lnternational mics, 15th Edition 29Chaptrr 2 1-h,thi.docx

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; sciiYi
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'/

$i'irtconir. antl qLrantity iltlcs citiwtl il'tlte priticit'tct 1s 3
aiitrost airva-vs exattline l)1llv i)orlltni goocls. :is vc col151
ilitrv trtttclt iite e ottsrtttret' rlcrnands t;l' tl:e 1:t'tlrlttr:l
inilui:ltct;: tiisrds. tlte pric* o1'this prc;rlttct. ih* prices t
ie r,,liild like to bc rible lo pictitre clernancl. &t da t
dt:tc;rnrii;aill, th* prr-rdricl's prii:e. Ai'ler u'e acltl up a1i
rusi: lr ttral"i<et tlcnratrel cLn've like thc il*tttltttil crtivt i
f
:ig,,11'. 2.1:.1 We llilve a sirritlg 1lt'esrtntplitlil th*t ttre il*
Ait i,rc,'casc in tlre prodLtor's llrice (stt)': ll"trl]l S l'000 pe
in :r tlecri.:ase in r-lulliltit-v- cle trtancicd iliorn (r-5'Ofi0 to
4t)
j/*ru'i. {'l)is is it i:rove ttlettt along thc dettrartti e ut've bect
pl'icc. i lii: itteLr:ilsc irl ixrce i'esltlls tu.t' 1*wci
qllantlty (1
i:clire t*rrtiir) sr*.'itch to iLrLrstitLrte protllictr; (e'g" bic1"cle
i cxlttritle is moto:'bilti:s. We
Ithough the ltnalysis appllilrs
ctrra11,v is Ltroadei' tltln tiris"
insteac! ol' othel' Prodttcts'
re$oilLce s ttsecl itt pl*{{Liclllg
Iliat tl'e iti'i: strtdviitg is itcttt-

itt thr' cr,:ottotu""
coiisr,ltllel's prciblem ls i{i get
utilitv) as liossibl'.: lry spond-
A l;asic rlelcrtpittani tr1'hot"'
. preltr*nces. or uPittiotls ol
re1 trflttive tr.i llr* Prites ci
ot'the plr-rciuct ts purchastcl
cconoirtizes alltl l'cduces the
rler's incoiite . Ilthe consil!1:-
protlLrcts. probabl1'' iilr:1 irdittg
ttis tt tttu'rttu! ,qtttxl . llst:;
seil ii'tlerltaud is ittrlep*ttde nl
lrit:riits' .+4ot;cl ' ltt tltis tcxt rl,'e
er these til bc tltc Ltsrtal case'i
llis (lr'llell(it t)ir il Iltlttii'Ct 01
[' olhi:t' pt'orlncts. atitl ittcoirtt'
is by for;itsing oil t')lltr jlla.lor
rllurnrfs tithe Prcdltct. u'e
r urottx'bilies sllou'n as /J in
nrl cltr"",c slcpes cloil't.trvard.
rrtotot'l-ril<c ro 52 0()(i) restllls
)00 rtrot0r"Lrikrrs pllre hase{i pcl
se of it ciiilngl itt 1lte pl'ilduc1"s
nancler{ as pteriiit { soltr*n'l:ai

i or niake do u'ith lcsg oi'tlte
ike oia rli'iferent coiot')
,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
(;t P .r l,'l..iQ l
bo
?rl
i.'.rii (]i;e
i )'.rit;tiriil ittli
:jiiIilii ]iI
lr'1l1l:iril,r':;
4ij
i
.
:f I
'llrilr
i"--*'**!-
I n-. 1;ai!1).irl?1
I
| -, ,.,'
I
t

l,
I
i '-r
l
i'.
J-ir
I r, (ji rl; '*.
i:
j"
!i,')ril1
"'-
.
'..,.t.. t.,i';-t,.;,:/.
{.1.1Iire
i. .._._ . {Ji rantitV
;iii i:'r
"."--'*"-'*"-i
I
i
l
I
i
i
I
I

.1
,' ).. )ri,i l, I,,.i
l"i./" J
.t L
'- il;
I'i
"!
,! ,r
i-1ic rllilt[.:1 ili:tll;lrlii tt]!'1!i iili tilrriulltiirr.::iii)ilir
(iilu'n.iititi,.,t l*rrar.;,tii:,1 i..:
{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.
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_.^-
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;ri:illiit'a i;l'tesi-rrritsiifJlrts:i lilill js "'ririii-jir:i:"'jr
li.,1,irt:::lV
ij r ire

i
!
I
I
i
r.:ti.ri li ii', j
'l
I
I
I
-- -.,'..,.*.. --'-*... '.*-.'-J
:l l;ili'ilfrLtiis itt
ll)t: lii'/'r';'iii tl;Ii ll ll.i.l
iil otrir ';itiirilli: iitsitliiit,ii lirlrrt it I ;si.'t'r't,tti ,ii;,;r',. irl
rlriilii,"r r,,rrrilriric. 'j l;,_
is; lhr:) l'l{:'fr-rr"ir1 Llriilrllir in t;Ltirltiir,'(it'jnit*ltrri f
Ir,rili!r1i"r il.o;r ir
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-
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
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.
itt tJt'ittr' itli.: 1iii: rle tttiiiirl rui r. r.''L' ll;,slllrt iiritt iillrtr

iiiingr ii:;ii r:iin ;t;llii,-.rii:i,'
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..
ilns"lsumer Surplr*s
'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:
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:,.^
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'
first motaibtke cleniatick:d tiie
r,r'ould t"re r,villing to pay a vrry
ihe dernanei curve hits the prir:e
ittg lti pln lt sliglttl..'i()'r'r pl'i('u
crrrve iirr each aelditiorral unit'
ClraPter 2 1h,
ctenrattd cuLv* ilt l]igLlre
high price {about 53'600
axis.'l lte cletuatld c*rve
ibr the sccottd tttotortrike
81, actding Ltlt all oi'the demancl crtrve lteight; fbr eit
st'e th:tt the rvhoie area ltadet'lhe detr:rnd curve {up to 1

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
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
'l'lt* nralketplace does not give awa.v'. lnoitlrl-rikes
r]-lllst pay the tn:ukcr; price {a :l}ol1ev ail}ollnt. but itltinta
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
totai {price litttes cluatttit-v. er-1Llal tl} itrea { + lt}'
lJccause rltauy collsittneLs va1'.ttt thc prodricl. lllortr i.l
bike. paving the going ttrat'ket prrce stiil leitves cotLslt
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.

A tritior llse {'}1'c()ilstlinel stii'plus is to ll.leasLlr* 1ll
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 th
tl'innp,ic (exttndtng clou'tl lo the S I .0{.}0 irric* line).
'fhe
is arca 1 -r l! .1'hi5 ilrs:rease carl ire calctrlsletl as lite
(52,000 - $ 1.000) X 40"000- plLrs the area o1'triangle r
S l"ilii{i) vi {{:i.t}tlO - 4t},tX}i};.
'I hc ircreasc iu cottsttr
Iirc !on,,-:r rriit'ket price t'esrtlts irt bittlt a11 lllciease 1ll
sunlr-rs re'lto u'ouiil have bottglrt all-vraY at t[re higher
iu ect;lr:l,nic ..r'e11-being l'cr lhose collsl,ltllfl's ',t'ilo iit'r
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
1he price just Lrelou' rvltere
l1s us that sotriebod;" is r'r"iii-
ztucl s0 0n dclr,vn tlte cletnattei
h r"rn.it thiil is delnattded. rvc
iotirl c0nsutrPtlon quantitY)
quantity of tttotcrbikes. [;rtr
rs is $ I 12 grilliop. rrqlral l0
trl'irtr ili'ca> ilirrt lttc eltsict

price atid qnantily. eqltal to
rcr-:tarig1e, eqrtai to (1i?i x
r tliangle lilce (' js eclititl tt:
rr&lue cnn bi: nrcasureli as a
r ol consurue t's, il' llecessarY,
procluct.
tiee. of corirse .
-X-ire
bitYers
lv tlte valite ol olhet' gocds
ruet). For ittstatlce'. al a p1'1ee
ikes and paY 580 rnillit:rr itt
rhi,r, titatt S?.{J{10 pel' trlt'}tl}r-
rers rvith t |1€t gLtitt iti cco-
n tiie valtte tilat eottsLttliers
ke to i:u,r.' the Procluci.
'fhis
ilhr t-j{rotiriltiic itruii- beirig of'
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
r.its to bLlY tlte 1:rt'rdttct (itrea
belo*' iltc tir'lnatttl cttri'e
uc r.r,ell-bei tig cf cottsttttlers
(ir2i x iS3"600 * s2,t)00)

irripacl {lrt cotlsLllllers lif it
ll out'cxallple il'thc trarkct
unrers x1s $gtlilr oll' tlte'-r
tter oti'J ('ot tsittttcr -"i.11'plus
52.000 priec Iirie ) lo a lai5l*r
t L' r'( G. ( i tt cl-tttsiltlt*t' sLtrlll its
rea cri't'ecfattgle L c:tiLiai llr
" eqrial ro ( i/21 x {$2.0C0
*
r sut'plus is S52.5 ntillion
:ortr:inic rr:cl1-lie ing f-ttt' coit-
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.
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.
Hcw large is internationai trade? What prod-
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.
E.rports, 2{i09 {billioils of U.S. rlollars}
Tola
Prirrrarv oroducts
Agrrcultural
F'rels
Ores
h,4a'r r-rfactureci F, oclLrcts
Chemicals
Vlachi,rery and tr'ansport equiprnent
Text;les and clothing
Other
!ervices
ln 2009, worlci trade was
with the industrialized c
about three-fifths of world exp
are traded across nationai s, 35 are meny
computer andservices, including transportati
information services, as well as i
ing, and educatronal services.
ance, consuit-
r the wcrld, a
little more than hal{ of trade is manufaetured
products, with the rest of trade
betu;een primary products and
paring the details across the col

lit abaui evenly
ces. By com-
World
1>,/37
3,570
1,1 5C
1,741
679
837A
1 Aa)
4 ?44
55 I
) 11?
3,415
lndustrialiaed
Countries
9,369
1,512
698
482
333
5,'106
1,093
) )4
?n1

1,288
) a)o
$ t 6 tr;ll'on,
eontributing
Most goods
ns. we can se€
ns
tries
6,384
) nqa
tr-
1 f (o
346
? )f^l
)/in
1 ,719
:80
825
ocq
ce is tire eost of
nother unrt ol rts
the finn shoulcl
t ol another rrnit.
ources or lnputs

i.
ir
:i
t,r
t:a
t'i:
i:
)n
:t:;.
.:u
li{
.'#i
):i
Note: 5um of primary products, manufactured products, and
services does not equal total
smail amcunt of unclassif ied goods.
Source: UNCTAD, U NCTAD5tdt.
on its production and sales activities. One int'lLtence ort how
mucl
the price that the f irnr receives for its sates. l-he otlter rnajor
inilt
ploducing and selling the prodr.rct.
Fol a coinpetitive film. if the price at rvhich the firnr can sell
producl exceeds the extra (or marginal) cost of producurg it. t
ihe point at u,'hich the price received.iust about equals the extra

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.
5upply
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
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
by the indu:"
irialized rountri*s has some differenees
from.the
;;;;;;; io, J*u*l"pir:s countr,res'
rndustriarized
lounrri*, export relativety les: o{
prirnary products'
;;;;;'t,l; i;-ts anrl ores' ln marrufacturecl
prod-
uIu, in.irtttiuli z-ecJ tcuntries export

relatively n:ore
"*arl*,"i.r't,rvhiledevelopingcountriesexportrel--li"-iy -*t- cf
textiles anci riotiring inclustrialized
."-"it;-, t* relatively stronq in exporting
services'
*- *'li-ri. this kini af ob*ervaiion^-looking
at
trade ocro-c: product cateq;ories*as
we erarnlne
*nf .o"'nrti*s traric with each other'
Ho','v iniportant rs itriernational
traeie irr the
ecorrcrnies of varicirs countries?
The -cecond table
Hxp$rt$ Pl$s lrnp*r{s tui ;t Per"centage
*f G*P
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,.
j '.trlr,rlil rir'i
rll'l'i!
rfleitsure of tfte irnPor-
the i-atro ttt the luttt iit
rts plus imports) lo the
u3ufi (GDP, e standard
0f a c(}uniry'5 ecr:nr:nY)'
cornPletelY comParai:le
asure fuil sales values'
adderl). 5till. theY Pro-
f comParing the irriPor
and across toilntritl'
vations about wltat lve
each of the cour.ltrle!
or most cthe r countries)'
onle lTlor€ i n-l Paria nt'
ance is one Part of the
-. in r.nyl"rich risirrg inr'et

creasingiY link together
d. botir China arrd lrrtli.:
mosliY clo:ed to tradc !t:
nvoivecl. Tlre exPerit*res
sil Lr:r lircrtsittg on liLrrv
lltt:
add Lrtt aii prr-riirtcet's cl'the
a,,rta 5 1!rr ntottllbtltrls itt
rIr's illlr,ir'{1. rl ittj''t';t:i itr
.0ii0) LesLrils itt ''ili tttcieare
rorliiccti and soki PCr ,vtrar)'
fiftr,' irltlrtrtrr^ trt ittiriititrttll
::Xtfil ctlsli 01' pt'tldttcing and
Uniied Siale:
Canada
JaP."n
Fianc*
l-lrr i lecl i'.!tr qccrri
.Ai-isitaii.i
Derrr.lark
Cilna
1i'rdta
Kcti.ta

Erazil
rg?{i ?009
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
37i 9!i?
l4.9 ?-7 {':
waY of measuring the st
.These
measureg are not
(exports arrd imPorb r
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
naiicnal transact'*ns I
ltaies arrci .laPan)' Titi
havc i;orle frorn being
rnrrch more open en0
what had been relativ sePnl
ate nalit-inai ecot t-
aniies. Second, tracie te
to be m*re imPortani
{or countries ra:ith s lier eccnomies
isttcir a:
nrJ sornewhat le*s itnPor-
Canada and Denmark)
iant f or ..,s1y large eeo rnies
(sirEh as'.lrc ''Jnile(i
ot Chlna and lrrdia in t
past s*veral ti*cades are
rathsr cios* to !he a roach we
will tske in Part
i-*ina-cirring a nstlc I eionomY
lr"'ith no tracJe
rrvtial rruili haPPeri wh*n
frs:e tril,-le

W* 'oil1{.1 iike t* L"e able to ptcttrre suppiY'
irnel rve d
pri ce i,. t' rltc prorlr; ct oi1"1' ur"lill :i, :::ll'i1i: :',,|nl|,l]i
anrj then dralving ou
ihe c0untry 0pent up
ill|.i,:l;: T$':i';"-.i-'-'ioorv u'** rrkc
tire si4rpl
r.igLrrc 2-.1n.., we Lrsut1l.v pr"csuine,that :11:::11i1;l;;11"1: l
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
3r$
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'ui 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" clirre. 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 sho4/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<et pricc
trrl-v ll n l()iial lli'1ef
lrrc lior,r' Ittl,tclt ilteir
trade in meteriais, comPon t:, anri the final
easons, th* trisis-goad itse lf. For both of the:e
recession deciine in wor{d P uction and final

in rivarld tracie .sales led to a rnagnified decli
in 2009 resur-
1930s, when trade deciined il
Depressi*n *{ the
25 pe!'c{}ilt tlutittg
the four years from 1929 t0 1 I 3. Forti-rtratelY for
;i,:
';ltrf
*
il:
'v:.
if;:
,.,4
.al:.
:lt
,.fl
.jI-di
:lt"{
iii:
il
€
Ol
x

s,t
1,900
1,700
i.500
1,300
1,100
. 9C0
700
500
300
10c
OLr]c)INOT'C> *Frcomdr
.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

lnternational mics, 15th Edition 29Chaptrr 2 1-h,thi.docx

Recommended

Recommended

More Related Content

Similar to lnternational mics, 15th Edition 29Chaptrr 2 1-h,thi.docx

Similar to lnternational mics, 15th Edition 29Chaptrr 2 1-h,thi.docx (20)

More from SHIVA101531

More from SHIVA101531 (20)

Recently uploaded

Recently uploaded (20)

lnternational mics, 15th Edition 29Chaptrr 2 1-h,thi.docx