ECS4865
ASSIGNMENT 2 2025
UNIQUE NO.
DUE DATE: 25 AUGUST 2025
,ECS4865 – International Trade
Assignment 02
Semester 1 – 2025
Question 1: Import Demand Curve and Its Derivation
An import demand curve represents the relationship between the world price of a
good and the quantity that a country (referred to as "Home") wishes to import.
Specifically, it illustrates how much of a good Home will import at different price levels in
the global market.
To derive the import demand curve, we begin by examining Home’s domestic market
for the good. The import demand at any given world price is calculated as the difference
between the quantity that domestic consumers demand and the quantity that domestic
producers are willing to supply at that price:
Imports=Domestic Demand−Domestic Supply\text{Imports} = \text{Domestic Demand} -
\text{Domestic Supply}Imports=Domestic Demand−Domestic Supply
For instance, if at a certain price level, Home’s consumers demand 100 units of a good
but domestic producers can only supply 40 units, then the country must import 60 units
to meet domestic demand.
As the world price decreases, imported goods become relatively cheaper compared to
domestically produced goods, prompting consumers to increase consumption while
domestic producers reduce supply. This leads to higher import levels.
Conversely, if the world price increases, domestic production becomes more
attractive, and domestic consumption falls. As a result, imports decline. The resulting
import demand curve is downward-sloping, showing an inverse relationship between
the world price and the quantity of imports.
, This curve essentially reflects the responsiveness (elasticity) of Home’s import demand
to changes in the global price level and is derived by subtracting the domestic supply
curve from the domestic demand curve.
Question 2: Tariff Effects in a Large Country
When Home, as a large country, imposes a tariff (a tax on imports), it affects both its
domestic market and the global market for the good. Below are the impacts on:
(a) Quantity of Imports
A tariff increases the domestic price of the imported good. As the price rises, consumers
reduce their demand for the imported product, and domestic producers may increase
their supply. Therefore, the quantity of imports decreases.
(b) Quantity of Exports
Because Home now imports less, the exporting countries (foreign trading partners) earn
less revenue from sales to Home. Their reduced income leads to lower demand for
Home’s exports. Thus, Home’s exports also fall, even though the tariff was imposed
only on imports.
(c) Traded Volume
The overall volume of trade between Home and the rest of the world declines. This is
because both imports and exports are reduced. The tariff introduces a wedge between
the price paid by Home consumers and the price received by foreign producers, leading
to lower efficiency and reduced gains from trade.
Diagram: Tariff in a Large Country
Below is a conceptual outline of the diagram (you should draw this for your submission):
ASSIGNMENT 2 2025
UNIQUE NO.
DUE DATE: 25 AUGUST 2025
,ECS4865 – International Trade
Assignment 02
Semester 1 – 2025
Question 1: Import Demand Curve and Its Derivation
An import demand curve represents the relationship between the world price of a
good and the quantity that a country (referred to as "Home") wishes to import.
Specifically, it illustrates how much of a good Home will import at different price levels in
the global market.
To derive the import demand curve, we begin by examining Home’s domestic market
for the good. The import demand at any given world price is calculated as the difference
between the quantity that domestic consumers demand and the quantity that domestic
producers are willing to supply at that price:
Imports=Domestic Demand−Domestic Supply\text{Imports} = \text{Domestic Demand} -
\text{Domestic Supply}Imports=Domestic Demand−Domestic Supply
For instance, if at a certain price level, Home’s consumers demand 100 units of a good
but domestic producers can only supply 40 units, then the country must import 60 units
to meet domestic demand.
As the world price decreases, imported goods become relatively cheaper compared to
domestically produced goods, prompting consumers to increase consumption while
domestic producers reduce supply. This leads to higher import levels.
Conversely, if the world price increases, domestic production becomes more
attractive, and domestic consumption falls. As a result, imports decline. The resulting
import demand curve is downward-sloping, showing an inverse relationship between
the world price and the quantity of imports.
, This curve essentially reflects the responsiveness (elasticity) of Home’s import demand
to changes in the global price level and is derived by subtracting the domestic supply
curve from the domestic demand curve.
Question 2: Tariff Effects in a Large Country
When Home, as a large country, imposes a tariff (a tax on imports), it affects both its
domestic market and the global market for the good. Below are the impacts on:
(a) Quantity of Imports
A tariff increases the domestic price of the imported good. As the price rises, consumers
reduce their demand for the imported product, and domestic producers may increase
their supply. Therefore, the quantity of imports decreases.
(b) Quantity of Exports
Because Home now imports less, the exporting countries (foreign trading partners) earn
less revenue from sales to Home. Their reduced income leads to lower demand for
Home’s exports. Thus, Home’s exports also fall, even though the tariff was imposed
only on imports.
(c) Traded Volume
The overall volume of trade between Home and the rest of the world declines. This is
because both imports and exports are reduced. The tariff introduces a wedge between
the price paid by Home consumers and the price received by foreign producers, leading
to lower efficiency and reduced gains from trade.
Diagram: Tariff in a Large Country
Below is a conceptual outline of the diagram (you should draw this for your submission):
