INTERNATIONAL ECONOMICS: THEORY, APPLICATION, AND POLICY;
 Charles van Marrewijk, 2006; 1
Derivation of the offer curve
Take an economy with the ppf as shown in the figure
Y
If its preferences are as indicated, then we know
That if the international relative price
px/py 2
is given by px/py 2 the economy does
not want to trade at the world market
0
X
INTERNATIONAL ECONOMICS: THEORY, APPLICATION, AND POLICY;
 Charles van Marrewijk, 2006; 2
Derivation of the offer curve
On the other hand, if that same economy is confronted
px/py 1 with prices px/py 1 then we can derive that it wants
to produce at pr1, consume at C1
and trade (offer) exp1 of good X
in exchange for imp1 of good Y
C
Y
1
imp1
exp1
0
pr1
X
INTERNATIONAL ECONOMICS: THEORY, APPLICATION, AND POLICY;
 Charles van Marrewijk, 2006; 3
Derivation of the offer curve
px/py 0
Similarly, if that same
economy is confronted
with prices px/py 0 then
C0
we can derive that it
imp0
wants to produce at pr0,
consume at C0 and trade
Y
(offer) exp0 of good
X in exchange for
imp0 of good Y
exp0
0
pr0
We can repeat this
procedure for all
prices px/py
X
INTERNATIONAL ECONOMICS: THEORY, APPLICATION, AND POLICY;
 Charles van Marrewijk, 2006; 4
Derivation of the offer curve
px/py 0
We can plot the
price px/py as a
line through the
px/py 1
origin in (X,Y)space
At px/py 0 the
economy offers exp0
in exchange for imp0
Y
At px/py 2 the economy
does not want to trade
At px/py 1 the
economy offers exp1
in exchange for imp1
imp0
px/py 2
imp1
Connecting such trade
gives the offer curve
exp1 exp0
X
INTERNATIONAL ECONOMICS: THEORY, APPLICATION, AND POLICY;
 Charles van Marrewijk, 2006; 5
Derivation of the offer curve
country A: demand for Y
country B: supply of Y
A
Y
This determines the equilibrium px/py
B
If we have 2 countries, A and
B, and follow a similar
procedure for both we can
derive 2 offer curves
The point of intersection is
an international equilibrium:
the supply of X by A equals
the demand of X by B and
vice versa for good Y
X
country A: supply of X
country B: demand for X