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Trade and General Equilibrium

In: Neoclassical International Economics

Author

Listed:
  • Leonard Gomes

    (Middlesex Polytechnic)

Abstract

The transformation curve (or concave production-possibility frontier) was introduced into trade theory by Enrico Barone in 1908, but for various reasons his contribution went unnoticed. Twenty-two years later, Haberler reintroduced the construction under the label of ‘production substitution curve’. It was a diagrammatic representation of a country’s maximum attainable set of outputs for two commodities from a given supply of productive factors, and described the rate at which commodities could be substituted for each other not only under constant opportunity-cost conditions, but also under increasing and decreasing casts as well.1 Under increasing costs (the assumption frequently made) the production-possibility frontier is drawn strictly concave to the origin, i.e. the production possibility set is convex, reflecting the law of diminishing marginal productivity.

Suggested Citation

  • Leonard Gomes, 1990. "Trade and General Equilibrium," Palgrave Macmillan Books, in: Neoclassical International Economics, chapter 7, pages 102-142, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37155-2_7
    DOI: 10.1057/9780230371552_7
    as

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