(A) Define the Theoretical Concept of a Country's "Offer Curve

question 21

Essay

(a) Define the theoretical concept of a country's "offer curve" (or "reciprocal demand curve"). Then, using a numerical example, construct three points on a country's offer curve, assuming that the country (call it "country A") exports wheat and imports clothing.
(b) Put the offer curve of country A [you do not need to use your specific numbers from part (a) of this question in this part (b)] together with the offer curve of trading partner country B. Explain how the equilibrium position is attained if the countries initially are in a situation that is not a position of equilibrium. (You can assume that the countries are always operating in the "elastic" portions of their offer curves.)
(c) Finally, suppose that country B's consumers change their tastes so that they now have greater preference for country A's export good than they did previously. Illustrate and carefully explain the movement from the old equilibrium position to the new equilibrium position because of this change in tastes, assuming other things equal. Be sure to include an indication of the impact on country A's terms of trade and volume of trade.

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