普格尔《国际贸易（第17版）》 英文手册Pugel_17e_chap004_IM.docxVIP

PAGE PAGE 26 ? 2016 by McGraw-Hill Education. ?This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. ?This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.? Chapter 4 Trade: Factor Availability and Factor Proportions Are Key Overview This chapter continues the analysis of international trade in a two-product economy. It picks up from the end of Chapter 3, where it was noted that the assumption of constant marginal cost and the implication that countries will completely specialize in producing only one (or a few) product(s) are unrealistic. In the modern theory of international trade, we use the assumption of increasing marginal costs—as one industry expands at the expense of others, increasing amounts of other goods must be given up to obtain each extra unit of the expanding output. Increasing marginal cost results in a bowed-out production possibility curve. This is linked to upward-sloping supply curves for each product. Increasing marginal costs arise because some resources are better suited to producing one good rather than the other (including differences in factor input proportions between the two products—Appendix B shows this explicitly). The market price ratio determines which production point will actually be chosen. Production will be driven to levels at which the marginal (or opportunity) cost of producing another unit just equals the price at which the output can be sold. On the graph this is a tangency between the production possibility curve and the price line whose slope reflects the market price ratio. The second key analytical tool that we need is a way to picture demand for two products at the same time. For individuals this can be done using indifference curves and income or budget lines. The chapter reviews (or summarizes) the basics of indifference curves (levels of well-being or happiness or utility, bowe