A Consideration of the Comparative Cost Model Using Three-Dimensional Diagrams

Abstract

This study uses three-dimensional diagrams to express the export function, total labor demand function of individual countries, and the world-market supply function, and describes a method to specify the trade equilibrium point. The trade model is constructed as a multi-commodity, multi-country general equilibrium model, but actual simulation is conducted by a twocountry, two-commodity model. The specific factors model is adopted when assuming the production function has a decreasing return to scale and only one variable (i.e., labor input), and wage is assumed to be an exogenous variable. First, the total labor demands of each country are derived as functions of the price of each good, and these total labor demand functions are expressed by three-dimensional diagrams. Second, the “price possibility frontier” domain for each country is defined by the total labor demand function and labor endowment. Next, the equilibrium trade point is specified by the “price possibility frontier” and the restriction on the balance of supply and demand of each good. Last, the normative equilibrium trade point is simulated, using actual data from the Japan–U.S. international input–output table for the year 2000. The simulated normative trade follows the same direction as actual trade. This result suggests the usefulness of this method for analyzing how the internalization of public benefits from forestry or agriculture impacts the pattern of international specialization.