SC - Exchange rates--OOP

[david friedman]

At 9:55 PM -0500 11/18/98, Mordonna22 at aol.com wrote:
>In a message dated 11/18/98 11:48:56 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.

Relative prices for all goods the same doesn't mean "the ratio of the price
of an American Cadillac to the price of a loaf of American bread is the
same as the ratio of the price of a French Renault to the price of a loaf
of French bread"--becase those ratio aren't comparing the same good. The
cadillac is a more valuable good (to consumers in both countries) than the
Renault, and the french bread (to sensible consumers in both countries) is
more valuable than the American bread (unless its my wife's).

If being made in Italy is a dimension of the characteristics of shoes that
consumers care about, then Italian shoes are not the same goods as American
shoes--even if you can't tell them apart once the "made in Italy" label is
removed.

David/Cariadoc
http://www.best.com/~ddfr/


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