Max, this is governed by the, ahem, Marshall-Lerner conditions: the sum of
import and export price elasticities must be greater than one. People who study
such things say the conditions are always met, but the structuralist tradition
holds that they are met only within limits. This is something I've always
wanted to look at but never got around to.
Peter
Max Sawicky wrote:
Depends on the price elasticity. If the price of jellybeans goes down,
do you spend more or less on jellybeans? But I should beg off on this.
I don't do trade. --mbs
Wouldn't a decrease in the total cost of goods lead to a *decrease* in the
demand for dollars? In which case, the rest of the mechanism:
cost of dollar (and good, in importer's currency) go up, cost advantage
disappears.
would be thrown into reverse, and the currency swings would reinforce the
effect of the original subsidy.
Michael
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Michael PollakNew York [EMAIL PROTECTED]
