【正文】 t work out nicely, a solution does exist. The first step in finding the solution is to determine the equilibrium number of firms in the industry. The equilibrium number of firms is that number, n, at which 22price equals average cost. We know that AC=F/X + c , where F represents fixed costs of production, X represents the level of sales by each firm, and c represents marginal costs. We also know that P=c+ (1/bn), where P and b represent price and the demand parameter. Also, if all firms follow the same pricing rule, then X=S/n where S equals total industry sales. So, set price equal to average cost, cancel out the c39。 the retaliatory export subsidy definitely helps the first country and hurts the second.21CHAPTER 6 ECONOMIES OF SCALE, IMPERFECT COMPETITION, AND INTERNATIONAL TRADEANSWERS TO TEXTBOOK PROBLEMS1. Cases a and d reflect external economies of scale since concentration of the production of an industry in a few locations reduces the industry39。s growth. The transfer problem point is concerned with the consumption demands of countries which receive available international credit supplies. If loans to developing countries shift from availability to Latin American countries, which have a relatively high propensity to consume . goods, to availability to Eastern European countries, which have a lower propensity to consume . goods and a higher propensity to consume German goods, the price of German exports will rise relative to the price of . exports. This would lead to an improvement in the terms of trade of Germany and a worsening of the terms of trade of the United States. Note, however, that in the long term, the analysis of terms of trade effects should also consider whether the biases in economic growth in Eastern Europe will be in sectors of the economy more closely aligned with the export industries of Germany or of the United States. The greater the similarity of the exportoriented industrial push in Eastern European with the existing industries in Germany, the greater the supply side reversal of the favorable German terms of trade movement which had arisen from the demand side forces of the transfer problem.8. When a country subsidizes its exports, the world relative supply and relative demand schedules shift such that the terms of trade for the country worsen. A countervailing import tariff in a second country exacerbates this effect, moving the terms of trade even further against the first country. The first country is worse off both because of the deterioration of the terms of trade and the distortions introduced by the new internal relative prices. The second country definitely gains from the first country39。s welfare increases.5. Immiserizing growth occurs when the welfare deteriorating effects of a worsening in an economy39。s terms of trade worsen, B39。s welfare increases and A39。s welfare decreases.c. B39。s terms of trade improve, A39。s welfare may increase or, less likely, decrease, and B39。s terms of trade.e. A reduction in Japan’s tariff on raw materials will raise its internal relative price of manufactures. This price change will increase Japan’s RS and decrease Japan’s RD, which increases the world RS and decreases the world RD (., world RS shifts out and world RD shifts in). The world relative price of manufactures declines and Japan’s terms of trade deteriorate.4. These results acknowledge the biased growth which occurs when there is an increase in one factor of production. An increase in the capital stock of either country favors production of good X while an increase in the labor supply favors production of good Y. Also, recognize the HeckscherOhlin result that an economy will export that good which uses intensively the factor which hat economy has in relative abundance. Country A exports good X to country B and imports good Y from country B. The possibility of immiserizing growth makes the welfare effects of a terms of trade improvement due to exportbiased growth ambiguous. Importbiased growth unambiguously improves welfare for the growing country. a. A39。s terms of trade.c. . development of a substitute for fossil fuel decreases the demand for raw materials. This increases world RD and the world relative demand curve shifts out, increasing the 18world relative price of manufactured goods and improving Japan39。 exports and imports reflect the relative endowments of factors.7. If the efficiency of the factors of production differ internationally, the lessons of the HeckscherOhlin theory would be applied to “effective factors” which adjust for the differences in technology or worker skills or land quality (for example). The adjusted model has been found to be more successful than the unadjusted model at explaining the pattern of trade between countries. Factorprice equalization concepts would apply 16to the effective factors. A worker with more skills or in a country with better technology could be considered to be equal to two workers in another country. Thus, the single person would be two effective units of labor. Thus, the one highskilled worker could earn twice what lower skilled workers do and the price of one effective unit of labor would still be equalized.17CHAPTER 5 THE STANDARD TRADE MODELANSWERS TO TEXTBOOK PROBLEMS1. An increase in the terms of trade increases welfare when the PPF is rightangled. The production point is the corner of the PPF. The consumption point is the tangency of the relative price line and the highest indifference curve. An improvement in the terms of trade rotates the relative price line about its intercept with the PPF rectangle (since there is no substitution of immobile factors, the production point stays fixed). The economy can then reach a higher indifference curve. Intuitively, although there is no supply response, the economy receives more