Question

the offer curve of a nation buldges towards the axis that measure it's

​

Answer 1

Answer:

The offer curve OA records the quantities of good X that country A supplies to the world market for export and the quantities of good Y that it demands from the world market as imports, for all prices. The prices are only implicit in the diagram, represented as rays from the origin the slopes of which are the prices of good X relative to good Y. This is possible since balanced trade (which is assumed throughout), requires that pY Y = pX X, and therefore that Y/X = pX / pY . Thus the offer curve can be read as giving the quantity of good X that country A is willing to export in exchange for various quantities of imported good Y, or equivalently as the amounts of both X and Y that it is willing to trade at various prices along rays from O.

Offer curve OB is similarly defined for country B, except that the directions of trade for it are reversed. This is why it is something of a mirror image of OA. That is, it records quantities of good Y that B will export in exchange for various quantities of imports of good X. In equilibrium, of course, country B must import what A exports and vice versa, which is why equilibrium is found where the two curves intersect, at E.

By representing both good X and good Y in a single diagram in this way, the intersection of the two offer curves depicts equilibrium in both markets simultaneously, something that is possible (indeed necessary) because of Walras' Law.

Offer curves need not be upward sloping throughout. If they are, as drawn in the basic picture above, that says that the country is willing to spend more, in exports, for additional quantities of imports as their price falls (and the relative price of exports therefore rises). If this is true, it means that the demand for imports is elastic, and therefore such offer curves are often themselves called "elastic." If demand for imports instead becomes inelastic at low import prices -- which is possible but not theoretically necessary -- then the offer curve bends back on itself as shown in the variants above. This, as the pictures show, can lead to different sorts of responses of prices and quantities of trade to various shocks.

Explanation: