Offer curve

Offer Curve, Dtermination of Terms of Trade, shift in Offer curve, Gains from Trade

1. By Dr. Sunil Chandanshive Assistant Professor, Dept. of Economics K.J. Somaiya College of Arts & Commerce Vidyavihar, Mumbai Offer Curves: Determination of Terms of Trade, Gains from Trade with Offer Curve

2. Part 1 Meaning of Offer Curve - Example Assumptions Domestic Cost line Derivetion of Offer curve Offer Curves: Determination of Terms of Trade, Gains from Trade with Offer Curve Part 2 Determination of Terms of Trade Shift in offer Curve Part 3 Gains from Trade with offer Curve

3. Introduced by economists Alfred Marshall and Francis Edgeworth Offer curves represent RECIPROCAL DEMAND (J. S. Mill). Offer curves are used to explain distribution of gains from international trade., analysing trade equilibrium and determine the terms of trade. Offer Curve

4. A country is willing to O ffer / Export certain quantity commodity to get / Import another commodity from other country . It is graphical presentation of receprocal demand ( (J. S. Mill ) indicating various quantities of export a country is going to offer in exchange for various quantities of import s at different price ratio (terms of trade) India Russia Export Wheat Import Cloth Export Price of wheat 1000 Import price of Colth 900 Trade favourable to india Offer Curve - Example Price of Export ToT =---------------------*100 Price of Import 1000 ToT =-----------*100 900 = 111.11

5. .A country is willing to offer ( Export ) certain quantity commodity to get ( Import ) another commodity from other country . It is graphical presentation of receprocal demand indicating various quantities of export a country is going to offer in exchange for various quantities of import s at different price ratio (terms of trade) India Russia Export Wheat Import Cloth Export Price of wheat 900 Import price of Colth 1000 Trade unfavourable to india Offer Curve - Example Price of Export ToT =---------------------*100 Price of Import 900 ToT =-----------*100 1000 = 90

6. ASSUMPTIONS : Two countries (India and Russia) India specialise in Wheat & Export to Russia Rusia specialise in Cloth & E xport to India There are no transport costs. There is full employment. There is free trade between the two countries

7. Cloth Wheat ٭ 1 100 100 50 7 80 80 60 50 4 90 3 2 3 4 20 10 60 70 90 O ٭ ٭ A a b c Domestic Cost line of India Export of Import of OA - Domestic Cost line of India X Y

8. Wheat OB - Domestic Cost line of Russia ٭ 1 100 100 50 7 80 80 60 50 4 90 3 2 3 4 20 10 60 70 90 O ٭ ٭ ٭ B a1 b1 c1 d1 Import of Export of Domestic Cost line of Russia Cloth

9. Import of Cloth Export of Wheat ٭ 1 100 100 50 )1   7 80 80 60 50 4 90 3 2 3 4 20 10 60 70 90 O ٭ ٭ ٭ I )2   )3   A Trade point Export Import a 20 10 b 30 40 c 40 80 d 30 100 P1 P2 P3 a b d c India’s offer Curve OA- Domestic Cost line Y X

10. Export of Cloth Import of Wheat OB- Domestic cost line 1 100 100 50 13   7 80 80 60 50 4 90 3 2 3 4 20 10 60 70 90 O ٭ ٭ )3   B2 B1 B B3 )2   a1 *b1 *c1 d1 R Russia’s offer Curve X Y Trade point Export Import A1 20 10 b1 30 30 c1 40 80 d1 30 100

11. Determination of Terms of Trade

12. Russia/Cloth India/ Wheat OR Russia’s offer Curve 1 100 100 50 7 80 80 60 50 4 90 3 2 3 4 20 10 60 70 90 O OB - Domestic Cost line of Russia B OA - Domestic Cost line of India A I X Y OI India’s Offer Curve *a *b *c

13. Russia/Cloth India/ Wheat OR Russia’s offer Curve 1 100 100 50 7 80 80 60 50 4 90 3 2 3 4 20 10 60 70 90 O OB - Domestic Cost line of Russia B OA - Domestic Cost line of India A R X Y OI India’s Offer Curve *a1 *b2 *c3

14. Russia/Cloth India/ Wheat OR Russia’s offer Curve 1 100 100 50 P1 7 80 80 60 50 4 90 3 2 3 4 20 10 60 70 90 O E OB - Domestic Cost line of Russia B OA - Domestic Cost line of India A I R X Y OI India’s Offer Curve *

15. Shift in Offer Curve

16. Russia/Cloth India/ Wheat 1 100 100 50 P1 7 80 80 60 50 4 90 3 2 3 4 20 10 60 70 90 O E Domestic Cost line of Russia B Domestic Cost line of India A I P2 E1 R I1 E2 OR Russia’s offer Curve OI India’s Offer Curve X Y * * Shift in India’s Offer Curve

17. R1 Russia/Cloth India/ Wheat OR Russia’s offer Curve OI India’s Offer Curve 1 100 100 50 P1 7 80 80 60 50 4 90 3 2 3 4 20 10 60 70 90 O E OB - Domestic cost line of Russia B OP - Domestic Cost line of India P I P2 E1 R X Y Shift in Russia’s Offer Curve

18. Is there a Gains From Trade ? Yes, Gains From Trade With Offer Curve

19. OI - India’s offer Curve R Cloth/ Russia Wheat/ India OR Russia’s offer Curve S Q10 Q5 B Q3 Q4 Q2 Q1 Q6 Q7 Q9 O E OB - Domestic Price line of Russia I OA - Domestic Price line of India A Y Y Q8 T Trade/ Exchange point Export Import Gains From Trade India E 50 OL5 50 OQ5 Save TE or L5L9 Russia E 50 OQ5 50 OL5 Get more of Wheat SE or L2 L5 L1 L10 L7 L8 L6 L5 L4 L9 L3 L2 * T * *

20. Thank You