Diagrams
January 12, 2011 Leave a Comment
The diagram above shows that the United States has absolute advantage in the creation of shoes and cloth. But, despite this, the Philippines has a comparative advantage in producing shoes since they give up less cloth to make each pair versus the United States. The Philippines should specialize in cloth while the Philippines should specialize in shoe production.
The diagram above depicts free trade in automobiles. In this situation, automobiles are produced locally at the price of PE. Institution of free trade will result in the quantity Q1Q2 of automobiles to be imported into the country at the price of PW. Domestic production of automobiles is represented by Q1.
The diagram above depicts a situation where a subsidy is provided to a local firm, in this case, a producer of automobiles. The subsidy that is provided by the government will shift the supply curve of the producer downwards. The price of their automobiles will stay the same but they will be given help as imports of automobiles will be cut from Q1Q2 to Q3Q2. Domestic production will jump from Q1 to Q3.
The diagram above depicts a situation where tariffs are placed upon automobile imports entering a country. The price of these imports will rise from the world price and as a result imports will fall from Q1Q2 to Q3Q4. Domestic production will receive an output boost from Q1 to Q3.
The diagram above depicts the "J-Curve Theory". The theory suggests that in the short term, for the first while, even if the Marshall-Lerner condition is fulfilled, a fall in the value of a currency will lead to the worsening of a country's current account deficit before any improvement is seen in the country.
The diagram above depicts an increase in demand for the yen in terms of the US dollar. Factors such as increased interest rates in Japan may have caused this demand increase from D1 to D2. The value of the yen will appreciate as a result of this increase in demand.
The diagram above depicts an increase in supply of the yen in terms of the US dollar. Factors such as increased interest rates abroad could have led to an increased supply of Japanese yen. Japanese people are rushing to unload their yen unto the foreign money markets. The increase in supply from S1 to S2 results in a depreciation of the currency.
