【正文】
dition for determining parative advantage. For this determination, the industry ratios are also required. The petitive advantage of any industry depends on both the relative productivities of the industries and the relative wages across industries. 8. While Japanese workers may earn the equivalent wages of . workers, the purchasing power of their ine is onethird less. This implies that although w = w* (more or less), p p* (since 3p = p*). Since the United States is considerably more productive in services, service prices are relatively low. This benefits and enhances . purchasing power. However, many of these services cannot be transported and hence, are not traded. This implies that the Japanese may not benefit from the lower . services costs, and do not face an international price which is lower than their domestic price. Likewise, the price of services in United States does not increase with the opening of trade since these services are nontraded. Consequently, . purchasing power is higher than that of Japan due to its lower prices on nontraded goods. 9. Gains from trade still exist in the presence of nontraded goods. The gains from trade decline as the share of nontraded goods increases. In other words, the higher the portion of goods which do not enter the international marketplace, the lower the potential gains from trade. If transport costs were high enough so that no goods were traded, then, obviously, there would be no gains from trade.10. The world relative supply curve in this case consists of a step function, with as many “steps” (horizontal portions) as there are countries with different unit labor requirement ratios. Any countries to the left of the intersection of the relative demand and relative supply curves export the good in which they have a parative advantage relative to any country to the right of the intersection. If the intersection occurs in a horizontal portion then the country with that price ratio produces both goods.