Consider the international trade shown in Figure 3.1. Suppose that the equilibrium international cloth price is 1.2 W/C, instead of 1 W/C. At the equilibrium international price of 1.2 W/C, does the United States probably gain more or less from free trade (than it would if, instead, the equilibrium international price is 1 W/C)? Does the rest of the world probably gain more or less? Explain, and refer to the figure’s graphs in your explanation.

Data From Figure 3.1

Transcribed Image Text:

Wheat (billions of units per year) Rest of the World FIGURE 3.1 The Gains from Trade, Shown for Ricardo's Constant-Cost Case Wheat (billions of units per year) 100 United States 5 50 30 20 0 So Trade line ppc 20 67 Trade line ppc 20 20 16 S 76.80 100 Cloth (billions of units per year) So 50 0 Cloth 15 ! 25 20 20 (billions of units per year)