ABSTRACT
IN the following representations many of the most severe simplifying assumptions which are normally made in the geometrical analysis of trade theory will be maintained. I shall assume throughout this book:—
(i) that there are only two countries, which we will call country A and country B;
(ii) that there are only two products, which we will call A-exportables and B-exportables. A-exportables are, of course, B-importables, and vice versa;
(iii) that there is perfect competition with no external economies or diseconomies;
(iv) that price flexibility of one kind or another leads to the full employment of resources;
(v) that each country is made up of a set of citizens with identical tastes and factor endowments, so that the indifference map, while it may differ as between a citizen of A and a citizen of B, is the same for all the citizens in either of the two countries. In these conditions we can derive community-indifference curves directly from individual-indifference curves;*
(vi) that the individual's indifference curves are * This strict assumption is necessary if we wish to use the community
{a) negatively sloped (i.e. that an increase in the one commodity is required to compensate for a decrease in the other) and (b) convex (i.e. that the more a consumer has of the one commodity on any given indifference curve the greater is the increment in it which is required in order to compensate for a given decrement in the other). We shall also normally assume that neither of the two commodities is an "inferior" good in consumption (i.e. that when a consumer's income increases he purchases more of both commodities or, at least, does not purchase less of either of them); and
(vii) that in both of the two countries the total supply of productive factors is fixed so that when the production of one commodity is increased that of the other must be decreased. In addition we shall normally assume increasing costs, i.e. that the greater is the production of the one commodity the greater is the amount of the other which must be sacrificed in order to produce a still further increment of the first commodity; but in Chapters IV and V respectively we shall digress in order to say something about the geometrical representation of constant costs and of decreasing costs.
