COMPARATIVE COSTS 
31 
of exchange are unfavorable to the Germans is simply that in 
physical units more of the German product is given for the Amer- 
ican than before. In this sense, and in this only, are the barter 
terms of exchange less favorable to Germany than before. 
Returning now to the main trend of the argument, we may 
state as follows the general conclusions which are indicated. 
The barter terms of trade between the countries depend on their 
states of demand; on the intensity and elasticity of Germany’s 
demand for wheat, of America’s demand for linen. The limits 
within which the terms of trade are confined depend on the range of 
difference in costs. In the case supposed, 10 of wheat can exchange 
for any amount of linen between 10 and 15. But the mere analy- 
sis of the differences in costs indicates nothing about the precise 
point between the limiting extremes at which the exchange will 
take place. That depends on the conditions of demand in the 
two countries. The greater the German demand for wheat, the 
more likely is it that the terms will be such as to yield Germany 
less wheat in exchange for her linen; the rate will be nearer 15 
than 10. On the same reasoning, the less the elasticity of the 
German demand for wheat — the more her takings of wheat will 
persist with little abatement, notwithstanding a rising price of 
wheat — the more likely it is that the terms of trade will be 
disadvantageous to her. In the United States the moving forces 
are the same: the less her demand for linen, and the less easily 
that demand is stimulated by falling price, the more the terms will 
be to her advantage.! In the second case supposed above, where 
the German demand for wheat has increased, the Germans, as the 
price of wheat begins to rise, will gradually lessen their purchases. 
But the extent of the check to their purchases will depend on the 
elasticity of their demand. The more persistent is that demand, 
the less it is checked by rising price, the greater will be the alter- 
ation of the terms of trade to Germany's disadvantage. The flow 
of specie out of Germany will then continue longer than it would if 
demand were less persistent (i.e. less inelastic), and the fall in 
I Stated in technical language, and in terms of diagrams, the two factors are the 
position of the demand curve and the slope of the demand curve.