国际经济学·克鲁格曼·英文版

ChapterOrganizationIntroductionAStandardModelofaTradingEconomyInternationalTransfersofIncome:ShiftingtheRDCurveTariffsandExportSubsidies:SimultaneousShiftsinRSandRDSummaryAppendix:RepresentingInternationalEquilibriumwithOfferCurves1IntroductionPrevioustradetheorieshaveemphasizedspecificsourcesofcomparativeadvantagewhichgiverisetointernationaltrade:Differencesinlaborproductivity(Ricardianmodel)Differencesinresources(specificfactorsmodelandHeckscher-Ohlinmodel)Thestandardtrademodelisageneralmodeloftradethatadmitsthesemodelsasspecialcases.2AStandardModelofa

TradingEconomyThestandardtrademodelisbuiltonfourkeyrelationships:ProductionpossibilityfrontierandtherelativesupplycurveRelativepricesandrelativedemandWorldrelativesupplyandworldrelativedemandTermsoftradeandnationalwelfare3AStandardModelofa

TradingEconomyProductionPossibilitiesandRelativeSupplyAssumptionsofthemodel:Eachcountryproducestwogoods,food(F)andcloth(C)Eachcountry’sproductionpossibilityfrontierisasmoothcurve(TT)Thepointonitsproductionpossibilityfrontieratwhichaneconomyactuallyproducesdependsonthepriceofclothrelativetofood,PC/PF.IsovaluelinesLinesalongwhichthemarketvalueofoutputisconstant4Figure5-1:RelativePricesDeterminetheEconomy’sOutputQIsovaluelinesTTAStandardModelofa

TradingEconomy

Clothproduction,QCFoodproduction,QF5Figure5-2:HowanIncreaseintheRelativePriceofClothAffects RelativeSupplyQ1VV1(PC/PF)1Q2VV2(PC/PF)2AStandardModelofa

TradingEconomyTT

Clothproduction,QCFoodproduction,QF6RelativePricesandDemandThevalueofaneconomy'sconsumptionequalsthevalueofitsproduction:PCQC

+PFQF=PCDC+PFDF=VTheeconomy’schoiceofapointontheisovaluelinedependsonthetastesofitsconsumers,whichcanberepresentedgraphicallybyaseriesofindifferencecurves.AStandardModelofa

TradingEconomy7IndifferencecurvesEachtracesasetofcombinationsofcloth(C)andfood(F)consumptionthatleavetheindividualequallywelloffTheyhavethreeproperties:DownwardslopingThefartherupandtotherighteachlies,thehigherthelevelofwelfaretowhichitcorrespondsEachgetsflatteraswemovetotherightAStandardModelofa

TradingEconomy8TTFigure5-3:Production,Consumption,andTradeintheStandardModel

Clothproduction,QCFoodproduction,QFQDIndifferencecurvesFoodimportsClothexportsAStandardModelofa

TradingEconomy9Iftherelativepriceofcloth,PC/PF,increases,theeconomy’sconsumptionchoiceshiftsfromD1toD2.ThemovefromD1toD2reflectstwoeffects:IncomeeffectSubstitutioneffectItispossiblethattheincomeeffectwillbesostrongthatwhenPC/PFrises,consumptionofbothgoodsactuallyrises,whiletheratioofclothconsumptiontofoodconsumptionfalls.AStandardModelofa

TradingEconomy10TTFigure5-4:EffectsofaRiseintheRelativePriceofClothQ1VV1(PC/PF)1Q2VV2(PC/PF)2D2D1AStandardModelofa

TradingEconomy

Clothproduction,QCFoodproduction,QF11TheWelfareEffectofChangesintheTermsofTradeTermsoftrade

Thepriceofthegoodacountryinitiallyexportsdividedbythepriceofthegooditinitiallyimports.Ariseinthetermsoftradeincreasesacountry’swelfare,whileadeclineinthetermsoftradereducesitswelfare.AStandardModelofa

TradingEconomy12DeterminingRelativePricesSupposethattheworldeconomyconsistsoftwocountries:Home(whichexportscloth)ItstermsoftradearemeasuredbyPC/PFIts

quantitiesofclothandfoodproduced

areQC

andQFForeign(whichexportsfood)ItstermsoftradearemeasuredbyPF/PCIts

quantitiesofclothandfoodproduced

areQ*C

andQ*FAStandardModelofa

TradingEconomy13TodeterminePC/PF,onemustfindtheintersectionofworldrelativesupplyofclothandworldrelativedemand.Theworldrelativesupplycurve(RS)isupwardslopingbecauseanincreaseinPC/PF

leadsbothcountriestoproducemoreclothandlessfood.Theworldrelativedemandcurve(RD)isdownwardslopingbecauseanincreaseinPC/PF

leadsbothcountriestoshifttheirconsumptionmixawayfromclothtowardfood.AStandardModelofa

TradingEconomy14Figure5-5:WorldRelativeSupplyandDemandRSRDRelativepriceofcloth,PC/PFRelativequantityofcloth,QC+Q*C

QF+Q*FAStandardModelofa

TradingEconomy(PC/PF)1115EconomicGrowth:AShiftoftheRSCurveIseconomicgrowthinothercountriesgoodorbadforournation?Itmaybegoodforournationbecauseitmeanslargermarketsforourexports.Itmaymeanincreasedcompetitionforourexporters.Isgrowthinacountrymoreorlessvaluablewhenthatnationispartofacloselyintegratedworldeconomy?Itshouldbemorevaluablewhenacountrycansellsomeofitsincreasedproductiontotheworldmarket.Itislessvaluablewhenthebenefitsofgrowtharepassedontoforeignersratherthanretainedathome.AStandardModelofa

TradingEconomy16GrowthandtheProductionPossibilityFrontierEconomicgrowthimpliesanoutwardshiftofacountry’sproductionpossibilityfrontier(TT).BiasedgrowthTakesplace

whenTTshiftsoutmoreinonedirectionthanintheotherCanoccurfortworeasons:TechnologicalprogressinonesectoroftheeconomyIncreaseinacountry’ssupplyofafactorofproductionAStandardModelofa

TradingEconomy17Figure5-6:BiasedGrowthTT1TT1TT2TT2AStandardModelofa

TradingEconomyClothproduction,QCFoodproduction,QF(a)GrowthbiasedtowardclothClothproduction,QCFoodproduction,QF(b)Growthbiasedtowardfood18RelativeSupplyandtheTermsofTradeExport-biasedgrowthDisproportionatelyexpandsacountry’sproductionpossibilitiesinthedirectionofthegooditexportsWorsensagrowingcountry’stermsoftrade,tothebenefitoftherestoftheworldImport-biasedgrowthDisproportionatelyexpandsacountry’sproductionpossibilitiesinthedirectionofthegooditimportsImprovesagrowingcountry’stermsoftradeattherestoftheword’sexpenseAStandardModelofa

TradingEconomy19Figure5-7:GrowthandRelativeSupplyRelativepriceofcloth,PC/PFRelativequantityofcloth,QC+Q*C

QF+Q*FRS1RD1(PC/PF)1RS2(PC/PF)22Relativepriceofcloth,PC/PFRelativequantityofcloth,QC+Q*C

QF+Q*FRS2RD2(PC/PF)2RS1(PC/PF)11(a)Cloth-biasedgrowth(b)Food-biasedgrowthAStandardModelofa

TradingEconomy20InternationalEffectsofGrowthExport-biasedgrowthintherestoftheworldimprovesourtermsoftrade,whileimport-biasedgrowthabroadworsensourtermsoftrade.Export-biasedgrowthinourcountryworsensourtermsoftrade,reducingthedirectbenefitsofgrowth,whileimport-biasedgrowthleadstoanimprovementofourtermsoftrade.AStandardModelofa

TradingEconomy21ImmiserizinggrowthAsituationwhereexport-biasedgrowthbypoornationscanworsentheirtermsoftradesomuchthattheywouldbeworseoffthaniftheyhadnotgrownatallItcanoccurunderextremeconditions:Stronglyexport-biasedgrowthmustbecombinedwithverysteepRSandRDcurves.Itisregardedbymosteconomistsasmoreatheoreticalpointthanareal-worldissue.AStandardModelofa

TradingEconomy22Table5-1:AverageAnnualPercentChangesinTermsofTradeAStandardModelofa

TradingEconomy23InternationalTransfersofIncome:ShiftingtheRDCurveInternationaltransfersofincome,suchaswarreparationsandforeignaid,mayaffectacountry’stermsoftradebyshiftingtheworldrelativedemandcurve.Relativeworlddemandforgoodsmayshiftbecauseof:ChangesintastesChangesintechnologyInternationaltransfersofincomeTheTransferProblemHowinternationaltransfersaffectthetermsoftrade24EffectsofaTransferontheTermsofTradeWhenbothcountriesallocatetheirchangeinspendinginthesameproportions(Ohlin’spoint):TheRDcurvewillnotshift,andtherewillbenotermsoftradeeffect.Whenthetwocountriesdonotallocatetheirchangeinspendinginthesameproportions(Keynes’spoint):TheRDcurvewillshiftandtherewillbeatermsoftradeeffect.ThedirectionoftheeffectontermsoftradewilldependonthedifferenceinHomeandForeignspendingpatterns.InternationalTransfersofIncome:ShiftingtheRDCurve25Figure5-8:EffectsofaTransferontheTermsofTradeRelativepriceofcloth,PC/PFRelativequantityofcloth,QC+Q*C

QF+Q*FRSRD2RD1(PC/PF)221(PC/PF)1InternationalTransfersofIncome:ShiftingtheRDCurve26PresumptionsabouttheTermsofTradeEffectsofTransfersAtransferwillworsenthedonor’stermsoftradeifthedonorhasahighermarginalpropensitytospendonitsexportgoodthantherecipient.Inpractice,mostcountriesspendamuchhighershareoftheirincomeondomesticallyproducedgoodsthanforeignersdo.Thisisnotnecessarilyduetodifferencesintastebutrathertobarrierstotrade,naturalandartificial.InternationalTransfersofIncome:ShiftingtheRDCurve27Importtariffsandexportsubsidiesaffectbothrelativesupplyandrelativedemand.RelativeDemandandSupplyEffectsofaTariffTariffsdriveawedgebetweenthepricesatwhichgoodsaretradedinternationally(externalprices)

and

thepricesatwhichtheyaretradedwithinacountry(internalprices).Thetermsoftradecorrespondtoexternal,notinternal,prices.TariffsandExportSubsidies:SimultaneousShiftsinRSandRD28TariffsandExportSubsidies:SimultaneousShiftsinRSandRDFigure5-9:EffectsofaTariffontheTermsofTradeRelativepriceofcloth,PC/PFRelativequantityofcloth,QC+Q*C

QF+Q*FRS1RD1RD2RS2

(PC/PF)11(PC/PF)2229EffectsofanExportSubsidyTariffsandexportsubsidiesareoftentreatedassimilarpoliciesbuttheyhaveoppositeeffectsonthetermsoftrade.Example:SupposethatHomeoffers20%subsidyonthevalueofclothexported:ThiswillraiseHome’sinternalpriceofclothrelativetofoodby20%.ThiswillleadHomeproducerstoproducemoreclothandlessfood.AHomeexportsubsidyworsensHome’stermsoftradeandimprovesForeign’s.TariffsandExportSubsidies:SimultaneousShiftsinRSandRD30TariffsandExportSubsidies:SimultaneousShiftsinRSandRDFigure5-10:EffectsofaSubsidyontheTermsofTradeRelativepriceofcloth,PC/PFRelativequantityofcloth,QC+Q*C

QF+Q*FRS1RD1RD2RS2(PC/PF)11(PC/PF)2231ImplicationsofTermsofTradeEffects:WhoGainsandWhoLoses?TheInternationalDistributionofIncomeIfHome(alargecountry)imposesatariff,itswelfareincreasesaslongasthetariffisnottoolarge,whileForeign’swelfaredecreases.IfHomeoffersanexportsubsidy,itswelfaredeteriorates,whileForeign’swelfareincreases.TheDistributionofIncomeWithinCountriesAtariff(subsidy)hasthedirecteffectofraisingtheinternalrelativepriceoftheimported(exported)good.Tariffsandexportsubsidiesmighthaveperverseeffectsoninternalprices(Metzlerparadox).TariffsandExportSubsidies:SimultaneousShiftsinRSandRD32SummaryThestandardtrademodelprovidesaframeworkthatcanbeusedtoaddressawiderangeofinternationalissuesandadmitsprevioustrademodelsasspecialcases.Acountry’stermsoftradearedeterminedbytheintersectionoftheworldrelativesupplyanddemandcurves.Economicgrowthisusuallybiased.Growththatisexport-biased(import-biased)worsens(improves)thetermsoftrade.33Internationaltransfersofincomemayaffectacountry’stermsoftrade,dependingiftheyshifttheworldrelativedemandcurve.Importtariffsandexportsubsidiesaffectbothrelativesupplyanddemand.Thetermsoftradeeffectsofanexportsubsidyhurttheexportingcountryandbenefittherestoftheworld,whilethoseofatariffdothereverse.Bothtradeinstrumentshavestrongincomedistributioneffectswithincountries.Summary34Figure5A-1:Home’sDesiredTradeataGivenRelativePriceTDesiredimportsoffoodDesiredexportsofclothHome’simports,DF-QFHome’sexports,QC-DCOPC/PFAppendix:RepresentingInternationalEquilibriumwithOfferCurves35Figure5A-2:Home’sOfferCurveCT2T1Appendix:RepresentingInternationalEquilibriumwithOfferCurvesHome’simports,DF-QFHome’sexports,QC-DCO36Figure5A-3:Foreign’sOfferCurveFAppendix:RepresentingInternationalEquilibriumwithOfferCurvesForeign’sexports,Q*F–D*FForeign’simports,D*C–Q*CO37Appendix:RepresentingInternationalEquilibriumwithOfferCurvesFigure5A-4:OfferCurveEquilibriumCFXYEHome’sexportsofcloth,QC–DCForeign’simportsofcloth,D*C–Q*COHome’simportsoffood,DF–QFForeign’sexportsofcloth,Q*F–D*F38IntroductionEconomiesofScaleandInternationalTrade:AnOverviewEconomiesofScaleandMarketStructureTheTheoryofImperfectCompetitionMonopolisticCompetitionandTradeDumpingTheTheoryofExternalEconomiesExternalEconomiesandInternationalTradeSummaryChapterOrganization39IntroductionCountriesengageininternationaltradefortwobasicreasons:Countriestradebecausetheydiffereitherintheirresourcesorintechnology.Countriestradeinordertoachievescaleeconomiesorincreasingreturnsinproduction.Twomodelsofinternationaltradeinwhicheconomiesofscaleandimperfectcompetitionplayacrucialrole:MonopolisticcompetitionmodelDumpingmodel40EconomiesofScaleandInternationalTrade:AnOverviewModelsoftradebasedoncomparativeadvantage(e.g.Ricardianmodel)usedtheassumptionsofconstantreturnstoscaleandperfectcompetition:Increasingtheamountofallinputsusedintheproductionofanycommoditywillincreaseoutputofthatcommodityinthesameproportion.Inpractice,manyindustriesarecharacterizedbyeconomiesofscale(alsoreferredtoasincreasingreturns).Productionismostefficient,thelargerthescaleatwhichittakesplace.41Underincreasingreturnstoscale:Outputgrowsproportionatelymorethantheincreaseinallinputs.Averagecosts(costsperunit)declinewiththesizeofthemarket.EconomiesofScaleandInternationalTrade:AnOverview42EconomiesofScaleandInternationalTrade:AnOverviewTable6-1:RelationshipofInputtoOutputforaHypotheticalIndustry43EconomiesofScaleand

MarketStructureEconomiesofscalecanbeeither:ExternalThecostperunitdependsonthesizeoftheindustrybutnotnecessarilyonthesizeofanyonefirm.Anindustrywilltypicallyconsistofmanysmallfirmsandbeperfectlycompetitive.InternalThecostperunitdependsonthesizeofanindividualfirmbutnotnecessarilyonthatoftheindustry.Themarketstructurewillbeimperfectlycompetitivewithlargefirmshavingacostadvantageoversmall.Bothtypesofscaleeconomiesareimportantcausesofinternationaltrade.44ImperfectcompetitionFirmsareawarethattheycaninfluencethepriceoftheirproduct.Theyknowthattheycansellmoreonlybyreducingtheirprice.Eachfirmviewsitselfasapricesetter,choosingthepriceofitsproduct,ratherthanapricetaker.Thesimplestimperfectlycompetitivemarketstructureisthatofapuremonopoly,amarketinwhichafirmfacesnocompetition.TheTheoryof

ImperfectCompetition45Monopoly:ABriefReviewMarginalrevenue

TheextrarevenuethefirmgainsfromsellinganadditionalunitItscurve,MR,alwaysliesbelowthedemandcurve,D.Inordertosellanadditionalunitofoutputthefirmmustlowerthepriceofallunitssold(notjustthemarginalone).TheTheoryof

ImperfectCompetition46TheTheoryof

ImperfectCompetitionFigure6-1:MonopolisticPricingandProductionDecisionsDCost,CandPrice,PQuantity,QMonopolyprofitsACPMQMMRMCAC47MarginalRevenueandPriceMarginalrevenueisalwayslessthantheprice.Therelationshipbetweenmarginalrevenueandpricedependsontwothings:HowmuchoutputthefirmisalreadysellingTheslopeofthedemandcurveIttellsushowmuchthemonopolisthastocuthispricetosellonemoreunitofoutput.TheTheoryof

ImperfectCompetition48Assumethatthedemandcurvethefirmfacesisastraightline:

Q=A–B

x

P (6-1)ThentheMRthatthefirmfacesisgivenby:

MR=P–Q/B (6-2)AverageandMarginalCostsAverageCost(AC)is

totalcostdividedbyoutput.MarginalCost(MC)is

theamountitcoststhefirmtoproduceoneextraunit.TheTheoryof

ImperfectCompetition49Whenaveragecostsdeclineinoutput,marginalcostisalwayslessthanaveragecost.Supposethecostsofafirm,C,taketheform:

C=F+c

x

Q (6-3)Thisisalinearcostfunction.Thefixedcostinalinearcostfunctiongivesrisetoeconomiesofscale,becausethelargerthefirm’soutput,thelessisfixedcostperunit.Thefirm’saveragecostsisgivenby:

AC=C/Q=F/Q+c(6-4)TheTheoryof

ImperfectCompetition50Figure6-2:AverageVersusMarginalCostTheTheoryof

ImperfectCompetitionAveragecostMarginalcost120345624681012141618202224CostperunitOutput51MonopolisticCompetitionOligopoly

Internaleconomiesgenerateanoligopolymarketstructure.Thereareseveralfirms,eachofwhichislargeenoughtoaffectprices,butnonewithanuncontestedmonopoly.Strategicinteractionsamongoligopolistshavebecomeimportant.Eachfirmdecidesitsownactions,takingintoaccounthowthatdecisionmightinfluenceitsrival’sactions.TheTheoryof

ImperfectCompetition52MonopolisticcompetitionAspecialcaseofoligopolyTwokeyassumptionsaremadetogetaroundtheproblemofinterdependence:Eachfirmisassumedtobeabletodifferentiateitsproductfromitsrivals.Eachfirmisassumedtotakethepriceschargedbyitsrivalsasgiven.TheTheoryof

ImperfectCompetition53Arethereanymonopolisticallycompetitiveindustriesintherealworld?Someindustriesmaybereasonableapproximations(e.g.,theautomobileindustryinEurope)Themainappealofthemonopolisticcompetitionmodelisnotitsrealism,butitssimplicity.TheTheoryof

ImperfectCompetition54AssumptionsoftheModelImagineanindustryconsistingofanumberoffirmsproducingdifferentiatedproducts.Weexpectafirm:Tosellmorethelargerthetotaldemandforitsindustry’sproductandthehigherthepriceschargedbyitsrivalsToselllessthegreaterthenumberoffirmsintheindustryandthehigheritsownpriceTheTheoryof

ImperfectCompetition55

where:Qisthefirm’ssalesSisthetotalsalesoftheindustrynisthenumberoffirmsintheindustrybisaconstanttermrepresentingtheresponsivenessofafirm’ssalestoitspricePisthepricechargedbythefirmitselfAparticularequationforthedemandfacingafirmthathasthesepropertiesis:

Q=S

x[1/n–b

x(P–P)](6-5)TheTheoryof

ImperfectCompetitionPistheaveragepricechargedbyitscompetitors56MarketEquilibriumAllfirmsinthisindustryaresymmetricThedemandfunctionandcostfunctionareidenticalforallfirms.Themethodfordeterminingthenumberoffirmsandtheaveragepricechargedinvolvesthreesteps:Wederivearelationshipbetweenthenumberoffirmsandtheaveragecostofatypicalfirm.Wederivearelationshipbetweenthenumberoffirmsandthepriceeachfirmcharges.Wederivetheequilibriumnumberoffirmsandtheaveragepricethatfirmscharge.TheTheoryof

ImperfectCompetition57ThenumberoffirmsandaveragecostHowdotheaveragecostsdependonthenumberoffirmsintheindustry?TheTheoryof

ImperfectCompetitionUndersymmetry,P=P,equation(6-5)tellsusthat

Q=S/nbutequation(6-4)showsusthattheaveragecostdependsinverselyonafirm’soutput.Weconcludethataveragecostdependsonthesizeofthemarketandthenumberoffirmsintheindustry: AC=F/Q+c=n

x

F/S+c(6-6)Themorefirmsthereareintheindustrythehigheristheaveragecost.58PPCostC,andPrice,PNumberoffirms,nCCP3AC3n3n1AC1n2

AC2EFigure6-3:EquilibriuminaMonopolisticallyCompetitiveMarketTheTheoryof

ImperfectCompetitionP2,P159ThenumberoffirmsandthepriceThepricethetypicalfirmchargesdependsonthenumberoffirmsintheindustry.Themorefirms,themorecompetition,andhencethelowertheprice.Inthemonopolisticcompetitionmodelfirmsareassumedtotakeeachothers’pricesasgiven.TheTheoryof

ImperfectCompetitionIfeachfirmtreatsPasgiven,wecanrewritethedemandcurve(6-5)intheform: Q=(S/n+S

x

b

x

P)–S

x

b

x

P(6-7)60Profit-maximizingfirmssetmarginalrevenueequaltotheirmarginalcost,c.ThisgeneratesanegativerelationshipbetweenthepriceandthenumberoffirmsinthemarketwhichisthePPcurve: P=c+1/(b

x

n) (6-10)Themorefirmsthereareintheindustry,thelowerthepriceeachfirmwillcharge.TheTheoryof

ImperfectCompetition61TheequilibriumnumberoffirmsThedownward-slopingcurvePPshowsthatthemorefirms,thelowerthepriceeachfirmwillcharge.Themorefirms,themorecompetitioneachfirmfaces.Theupward-slopingcurveCCtellsusthatthemorefirmsthereare,thehighertheaveragecostofeachfirm.Ifthenumberoffirmsincreases,eachfirmwillsellless,sofirmswillnotbeabletomoveasfardowntheiraveragecostcurve.TheTheoryof

ImperfectCompetition62LimitationsoftheMonopolisticCompetitionModelTwokindsofbehaviorariseinthegeneraloligopolysettingthatareexcludedbyassumptionfromthemonopolisticcompetitionmodel:Collusivebehavior:CanraisetheprofitsofallfirmsattheexpenseofconsumersMaybemanagedthroughexplicitagreementsorthroughtacitcoordinationstrategiesStrategicbehavior:IsadoptedbyfirmstoaffectthebehaviorofcompetitorsinadesirablewayDeterspotentialrivalsfromenteringanindustryTheTheoryof

ImperfectCompetition63Themonopolisticcompetitionmodelcanbeusedtoshowhowtradeleadsto:AloweraveragepriceduetoscaleeconomiesTheavailabilityofagreatervarietyofgoodsduetoproductdifferentiationImportsandexportswithineachindustry(intra-industrytrade)MonopolisticCompetitionandTrade64TheEffectsofIncreasedMarketSizeThenumberoffirmsinamonopolisticallycompetitiveindustryandthepricestheychargeareaffectedbythesizeofthemarket.MonopolisticCompetitionandTrade65Figure6-4:EffectsofaLargerMarketCostC,andPrice,PNumberoffirms,nCC1n1

P11PPn2P22CC2MonopolisticCompetitionandTrade66GainsfromanIntegratedMarket:ANumericalExampleInternationaltradeallowscreationofanintegratedmarketthatislargerthaneachcountry’smarket.Itthusbecomespossibletoofferconsumersagreatervarietyofproductsandlowerprices.MonopolisticCompetitionandTrade67Example:Supposethatautomobilesareproducedbyamonopolisticallycompetitiveindustry.Assumethefollowing:b=1/30,000F=$750,000,000c=$5000Therearetwocountries(HomeandForeign)thathavethesamecostsofautomobileproduction.Annualsalesofautomobilesare900,000atHomeand1.6millionatForeign.MonopolisticCompetitionandTrade68Figure6-5:EquilibriumintheAutomobileMarketMonopolisticCompetitionandTrade69Figure6-5:ContinuedMonopolisticCompetitionandTrade70Figure6-5:ContinuedMonopolisticCompetitionandTrade71Table6-2:HypotheticalExampleofGainsfromMarketIntegrationMonopolisticCompetitionandTrade72EconomiesofScaleandComparativeAdvantageAssumptions:Therearetwocountries:Home(thecapital-abundantcountry)andForeign.Therearetwoindustries:manufactures(thecapital-intensiveindustry)andfood.Neithercountryisabletoproducethefullrangeofmanufacturedproductsbyitselfduetoeconomiesofscale.MonopolisticCompetitionandTrade73Figure6-6:TradeinaWorldWithoutIncreasingReturnsHome(capitalabundant)Foreign(laborabundant)ManufacturesFoodMonopolisticCompetitionandTrade74Ifmanufacturesisamonopolisticallycompetitivesector,worldtradeconsistsoftwoparts:IntraindustrytradeTheexchangeofmanufacturesformanufacturesInterindustrytradeTheexchangeofmanufacturesforfoodMonopolisticCompetitionandTrade75Figure6-7:TradewithIncreasingReturnsandMonopolisticCompetitionHome(capitalabundant)Foreign(laborabundant)ManufacturesFoodInterindustrytradeIntraindustrytradeMonopolisticCompetitionandTrade76Maindifferencesbetweeninterindustryandintraindustrytrade:Interindustrytradereflectscomparativeadvantage,whereasintraindustrytradedoesnot.Thepatternofintraindustrytradeitselfisunpredictable,whereasthatofinterindustrytradeisdeterminedbyunderlyingdifferencesbetweencountries.Therelativeimportanceofintraindustryandinterindustrytradedependsonhowsimilarcountriesare.MonopolisticCompetitionandTrade77TheSignificanceofIntraindustryTradeAboutone-fourthofworldtradeconsistsofintra-industrytrade.Intra-industrytradeplaysaparticularlylargeroleinthetradeinmanufacturedgoodsamongadvancedindustrialnations,whichaccountsformostofworldtrade.MonopolisticCompetitionandTrade78Table6-3:IndexesofIntraindustryTradeforU.S.Industries,1993MonopolisticCo