As argued above the relative world price of

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Unformatted text preview: manufacturing above the world price). As a consequence, there is an incentive to transfer resources from manufacturing into mining, shown by the movement from a’ to b’ in Figure 2. The previous two paragraphs demonstrate mining in Australia, the industry with the “competitive edge”, expands at the expense of manufacturing through trade with China. Figure 3 completes the argument by showing that mining will be Australia’s export industry. As argued above, the relative world price of manufacturing is lower than the autarky price in Australia. We would expect, therefore, that Australian consumers, once trade is open, will cut back on their consumption of minerals in favour of manufactured goods. Such a point is illustrated by point c’. From the figure, comparing points b’ and c’ it is apparent that the consumption of manufactured goods MA(C) in Australia will be greater than the production of manufactured goods MA(P) – Australia will be an importer of manufactured goods. At the same time, the consumption of minerals MI(C) will be less than the production of minerals MI(P). Australia will be an exporter of minerals. Hence, “it is a good time to be in the business of exporting minerals”. Trade has (1) expanded the mining industry and (2) allowed mining producers to receive a higher relative price. T Figure 2 mining a China b T manufacturing mining T Australia b...
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