(A) Define the "Offer Curve" (Or "Reciprocal Demand Curve") of a Country

question 22

Essay

(a) Define the "offer curve" (or "reciprocal demand curve") of a country. If an offer curve is drawn as an upward-sloping curve, what is being assumed about the value of thecountry's elasticity of demand for imports and why does this assumption yield the upward-sloping curve?
(b) Using the usual two-good, two-country offer-curve diagram, identify the equilibrium position and state why the position is one of equilibrium. Then suppose that, from this initial equilibrium position, one country now experiences an increase in productivity in its export industry at the same time that the other country imposes an import tariff. Illustrate and explain the combined or overall impact of these two events on the equilibrium terms of trade and on the quantity traded of each of the two goods. If a combined impact is uncertain, briefly indicate why it is uncertain.

---

Definitions:

Output Increase

An increase in the production of goods and services in an economy over a period of time.

Monetary Rules

Guidelines used by central banks to manage the supply of money in an economy, aiming to achieve macroeconomic stability.

Active Approach

A strategy that involves frequent decision making and adjustments, often used in context with investing or policy making.

Policy Announcement

A policy announcement is an official statement made by a government or institution detailing specific plans or changes in policy aimed at affecting economic or social outcomes.