ABSTRACT
Before embarking, it will make for smoother sailing if first we make a number of easily removed assumptions which in no way affect the basic logic
(i) that the exchange rate between trading countries remain constant, so enabling us to use a common currency, say the US dollar, in all transactions;
(ii) that the amounts of the additional imports or exports to be considered are such as not to affect the prevailing prices;
(iii) that no spillovers are present, which assumption allows us to equate the social value of any goods with its market price;
(iv) that the foreign prices which the country has to pay for its imported goods include the costs of freight, insurance, loading and unloading, etc.
