Changes in country a demand y pxpye oca oca pxpye ocb

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Unformatted text preview: tinued As A’s terms of trade (PX/PY) improve, B’s terms of trade (PY/PX) must be deteriorating and vice­versa Shifts of Offer Curves Shifts Anything that causes country A’s willingness to trade to change will shift A’s offer curve • increased willingness to trade: OCA shifts right • decreased willingness to trade: OCA shifts left These can be caused by • changes in demand conditions or • changes in supply conditions Demand Changes in Country A Demand Y OCA (PX/PY)E OCB Y1 X1 X Demand Changes in Country A Demand Y (PX/PY)E OCA OCA' OCB Increased demand for imports by Country A causes a rightward shift of A’s offer curve X Demand Changes in Country A Demand Y (PX/PY)E OCA' OCA (PX/PY)E' OCB Y2 Volume of trade increases, but A’s terms of trade go down. B’s terms of trade improve. X2 X Demand Changes in A Demand Any change that might make A demand more imports leads to a rightward OC shift, and thus • an increase in trade volume • a decrease in A’s terms of trade Demand Changes in Country B Demand Y OCA (PX/PY)E OCB Y1 X1 X Demand Changes in Country B Demand Y OCA (PX/PY)E OCB' OCB Increased demand for imports by Country B shifts B’s OC upward X Demand Changes in Country B Demand Y OCA (PX/PY)E' (PX/PY)E OCB' Y2 OCB Volume of trade increases, but Country B’s terms of trade decrease (and A’s terms of trade improve). X2 X Other Demand Changes Other Any decrease in a country’s willingness to trade will shift its OC leftward or downward An example is when a country imposes an import tariff Tariffs therefore lead to decreased trade volume, but improve the imposing country’s terms of trade Imposition of Tariff by Country A OC A Y (PX/PY)E OCB Y1 X1 X Imposition of Tariff by Country A OC OC Y A ' A (PX/PY)E OCB Y1 X1 X Imposition of Tariff by Country A /P ) (P OC OC Y A ' A X Y E' (PX/PY)E OCB Y2 X2 X Imposition of Tariff by Country A /P ) (P OC OC Y A ' A X Y E' (PX/PY)E OCB Y2 By imposing a tariff, Country A decreases trade volume, and improves its terms of trade (but B’s terms of trade deteriorate) X2 X Supply Changes Supply Changes in supply conditions will also shift a country’s offer curves around Examples include • productivity changes • discovery of new resources...
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This document was uploaded on 11/08/2013.

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