ECS4865
ASSIGNMENT 2 2025
UNIQUE NO.
DUE DATE: 25 AUGUST 2025
, ECS4865
Assignment 2 2025
Unique Number:
Due Date: 25 August 2025
Advanced International Economics
Question 1 (Chapter 9): What is an import demand curve? Derive Home’s import
demand curve.
An import demand curve shows the quantity of a good a country imports at various
world prices. It is derived from the difference between the domestic demand and
domestic supply for a good at different prices. In a closed economy, the equilibrium is
where domestic demand equals domestic supply. When trade is allowed, if the world
price is lower than the domestic price, domestic consumers increase their quantity
demanded while domestic producers reduce their quantity supplied—creating a gap that
is filled by imports.
To derive Home’s import demand curve, we plot the domestic demand and supply
curves. For every price level, we calculate the difference between the two (D - S). This
difference gives the import demand at that price. The resulting curve is downward
sloping, reflecting that lower world prices increase import volumes. It starts from the
autarky price (no trade) and slopes downward as prices fall below that level. The curve
ends where domestic production ceases and all consumption is met by imports. This
tool helps explain trade volumes and how prices affect import behavior, crucial for
analyzing trade policies like tariffs or quotas.
Question 2 (Chapter 9): Suppose a tariff is levied at home, which is a big country.
Show the effects on:
, a) Quantity of imports
b) Quantity of exports
c) Traded volume
When a large country imposes a tariff, the effects go beyond its domestic market—they
affect world prices. The tariff raises the domestic price above the world price, reducing
imports as domestic consumers demand less and producers supply more.
a) Quantity of imports: The higher domestic price reduces the demand for imports.
Import volume declines from the free trade level. Consumers switch to domestic
products due to higher import prices.
b) Quantity of exports: Because imports fall, the foreign country experiences reduced
export opportunities. In response, its demand for the home country’s exports also falls.
Hence, the home country exports less as global trade adjusts.
c) Traded volume: Overall, the volume of trade between countries declines. The tariff
distorts trade incentives and reduces the gains from trade. In a diagram, offer curves
shift inward, showing less willingness to trade at new terms. Despite some terms-of-
trade gain for the large country (since the world price falls), the net traded quantities
shrink due to reduced demand on both sides.
A well-labeled diagram would show import demand and export supply intersecting at a
new equilibrium with lower traded volumes.
Question 3 (Chapter 9): For a large country, when does the welfare effect of a
tariff improve?
For a large country that can influence world prices, the imposition of a tariff can
potentially improve welfare if the terms-of-trade gain exceeds the deadweight losses
caused by the tariff. This is possible because the large country reduces its import
ASSIGNMENT 2 2025
UNIQUE NO.
DUE DATE: 25 AUGUST 2025
, ECS4865
Assignment 2 2025
Unique Number:
Due Date: 25 August 2025
Advanced International Economics
Question 1 (Chapter 9): What is an import demand curve? Derive Home’s import
demand curve.
An import demand curve shows the quantity of a good a country imports at various
world prices. It is derived from the difference between the domestic demand and
domestic supply for a good at different prices. In a closed economy, the equilibrium is
where domestic demand equals domestic supply. When trade is allowed, if the world
price is lower than the domestic price, domestic consumers increase their quantity
demanded while domestic producers reduce their quantity supplied—creating a gap that
is filled by imports.
To derive Home’s import demand curve, we plot the domestic demand and supply
curves. For every price level, we calculate the difference between the two (D - S). This
difference gives the import demand at that price. The resulting curve is downward
sloping, reflecting that lower world prices increase import volumes. It starts from the
autarky price (no trade) and slopes downward as prices fall below that level. The curve
ends where domestic production ceases and all consumption is met by imports. This
tool helps explain trade volumes and how prices affect import behavior, crucial for
analyzing trade policies like tariffs or quotas.
Question 2 (Chapter 9): Suppose a tariff is levied at home, which is a big country.
Show the effects on:
, a) Quantity of imports
b) Quantity of exports
c) Traded volume
When a large country imposes a tariff, the effects go beyond its domestic market—they
affect world prices. The tariff raises the domestic price above the world price, reducing
imports as domestic consumers demand less and producers supply more.
a) Quantity of imports: The higher domestic price reduces the demand for imports.
Import volume declines from the free trade level. Consumers switch to domestic
products due to higher import prices.
b) Quantity of exports: Because imports fall, the foreign country experiences reduced
export opportunities. In response, its demand for the home country’s exports also falls.
Hence, the home country exports less as global trade adjusts.
c) Traded volume: Overall, the volume of trade between countries declines. The tariff
distorts trade incentives and reduces the gains from trade. In a diagram, offer curves
shift inward, showing less willingness to trade at new terms. Despite some terms-of-
trade gain for the large country (since the world price falls), the net traded quantities
shrink due to reduced demand on both sides.
A well-labeled diagram would show import demand and export supply intersecting at a
new equilibrium with lower traded volumes.
Question 3 (Chapter 9): For a large country, when does the welfare effect of a
tariff improve?
For a large country that can influence world prices, the imposition of a tariff can
potentially improve welfare if the terms-of-trade gain exceeds the deadweight losses
caused by the tariff. This is possible because the large country reduces its import
