This question concerns the model of triangular trade presented in Findlay 1990 and discussed in Findlay and O’Rourke. Britain imports cotton and exports cotton textiles. Africa exports slaves and imports cotton textiles. American exports cotton and imports slaves and cotton textiles. The following variables are defined in the Lecture Slides; P is the price of cotton, R is the quantity of raw cotton, π is the price of slaves, ρ is the interest rate, and δ is the replacement rate for slaves (excess of death rate over birth rate).
a. In the model, what is the decision that British manufacturers have to make as they maximize their profits? Draw a graph to illustrate that decision. Label your axes and your curves.
b. What is the decision that planters have to make as they maximize their profits? Draw a graph to illustrate that decision. Label your axes and your curves.
c. Now draw the graph of the supply curve and the demand curve of cotton. You have P on the vertical axis and R on the horizontal axis. Show what happens in this graph if there is an Industrial Revolution in the manufacture of cotton textiles. Now go back to your graph in part a above and show what happens when there is an Industrial Revolution. As a result of the Industrial Revolution the price of cotton (rises/falls)______ and the quantity of cotton produced (rises/falls)_________
d. Suppose now there is a technological improvement in the production of raw cotton, such as the cotton gin. What happens in the graph of the supply and demand curves of cotton? As a result of the invention of the cotton gin the price of cotton (rises/falls)____ and the quantity of cotton produced (rises/falls)_______
e. What is the effect of the Industrial Revolution on the price of slaves? Explain your answer in words. What is the effect of the cotton gin on the price of slaves? Explain your answer in words.
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