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.

Solutions

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 2 months ago

Next > < Previous

Related Solutions

Using the IS curve Fed rule model, explain what happens to the equilibrium values of the...

Using the IS curve Fed rule model, explain what happens to the equilibrium values of the interest rate and output if: a) There is an increase in T with the money supply held constant b) A decline in G with the Fed changing the money supply enough to keep output constant c) An increase in P with no change in government spending or taxes

Using the money market/foreign exchange market diagram, briefly explain how the AA curve will shift when...

Using the money market/foreign exchange market diagram, briefly explain how the AA curve will shift when there is an increase in money supply.

using a suitable diagram, explain clearly if a country that is open to international capital flows...

using a suitable diagram, explain clearly if a country that is open to international capital flows can control its domestic interest rate and fix its exchange rate.

(a) Using the Aggregate Demand (AD) model diagram, illustrate what happens to the equilibrium level of...

(a) Using the Aggregate Demand (AD) model diagram, illustrate what happens to the equilibrium level of aggregate output when the Federal Reserve (Fed) engages in a tightening of monetary policy. Make sure you properly label all the axes and curves. (b) Would the Federal Reserve be more likely to engage in a tightening of monetary policy during an expansion or recession? Explain in one sentence. (c) Has the Federal Reserve recently (past 1-2 months) been engaging in a tightening of...

Using the Phillips curve diagram and in words, illustrate what happens to the short-run/long-run Phillips curve...

Using the Phillips curve diagram and in words, illustrate what happens to the short-run/long-run Phillips curve (inflation and unemployment) when the economy faces a “tight” labor market (actual unemployment rate is below the natural rate). Make sure you properly label all the axes and curves. Hint: Differentiate between short-run and long-run and think how this affects the inflation expectations.

1. Using the Aggregate Demand (AD) model diagram, illustrate what happens to the equilibrium level of...

1. Using the Aggregate Demand (AD) model diagram, illustrate what happens to the equilibrium level of aggregate output when firms start to feel more optimistic about the future and increase their investment. (Hint: What happens to the IS curve?) Make sure you properly label all the axes and curves. Will this lead more likely to an expansion or recession? 2. Using the Aggregate Demand (AD) model diagram, illustrate what happens to the equilibrium level of aggregate output when the Federal...

suppose that from an initial equilibrium position in the offer curve diagram country 1 imposes a...

suppose that from an initial equilibrium position in the offer curve diagram country 1 imposes a tarrif on country 2 export good at the same time that consumers in country 2 change their tastes toward wanting more of 2's export good. illustrate and explain the impact of these 2 simultaneous events on country 1's volume and terms of trade . assume that both countries offer curves are elastic throughout

1. Using the AS-AD model diagram, illustrate what happens to the LONG-RUN and SHORT-RUN equilibrium level...

1. Using the AS-AD model diagram, illustrate what happens to the LONG-RUN and SHORT-RUN equilibrium level of aggregate output and inflation, when the economy is hit by a negative (adverse) demand shock and there is NO POLICY response. Suppose the economy is at a long-run equilibrium before it is hit by the negative demand shock. Make sure you properly label all the axes and curves. Will the negative demand shock more likely lead to an expansion or recession in the...

Suppose the country risk premium of a large foreign country increased permanently. What happens to price...

Suppose the country risk premium of a large foreign country increased permanently. What happens to price level, nominal exchange rate, real exchange rate, investment, net exports and consumption in the domestic country in long run? Assume that the country is operating under ﬂoating exchange rate system.

Explain what happens to a small open economy when foreign governments decrease their national savings. What...

Explain what happens to a small open economy when foreign governments decrease their national savings. What happens to the following variables: i. world interest rate ii. domestic interest rate iii. domestic investment iv. domestic national savings v. trade balance (or net exports)

Subjects