SC - Exchange rates--OOP

[david friedman]

At 4:33 AM -0500 11/19/98, Mordonna22 at aol.com wrote:
>In a message dated 11/19/98 12:18:02 AM US Mountain Standard Time,
>ddfr at best.com writes:
>
>>
>>  >>  If relative prices of all goods in the US were the same as in the UK,
>> the
>>  >>  result would be an exchange rate at which all prices were the same in
>> both
>>  >>  countries, and there would be no trade
>>  >
>>  >Far too simplistic, and not true at all.  Less trade, perhaps, but there
>> would
>>  >still be a cachet in purchasing Italian shoes, Russian Vodka, Japanese
>>  >Electronics, American Cars, etc.....
>>
>>  Then they aren't the same goods.
>>
>
>But there WOULD still be trade!  Whether the goods were the same or not.

In your case, my condition is not met--relative prices of all goods are not
the same. The ratio of the price of Italian shoes in Italy to the price of
American cars in Italy is not the same as the ratio of the price of Italian
shoes in the U.S. to the price of American cars in the U.S., so America may
be able to export American cars and import Italian shoes and make enough on
the exchange to pay the transport costs.

If consumers don't care where shoes are made, then physically identical
shoes made in Italy and in the U.S. are "the same good" for economic
purposes, but if they do care they are different goods.

David Friedman
Professor of Law
Santa Clara University
ddfr at best.com
http://www.best.com/~ddfr/


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