China

Read “Focus on China” on page 58 of the textbook and answer the following questions:

a. What is meant by the statement that China “is labor-abundant and land scarce.”? What affect does that fact on China’s willingness to trade?

b. The predictions for China based on the material in Chapter 4 are said to have started to become true in 1976. What happened in 1976 to affect these predictions and how did that event contribute to these predictions coming true?

c. There has been a shift away from agriculture in China. How are the Chinese supplied with agricultural products? What does this mean with regard to international trade?

(2012). International economics. (Vol. 1, pp. 70-71). The McGraw-Hills Companies.

In-text citation

(International economics, 2012)

No Wiki, no dictionary.com, please cite all work.

62.

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of,corrlparatirre
in’thq prodrrctisn

of diffe{ent, pro duf ts.

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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

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‘availabii.ig..are b

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.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

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r’.::’ rr rr:r: :.::

wheat,::Wbetff e,,ltaf$.fiq,a.dqt$,..on1y..ecoriorny,.atitro-int,S

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arnounts of resources into glowing wheat, the cost of an extra ‘
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.:’, : The i n crc4si ng rn afut n6 [. sqs1g :.leappear :iJx. a. faniliar… fo,rrn

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{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 ?
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; ‘:, r’::: Figut$:4,1-,-lJete1hc,.verljeal,axis-.$:h,Qw.*-‘ *rsr-gir ,c-oat$of clotir hi*’h.’ai’e:t6e-

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{h.agter 4: ?ralr: Frrct

i- iii 1 1j g.if: . {:. :: .

Productiotr ,

Possibilities
!fldel lneFasing
Ct]sts

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ll:.

t;
t,

fnaeesing -appotta;ritSicoq i,canrbe sl.lori’l,
in ejther ofltwo ”

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production-possibility curve or as an upward-stoping

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.Note;- Fnr the’analyiis iithelpio{qetiiiir’poss.ibility ctli’r:e;rwe
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t:’ ,tt, ..

1. co.$Iner, assrullptio.ns .:abgtlt

we tan.itetnh the- explanation fu the reelismrof i tsiflg easts-(and, the rb-orv,ed’
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points are lhat

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o l, Di fferer:t pfadu ct$ $le ,faepi

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b:k

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}}.}lLllll1’jbcis.rLrcitasC0tt0i}o1.Si1k,

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it,hr’:rl proilLirrtiotr,

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ef,tril luril ol’lo”*t eloth ptoduction.

;

What Prsduction Combination ls Actuall-v Chosen?
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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

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Ilthe oppor.tuuity cost of producrng another uuit of cloth is rrlt;it’tltatl lhe 2 Llrl(‘

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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 ,\ ,.

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

Chapter 4
‘iirtii”; ptlt’1.’; {r’iiil”i’iljtJ !tl’i fiiti’li’i

1″‘ ” ‘ 1’ – : –

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oift*tt lose. Who can say that
the increase

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“”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

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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

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

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:’ ‘
,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,aad..El ..t$.5
fi:-fr iT;f;;ffi ffi;stFit g$*lffi

: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

‘;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
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.

i
r

{

, i, . , ‘,. ,, ,,
..

:$i.’r.r:r,

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
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{:

‘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
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’ :
‘.

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
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 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 l\ttr1’t\ationr t1 celtii-
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

.!.: .

&
‘.ffii,

: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

i loti-t rarje c’r1 Lli i i bri ti tn i tttcrt t :t I i tltt ir !

cclttrlittons in *iicit cl)lillil\i ftl sct:
tlot brr att ittterttaticltal crliiiiiirrititti’
clriai:*1 tltatt lite pticu o1′ ! tL’i{:’

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*
*
,1+he.s@9,6L*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’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

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″
i\ttv 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
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
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”
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.,il10lg:j,:rns.a,,1,sDtrljr.:y..,f r
tiff.:,lf.aFFj
oift*tt lose. Who can say that
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,:-4c- crease in’t1eppirxs
“”f
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s of’ happi
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with+iotfadeiis:2′ !{‘le:’
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i,, il*ij*;r’*Yig*lllaIrg::,ui11.!!r,r.1:.,ir.y!:,.,’,,. ._.’ -, ..,or.rvglfa
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ii;;:,ni:.,&**.*.l,pl,qdu9.d.y,!31t,r,a .*€r.’;r*i
;:*;:iffiffi::t:;i:i tlbieh;;ljr4diq*
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ILil4i$a,iiiJ,i;i’1u*itti.
r*i,el!,ilicu!,!,-qu$oits
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iii;;;i*;’a”*e’@itY-‘$
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,P’rclduc.tion
‘Posstbiliti*s ‘
.sriihoutfia.de
rhTi d;l:otj;I’nul”rtr*i
o {
Pricd,ratio,=
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*.*.3::-*il”l….:’;1i
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s.-ir’9.”o..raoe rotnu,f ‘eou
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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$–‘ .
i!ffiog-.lndiff”t*nlg,cFrl’1:,l;,’ .’, .,., .,.”‘.,:”.:,,,
:-
;G; *ffifiJil*ff*;;*s*;?5^rvould tather bul’ 1110ri..,1,11,.,:.:,,,,.:-.:i:.:;:::r:::,:;:r,1;”ii.;:il.;;a.,et!i.. 1.,ielr*suld:rtiltbel,.uuV…..nrt+l*,1,frY.T,f.;li;L!ftja:a9*and,aad..El ..t$.5
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:i.
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: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
‘;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
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, . , ‘,. ,, ,,
..
:$i.’r.r:r,
I
i
, China shcL.{tO shifl resources or.,{ of prr;dirr,
inc; land-ini|errsive produiis like ,.rlh*;t aricj
into produ{irrq iabor-inrensil,e prcductl like
clcthing. i
. (.hina’s proilucr.ion specializaticn shoulrj be
incomptlr:te.lThe countr;r shi:ujd go on Frro_
duunq sont$ 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
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{:

i*r*;{u *ti+&u** ***caaeg’s3* ‘g’.i;54′:
Figue,4i3 s*nr.rla44ry’i”i-t’ir:t4g’Ee $r’
ee’
ef,,.rhe,,,uni{qd “sta-tesl’.’,i:i itt@lli;.1$i
l i -l?f;
“‘?i”Jil;
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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$r,r,{e11js;1f;
.,il10lg:j,:rns.a,,1,sDtrljr.:y..,f r
tiff.:,lf.aFFj
oift*tt lose. Who can say that
the increase
,:-4c- crease in’t1eppirxs
“”f
trie otlll l L evel
s of’ happi
iui.Jno’n oni Pttson to another’
“]il;;’ ;; ieal d!ffiitltties,”we’ w!ll’.. : coa,rinqk
cury . .,r !.e.ttingqg,,por$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
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
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

ribn:P.os:*i:bi1i. n”tuc*otrl?1]..
tt is” consiOcr the exatttple
tti
tf’,” tfnP. of the PPc (a t’elative

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