gomory baumol ricardo_china
TRANSCRIPT
Two Country Ricardo Model
InputsEngland-Portugal Wine-Cloth
Productivities q(i,j)=e(i,j) li,j
Spending Preferences Cobb Douglas d(i,j)
Size of Labor Forces L1, L2
Outputs
• Which goods are made in which Countries• Quantities Consumed• Prices • National Incomes • Utilities (weighted measure of consumption)
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
Portugal’s Productivity
in Cloth Improves
Effect on Portugal
0.000
0.100
0.200
0.300
0.400
0.500
0.600
0.700
0.800
0.900
1.000
Utility Income Cloth Wine
Portugal Cloth Productivity = 0.4
0.000
0.100
0.200
0.300
0.400
0.500
0.600
0.700
0.800
0.900
1.000
Utility Income Cloth Wine
Portugal Cloth Productivity = 0.7
0.000
0.100
0.200
0.300
0.400
0.500
0.600
0.700
0.800
0.900
1.000
Utility Income Cloth Wine
Portugal Cloth Productivity = 1.0
Portugal’s Productivity
in Cloth Improves
Effect on England
0.0000.1000.2000.3000.4000.5000.6000.7000.8000.9001.000
Utility Income Cloth Wine
0.000
0.100
0.200
0.300
0.400
0.500
0.600
0.700
0.800
0.900
1.000
Utility Income Cloth Wine
0.0000.1000.2000.3000.4000.5000.6000.7000.8000.9001.000
Utility Income Cloth Wine
Three More Equilibria -England
Utility Income Cloth Wine0.000
0.200
0.400
0.600
0.800
1.000
England Consumption
Trade
Utility Income Cloth Wine0.000
0.200
0.400
0.600
0.800
1.000
England Consumption
Trade
Utility Income Cloth Wine0.000
0.200
0.400
0.600
0.800
1.000
England Consumption
Trade
Three More Equilibria - Portugal
Utility Income Cloth Wine
0.0000.1000.2000.3000.4000.5000.6000.7000.8000.9001.000
Portugal Consumption
Trade
Utility Income Cloth Wine
0.0000.1000.2000.3000.4000.5000.6000.7000.8000.9001.000
Portugal Consumption
Trade
Utility Income Cloth Wine
0.0000.1000.2000.3000.4000.5000.6000.7000.8000.9001.000
Portugal Consumption
Trade
Point Pair Shows Equilibrium
Income Share, and Utilities of Country 1 and Country 2
Z1 is Country 1 Income
Utility Income Diagram
0 .2 .4 .6 .8 1
1 1
Z1
U 1U 2
Previous EquilibriaIncome Utility Diagram
0 .2 .4 .6 .8 1
1 1
Z1
U 1U 2
More Equilibria
Income Utility Diagram
0 .2 .4 .6 .8 1
1 1
Z1
U 1U 2
ZC
Regions of Equilibria and Their Boundaries
Income Utility Diagram
0 .2 .4 .6 .8 1
1 1
Z1
U 1U 2
ZC
England EquilibiaBoundaryPortugal EquilibiaBoundary
World Equilibria BoundaryWorld Equilibia
0 .2 .4 .6 .8 1
1 1
Z 1
U 1U 2
Z C
WorldEquilibiaBoundary
Three Important PointsWine Cloth All Equilibria
0 .2 .4 .6 .8 1
1 1
Z 1
U 1U 2
Z C
6 Good Model 6 industries
0 .2 .4 .6 .8 1
1 1
Z 1
U 1U 2
Z C
11 Good Model11 Industries
0 .2 .4 .6 .8 1
1 1
Z 1
U 1U 2
Z C