Diagram and explain what happens to international equilibrium using the offers curve when the foreign country...

Diagram and explain what happens to international equilibrium using the offers curve when the foreign country supply of its exports falls due to higher input prices.

Expert Solution

Offer curve indicates the quantity of imports and exports the country is willing to engage into at various relative prices.

If we take Home country and Foreign country and plot their offer curves, we get the following graph:

Now, if we consider that the input prices for exports of Foreign country increases, then its manufacturing becomes costlier for that country. It implies that for every unit of good exported, the country will be able to buy lesser imports. The Offer curve for foreign country shifts lower towards the export axis. This implies that at the new offer curve, for every quantity of export, the import is lower than before.

In the graph, export for foreign is along the vertical axis, thus. its offer curve shifts towards the vertical axis.

Thanks!

Rahul Sunny answered 8 months ago

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