Embed Size (px)
DESCRIPTION
Here is our now familiar graph with 2 regions trading 1 good. International Market. MS. FL. Now let’s draw the Export Supply and Import Demand curves. International Market. MS. FL. Just for the sake of argument, suppose that p FL prevailed in MS. - PowerPoint PPT Presentation
Citation preview
MS FLInternationalMarket
Here is our now familiar graph with 2 regions trading 1 good.
MS FLInternationalMarket
Now let’s draw the Export Supply and Import Demand curves.
MS FLInternationalMarket
Just for the sake of argument, suppose that pFL prevailed in MS.Then MS supplier would produce more than MS consumers would want to buy. That difference in quantity would then be offered on the International Market.
pFL
pMS
MS FLInternationalMarket
We need to figure out (graphically) how big that quantity is.
pFL
pMS
MS FLInternationalMarket
It would correspond to the thick segment in the left graph below.
pFL
pMS
MS FLInternationalMarket
We report that segment in the center graph.
pFL
pMS
MS FLInternationalMarket
Of course, if pMS were to prevail in MS, then domestic consumption would equal domestic supply and export would be zero. We thus now have two points to draw MS’s export supply curve.
pFL
pMS
MS FLInternationalMarket
One point is here…
pFL
pMS
MS FLInternationalMarket
…and the other one is there.
pFL
pMS
MS FLInternationalMarket
Now let’s draw the export supply curve.
pFL
pMS
MS FLInternationalMarket
OK. We can go ahead and remove the thick lines and the two points. They’ve served their purpose.
pFL
pMS
MS FLInternationalMarket
We now repeat the same exercise to plot the import demand curve, so let’s look at Florida.
pFL
pMS
MS FLInternationalMarket
If pFL prevails in Florida, then FL will not import anything, as represented by the point.
pFL
pMS
MS FLInternationalMarket
If pMS were to prevail in Florida, then FL would import a quantity corresponding to the thick segment.
pFL
pMS
MS FLInternationalMarket
Report that segment in the international market and you get a second point with which to plot the import demand curve.
pFL
pMS
MS FLInternationalMarket
Report that segment in the international market and you get a second point with which to plot the import demand curve.
pFL
pMS
MS FLInternationalMarket
Let’s clean up and remove the thick line and the dots. They are now just in the way.
pFL
pMS
MS FLInternationalMarket
The intersection of the export supply and import demand curves reveals the “World Market” price, pW.
pFL
pMS
pW
MS FLInternationalMarket
That’s all folks!
pW
