r+ilt:l$i1irz+.€sss,r+lurrity;1*itt:reT{e.f31"9;q,1;$|,Tlil
**'n ,,
p' ueti,'tn'whal,fa$;t;;'*tl;ik3i'si$infi 't-rerat
a,?,a*:irthev,,**,su*titj*j-uif*1:i #
f*5;?i';-X'?*#ilineir*',e1*',c..qv-e5''a1airg"g
j$
aationai :'badcet' l* ItiJe ;' i 9 I i-I,i'-* .1:,q#
* *'u
ffi$#ffi$':#i'#;1ii;a4hin5,9*9"c'1,$,-',-
:.:,Nonerhele.ss-,w-e,m,us!r*!i .tni**'tli$:-lf$.*lf,p$

15. ffidrl$*Tilra;t**;;;';;;itnot*us.ar,:rlryp'sl'$':o'n1$
i*r*;{u *ti+&u** ***caaeg's3* 'g'.i;54':
Figue,4i3 s*nr.rla44ry'i"i-t'ir:t4g'Ee $r'
ee'
ef,,.rhe,,,uni{qd "sta-tesl'.',i:i [email protected];.1$i
l i -l?f;
"'?i"Jil;
.*;
J J,.' lly l l':o: i:*o
*
"'
*'
ni6r,:lrrditteten*.p c141v9s,'6f
th.. '"'am'stpwnr"
WthAUt*ade,,,t.:
' .,llurr{'.i!ru,rvi'-"''',-,,',
;;;i*G;.i eUrV*l,tri,,the.,about cornirrunity indtlterence tut u":, '
:'-
;*ag:J .., :,p*i*e,n erso$r,r,{e11js;1f;
.,il10lg:j,:rns.a,,1,sDtrljr.:y..,f r
tiff.:,lf.aFFj
oift*tt lose. Who can say that

16. the increase
,:-4c- crease in't1eppirxs
""f
trie otlll l L evel
s of' happi
iui.Jno'n oni Pttson to another'
"]il;;' ;; ieal d!ffiitltties,"we' w!ll'.. : coa,rinqk
cury . .,r !.e.ttingqg,,por$t-the.un!t9{ii1te-s rrcll
of.C-Llth:and, 5.0',u{!ri.oi uniti
oi *tle}r T1re i'Cl€{iv'b
with+iotfadeiis:2' !{'le:'
r" :r'' r ::'r:'rr:::::'i::'
,1 :.p,6i1r!5!,..i*.,,tiieao c i.9li]a;*]
*lirllili$i"ii#;*;@;*tf *'$iitti+!$r#t;;.ffifi#;, 3l1f..tT*;*i
;E;';X;-ry*T#ffi',:tii'@'rhev'aie're*seaablel"or
d*rrrand'-psrtttl,t"',iil'
i,, il*ij*;r'*Yig*lllaIrg::,ui11.!!r,r.1:.,ir.y!:,.,',,. ._.' -,
..,or.rvglfa
r,""ii1 r i r"1; I l: I :; LIU:: m:::i',lli,_ 0., "*.r-rsing them in thls
wa,
., :.:-:, i.., : . 1 j&tgs.*iqi1,be;t,lFs-il$with.no,,ffade,'$q'w
rlorh,,the
ii;;:,ni:.,&**.*.l,pl,qdu9.d.y,!31t,r,a .*€r.';r*i
;:*;:iffiffi::t:;i:i tlbieh;;ljr4diq*
ae-h1q1e.la:r*a9tr 1,1,1$it.U t?1fi:: *13

17. c..1.}{'}Q9. ..!1.!tl!1.,::rl:.u.:f .yv*v'-
-r: r ' ' ll .j
i#i+ia*i.i'i*.*lieig ryq.q,to.o-91a1*1{
eooce*i,tjr+rionarveii:'-6,,,$1'1qqnc.€pM.!11911u11+.''.wi i.ef
.w.h
the*i n*;i*''bete;,:.o'ff',wtt':h,4n''3ve.1a'8e -
iii;l* r,rur bf'#;,;-,q,?1q:::i"5:
ili;*'iiil,,'Hi} ;., -;{ 1trl',1r't o::
,,*' r.;'#i+;pi;;'*i air
Yel a :iingl*'$-qt.of rindif;
,sg.aitog'I' -oul.'ana1Y.i;i*,
*purcqit*,slro!v:,hcw',the
,i* *jouPi consunrPtiotr of
.uri.r; like those in FigLtre
ia**Sl or, mitlion*,olrq.9lple,
;, icie-rinu.lppie!-*1lme
ll
ILil4i$a,iiiJ,i;i'1u*itti.
r*i,el!,ilicu!,!,-qu$oits
:6i,sra11.b;ej
$g,canfi Ot,.be :f o:r-r
inCitf.e e'e.'ct1fi',beeatso':
dd*g'ibd bu si'1$natiql,
j?ili#uiit, es'* *fpti on
-.,th

18. eY
t;i:in;; sa.rri$$r$,ne i :!1
6l' 6;,a..hi $Sli e1:.ntflr'unrt!
Lrally better oft'
ry. The' tiad$ Qn :e aPabilities
?i";&ii*gr. 3.dec,1i
t6:ow,$,,,,#.*.ra+t,otl,Caltrtl:,$:
rt]arid'rl:}ust fiad':,,, :eorn-bina:
iii;;;i*;'a"*e'@itY-'$
;ri$,ait r&q'ugtted$tn"s5{a*l
i on i * Proclu*ion-Possibilin
* ancl coniumes 40 billion-untt"
; iu,,tbg'..u,n$'slare;
e"U'nited,,Siat*s,.t n*tg dl
ribn:P.os:*i:bi1i. n"tuc*otrl?1]..
tt is" consiOcr the exatttple
tti
tf'," tfnP. of the PPc (a t'elative
'i..r,Pait One'
;"'iii:*?i.l' $:i.
lrrdiff€renc€ ',
:erirv€slano:' '

19. ,P'rclduc.tion
'Posstbiliti*s '
.sriihoutfia.de
rhTi d;l:otj;I'nul"rtr*i
o {
Pricd,ratio,=
i,.1q8""
*.*.3::-*il"l....:';1i
'"
s.-ir'9."o..raoe rotnu,f 'eou
drq'Ploductign
uoint that tottches'ftt
ftigfttt" t"ot;"tt"qt incliffer'e.ce
curve' This best
jro*i.ade+rqj1f:.ir,sr.,rr1'*rltiiiJn*ioi nrqdltaoi'.anarfnJ$--' .
i!ffiog-.lndiff"t*nlg,cFrl'1:,l;,' .', .,., .,."'.,:''.:,,,
:-
;G; *ffifiJil*ff*;;*s*;?5^rvould tather bul'
1110ri..,1,11,.,:.:,,,,.:-.:i:.:;:::r:::,:;:r,1;"ii.;:il.;;a.,et!i..
1.,ielr*suld:rtiltbel,.uuV.....nrt+l*,1,frY.T,f.;li;L!ftja:a9*and,aa
d..El ..t$.5
fi:-fr iT;f;;ffi ffi;stFit g$*lffi
:i.

20. ':..
.i
:1.:.
-*o.eheaPl,$4.i,r,.!E1t
t thatr 80 billion untts'
xs into cloth Produc-
i *uhtil,.,tlre*i,,?,n Q,tl):
rium.
With Trade .-,
*n -$iio1vr,.ihe..'effe ts-. 91 ,opening- tl*..
*9.11d'$r' inter$gtlo{)
:reeoaozues:,,nq eo"Jrnrll,es..rip-!tl,iidq'oi"{"igtlii.a'4p
(tlre sanre as in FigtirJJ'i'i' itl- tight
sid-e shols the econo
, ihe.no.*pde::eq!riii{r{;rn'4.aaatt''i91lln^r
it'it'l' iJ
.,ariee,of, .1stu l,ourei,iTti.':#ie;'*l 1' tiw'0Li.4.
rn''
t.
ff L"J,:;*, - ;iani;;3;ft*,id'P;*g
imrrrediare basis for #roi'
*tirt t"3 tt*41 the united states

21. ';rrtie,*ot!c +,**puitll;ii ftii'qg iite'*ort4;T'lti
relative price r:f t'"'ilit'r *- t]tl;l :f:::
and increase the
rest of the u'orlti' W'ih-n=*
racle iand assutning no
h'anspt
equ i I i trri um intt''lu'i'i'nli;d. t;ii: l1,l:*,
tun*" of 0' 67 l+
for this fi.ee_trade _;;iiil;r, is the
price that resulrs in trr,
, ',rhe.,u d,5l4td.1i;; :Ai;t.A ar'wlrs+
r*de, we,, .examlne' {re.
hcri.s, rhe::U'..S' ee-on'Q, 91X
li, ta;i'6rr{h.qri1io
nc' t , rb i.t-1.{',idatl13'
;.;;i6ritie.i4 u{d'
ffid
Part Cne lir -. _L- __" ! | i.:
'Ihe reai w,orid does in fact reveal the behavior
pot U dycd in the diagran rs anrJ rjiscussion oi
this chaprtcr. (.ouniries do react to the opening
of t-r;lcir: in thc rvaryr preCicted by rliagranrs like

22. those ii-r i:iqure 4.4.
A cocd exarrple is China's prr:gression 1o
bsconing a nrajor tracing nation after the near-
total isaiation and sellsLrfficiency that Chairnran
Mac imposed i:etyveen .1958 (at the start of ihe
Great Leap forrr-rard) and .lg7t {the year of Mao's
deatir lnd the errd of the Great proletariar:
eultiiral Revoiutioni. 'iirc;ugh China covers a hi,rge
geo{irapllic afea, ii is not a land-abundant {oLjn-
try. Rather. it is labor-abundarrt and iand-searce.
True trJ the ancient Chinese saying ,,Many people,
little land," the couniry has about Z0 percent of
iiie rnrorJd': p:opuiation but olrly about 10 percent
r:f ii: farrnaLrle lanrJ. [or such a labor-abuncJant
(.or!rl1,ry, ihis chapter's theories r,vould nredict the
follor.ving responses to the chance to tracJe with
tire rest of the worlci:
" China should expott laijor-intensjve procl-
ur"l: like clothinq anc3 imtr;ort lancJ-intensi,re
tlrodu(is like r,ryheat.
l
i
r
I
{
, i, . , ',. ,, ,,
..
:$i.'r.r:r,
I

23. i
, China shcL.{tO shifl resources or.,{ of prr;dirr,
inc; land-ini|errsive produiis like ,.rlh*;t aricj
into produ{irrq iabor-inrensil,e prcductl like
clcthing. i
. (.hina's proilucr.ion specializaticn shoulrj be
incomptlr:te.lThe countr;r shi:ujd go on Frro_
duunq sont$ Iand-inle,?5i!,c Ssradu$s, tltoutth
these should be a lornrer shar-e c;f productiorr
than before.!
. .L. Lnrna snouid bi) a more prosperOur countty
rrrith trade iharr wir-hoLli 1rarJ11. The thecry
even allows for the possibility that China
could consur{re more of all gooris, includinq
both wheat And clothing_
Ali these prqdictions have been ronr.i.riq i.ru*
in China since i9l?6. Tfe trade pattern is whcrt
we rrvor.rlrj expect: Clrina ha: l:ecorne a sttilnll
exportef of all iorls of inanufarturecl products,
incluciing clofhi*g, that take arj'",aniage af the
country's abundant lai:or supl'lly. China iras alsr:
turned to impofts fcr a portion cf ii: ccnsurlp-
tion of land-intensive prorluctr, irrclr-rdlng wh€at.
;ii ovc.r China, people have loticeil the
shifi of prociuctian out of aqriruliure anrJ into
thc p|ice line that is lan.eetti tt lh,J pltc tii ll()ilit .5' 1a linr.
rntlicaring a pricr ralia r:f I
Ilii(l).,'lorrg lhis price line. the Ijnrter] Statcs n'ill pon.suinei
at i;c,rint {',. rhc langl-nt

24. poitrt rvitlt ihc ]1iq'i1g51 iichi6r'alti* L:ol1]ltlguit-v
irrtlilJirc;cr cLtir-t- 1..
Itt llrc tcst ol fitc ii'ot'ld. tlt.'sitiii tirrnr rro tlrrrit'lo fi'e,-
'ltlrrlr'inr'r'L'lt:t's tllt rcirtlirc
priee ol clotli. Jlrodlccrs resp{lncl bv jncreri:iitr* pr{:<Lrctiou
oi'clotlr airci cl,:er.*asing
ltt"udttetion ol'rr,licat lionr ltniui ,!,, ro,t, I'he ir-.st oi'fh*
ryttr.lil ctrrr it.itri* l*r,ii.,, ljrlrr irs
It'otlrtt'rioit Jttrint ;11 thr, lnl('rrtirljorrli t'rlLriliht irrrrr price
l.lIi(). ('(]riruu1rii1111
'r.illl
l)(,iri
itttS' 1:oirtt aiixtg tlte;lrice lirte tiingL'nt to the ppc lt 'r. (ijit n
tlrir rrr.jc.r 1ilrc. titc rcst ef'
thc rr'rl|lrl rjil c)nslilltc l11 iroirri (
I't tltt' itt{e t nitliortai pt'it't' J'{lti() o1' I ll"( '. llic Ltrtitetl
Stlltt. i: ',r iilirrl 1o r:xlt(}i.t 4(}
Itillion rtltits o1'rvheat. tlte eliff-elence betu'een rire 80
lrltrriirrcri d,-rrn.:sticallr'iitpoint..
itird thc :ifJ consrirtrrd elorn..sticalh 21 116j111 {',.'f hr. t-cst
ol rhLl r,,.rrlri .,,iu.t1s to irr-rpori
40 i;illiorl itnils tt1'rvhi-'at. et;ual trr the rlill-crence L;ef*'cen
the jj ir,.ns,"rnted clouiesii-
cail-v artd the 15 proihtcL:d dorri*stica111,. At tlrrs pricc ratio.
tii.' i. lit,'r.l Statt's w,litts
lnternational Economics, 1 5th Edition 71
i
I

25. 5
'r.
!
i1
L
.,i.i
i
'i
:
. thapter 4 -frti:iit: Firi r"i .r "il'rlirirlr
r)lri F r'lr''l I"{iivtli'l]i '{ir lit';
':,-
' . :' ' ,. . :.. t. .'. "t "t 'f
i:r' :
'.
I
expgrt-ol.ieilted i*dustry, For exitmple, in ihe ieadel of -one of
f
'rh,ose Jiangsu villaEes thilt
.rowded rountryside oi Shandong province, vil- swit{tred from
grfwing grain to rrakini; tex-
lages that once strugglerJ with p0or soil to grow tiles and steel,
ri^oRt].Titlit about the shift'
r,vheat and corn for cities like Tianjin and Beijing As he put it
in 1q95, "As loilg as the pr€senI

26. have aband6neci farming and now make fLlrni- poiicy that
aliows! farnters to go into itldustry
ture artr:1 plrarrnAceutiCals. Even the relativelyfer- doesn't
change. vr4e witl continue to grow very
tile viliaSles c,{ Jiang:u J:rovince, near the mouth fast'" As for
relVinp ofl inrported foad' Wu says'
of the Yan!;'.se River, ntake textlies, steel, and "America has
lot{ of grain, right? lf Arneiiiar
otler inrlurtriai g.ocls. 5imilariy, in the south, buys my steel' l'li
pLry Arnerica's
qraiil' Therr t've
Guangdolrg province used te send its ri(e north can ali get
rich'""i'i
to Beijing. Now Guangdong, a leader in {trina's Chini's
experienc€ mirrors urhat happened
rapid indu{rialization. {onsumes rnore rice than eartier to
Japan,,, Korea. Taiwan' arrd Honr;
!t prorlLrces, suppierTlenlirlq local crops lvith rire Konq' All of
these, labor abundant antl ianej-
irnpOris frc:rlt-lhailand. 5carce &reas reclctqd to the openinq cf
trade by
Bcth pr-rbiic opinion antj the avaiiable sta- slriftirrg into
labr.ir'inlensive industry anLj out
1-isiics agree that the great majoritv oi China's of larrd-
irrterrsive agrrculture, and all of therrl
popuiation have gained purchasing powe r' prospered' i'
Some Chinese do fe;r beeoming ciependent on *Natethe "if"
parr of ihis statenreni. ll u.s. policy
irnports of for:el. The fears seem to be greater blocked
importsoJ ifflustrial prod*cts frorn {hin*,
in iire governntent than in the uopulation ai
usinqtoolslikethoseiwediscussinPartll,theChinese
large. Tile gCVerllment in the 1990S deCided to u*titj ui'o

27. reduce inlports fronr !he i'jrrit€d
States'
channel a larqer sirare of taxpayers' ;;;;;;;; The gains from
tradqthen would lrp r'erJir:erl
promoling agritultural proriuction, to retard Source: Source of
the tr.vo quotes flonr Vfr.t Xieciong:
the shift auuay frorn being self-sufJicient in wall Street Jonrnai
ivlarch '10' 1995'
l'oocl"Yet m'?ny are iess r'trorried' wu xiedong'
l
l
t' irnpoit40 billion eloth units ((;0 cunsrrmetl tninrisl2{}
1:rotiur:cci diitrlesricall}')'-l'lrr'
rest oj,the 11or-lcl is rvilling to cxport *{} bilhon cloth units
{10t} prrducs( 111i1111-s
6{}
rjoilsurltL.{l ritirnestrcail.v;.
-l:hLrs.
thc iutcrratioilal tradei nlsrkcts iirl botii lli'llLitlcts ilrc 1l)
r.clLriliSriLuu. confinniirg tlraf the price laiio of I lt''lC rs
tht'intcrllatiottal r:qililibriLlrtt
eiicil couiirr)' c4n be stlllllllillizr{l lt)' llli" trttilr'
'l'ire tracle tliangie ibr ilie L,niftril Slatcs is slit'tri'tt
1br thr- r *t of thei **'trld (', i-'!, . I lttr1'tationr t1 celtii-

28. ilaclt-: triangies lrre the sitttle sizc so that bt'tli sitics
priec ralio.
'i'lte expcirt-itnirorl lilralltitjcs in
Irittrr.qIr.t lItltt sIttrit tIrt'sc t1tritttitit's
b.v the righr trialrgle 5,?.Li.' ar-rrl lhat
iibliuttr is acilirlve {1 r.'rlleir tites* tlr'o
.j+i
l:!
;ir.
jli
,,ti:
:1'll
riii l
.!.: .
1E
&
'.ffii,
w
:i!-irce (ll1 llt,r alttottttts tlxa1eal.
ie u,ill uenertiili ir.sst,ltlt: th;ii liier* is onl1'onr:
ili'lce r:iiio ibl a givrtn set ol sl4rplY anri delllalld
i'.,iry a price latio otltcl tltan 1 tlltC gencrall-v wlll
ctnsieltr a prir,'e lin* flatter lmaking cloth evelr

29. i loti-t rarje c'r1 Lli i i bri ti tn i tttcrt t :t I i tltt ir !
cclttrlittons in *iicit cl)lillili ftl sct:
tlot brr att ittterttaticltal crliiiiiirrititti'
clriai:*1 tltatt lite pticu o1' ! tL'i{:'