OFFER CURVE | INTERNATIONAL ECONOMICS | LEARN OIKONOMIA

Summary

In this video, the concept of the offer curve in international trade is explained in detail, highlighting its significance in understanding trade dynamics between nations. The offer curve, derivedGenerate summary script by economists Edgeworth and Marshall, shows the quantity of goods a nation is willing to export in exchange for imports at various price levels. The video covers the derivation of the offer curve for two nations, the elasticity of offer curves, and how they reflect changes in imports and exports. With clear examples and diagrams, the content provides valuable insights into how nations balance their trade relationships.

Takeaways

• 😀 The Offer Curve concept was introduced by economists Alfred Marshall and Francis Y. Edgeworth, and it plays a crucial role in international trade.
• 😀 An Offer Curve represents the quantity of a product that one nation is willing to export in exchange for a certain quantity of another product it imports.
• 😀 The Offer Curve is also known as the Reciprocal Demand Curve because it reflects the mutual demand of two nations for each other's products.
• 😀 The Offer Curve helps explain trade dynamics between two nations by showing how changes in relative prices (e.g., clothes vs. steel) affect their willingness to trade.
• 😀 When the price of a product (e.g., clothes) increases relative to another (e.g., steel), the Offer Curve of the exporting nation steepens, indicating a greater willingness to export.
• 😀 The Offer Curve of a nation will show different exchange points based on relative prices, such as R, R1, R2, and R3, reflecting the quantities of products traded at different prices.
• 😀 The slope of the Offer Curve can change depending on the relative price changes between two products. A steeper curve means a more elastic willingness to trade.
• 😀 Nation B’s Offer Curve also slopes positively at an increasing rate, but the rate of change is influenced by the price of steel relative to clothes.
• 😀 The concept of Elasticity of the Offer Curve measures the responsiveness of imports to changes in exports and vice versa.
• 😀 The elasticity of the Offer Curve formula is ΔM/M ÷ ΔX/X, where ΔM is the change in imports, ΔX is the change in exports, and M and X are the initial quantities of imports and exports, respectively.
• 😀 Elasticity is higher when moving rightward along the Offer Curve and lower when moving leftward, indicating a more elastic trade relationship at higher exchange rates.

Q & A

Who first derived the concept of the Offer Curve?

The concept of the Offer Curve was first derived by English economists Alfred Marshall and Francis Ysidro Edgeworth.

What does an Offer Curve represent in international trade?

An Offer Curve shows the quantities of a product that a nation is willing to export in exchange for various quantities of another product it imports from another nation.

Why is the Offer Curve also called the Reciprocal Demand Curve?

It is called the Reciprocal Demand Curve because it reflects the mutual demand relationship between two nations—how much one nation demands of another’s good in exchange for its own exports.

In the example provided, what does Nation A export and what does Nation B export?

In the example, Nation A exports cloth and imports steel, while Nation B exports steel and imports cloth.

How does a change in the price of cloth affect Nation A’s Offer Curve?

When the price of cloth increases relative to steel, the slope of the price ratio line becomes steeper, causing Nation A’s Offer Curve to reflect greater willingness to trade more cloth for steel at higher relative prices.

What do the points R, R1, R2, and R3 represent in the Offer Curve diagram?

Points R, R1, R2, and R3 represent the points of exchange showing specific quantities of exports and imports between the two nations at different relative prices.

What does the Offer Curve of Nation A look like, and what does its slope indicate?

The Offer Curve of Nation A, labeled OA, is positively sloped at an increasing rate, indicating that as the relative price of its export rises, Nation A offers more of it in exchange for imports.

What happens to Nation B’s Offer Curve when the price of steel increases?

As the price of steel increases relative to cloth, the price ratio line becomes steeper with reduced steepness over time. Nation B’s demand for cloth increases at a diminishing rate, resulting in an Offer Curve that also slopes positively but at a decreasing rate from Nation A’s perspective.

Who introduced the concept of Elasticity of the Offer Curve, and what does it measure?

The concept of Elasticity of the Offer Curve was introduced by economist S.C. Johnson. It measures the proportionate change in a nation’s imports relative to the proportionate change in its exports.

What is the formula for calculating the Elasticity of the Offer Curve?

The formula is (ΔM/M) ÷ (ΔX/X), which can be expressed as (ΔM/ΔX) × (X/M), where X represents exports and M represents imports.

How does elasticity behave along the Offer Curve for Nation A and Nation B?

For Nation A, elasticity increases (more elastic) to the right of the reference point R and decreases to the left. Similarly, for Nation B, elasticity decreases to the left of point S and increases to the right.

What is the key takeaway from the concept of the Offer Curve in international trade?

The Offer Curve helps illustrate how nations determine the terms of trade by showing the quantities they are willing to export and import at varying relative prices, ultimately defining equilibrium in international exchange.