Question

What is an export supply curve? What is an import demand curve? How do such curves relate to the determination of the equilibrium world price of a tradable good?

Short answer

The export supply curve and import demand curve show the difference between domestic supply and demand above and below domestic prices, respectively.

The interaction of the export supply and demand curve shows the world price.

Step-by-step solution

Step 1. Export supply curve and import demand curve

The export supply curve shows the surplus in the domestic country at a price above the domestic equilibrium price. The import demand curve shows the shortage in the domestic country at a price below the domestic equilibrium price.

A surplus occurs when the demand is less than the supply, and a shortage occurs when the demand exceeds the supply.

Step 2. Equilibrium in the world market

The world price is determined at the intersection point of world demand and supply. The export supply of each nation makes the world supply curve, and the import demand of all countries shows the world demand curve.