Chapter 39: The Offer Curve
Murray Kemp The offer curve (or reciprocal demand curve) diagrammatically relates the imports and exports of a single country to the world prices of the traded goods. The diagram accommodates only two traded goods and is therefore of limited use in analyzing many policy issues, but it has been immensely useful in introducing students to some of the fundamental propositions of the modern theory of international trade. Its potential usefulness was first convincingly displayed by Marshall (1879). In Figure 39.1, alternative terms of trade (the world price of a country’s exported commodity in terms of its imported commodity) are represented by the positive slopes of the dashed straight lines through the origin; and the amount offered of each commodity at any particular terms of trade is indicated by the point of intersection of the relevant price line and the offer curve GOG9. For example, at the terms of trade represented by the slope of the line POQ, neither commodity is offered, so autarky prevails in the country under study; at the terms of trade represented by the slope of the line P9OQ9, the country offers the first commodity in exchange for the second; and, at the terms of trade represented by the slope of the line P0OQ0, the country offers the second commodity in exchange for the first. The offer curve is usually drawn on the basis of several assumptions: 1. 2. All agents (households) are identical in all respects (preferences, endowments and information), that is, all agents are representative....
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