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Trade without costs of transport - importer
Pa i Pw ED D Qw2 Qw1 QT Same Quantity!! 1
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Trade without costs of transport - exporter
ES Pw Pa e D QT Qw2 Qw1 Same Quantity!! 2
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Trade without costs of transport – World Price is where ES=ED
Importer Trade Exporter S S ES Pw Pw Pw ED D D Qw2 Qw1 QT Qw2 Qw1 All Same Quantity!! 3
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Trade Without Costs Import Demand Shift (Higher Incomes)
Importer Trade Exporter S S ES Pw Pw Pw ED D D Qw2 Qw1 QT1 Qw2 Qw1 4
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Shifts Excess Demand new equilibrium trade level
Importer Trade Exporter S S ES Pw Pw Pw ED D D Qw2 Qw1 QT2 QT1 Qw2 Qw1 5
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Shifts Excess Demand new equilibrium trade level
Importer Trade Exporter S S ES Pw Pw Pw ED D D Qw2 Qw1 QT2 Qw2 Qw1 6
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Higher World Price and More Trade
Importer Trade Exporter S S ES Pw Pw Pw D2 ED D D Qw2 Qw1 QT2 Qw2 Qw1 All Same Quantity!! 7
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Trade Without Costs Export Demand Shift (Ethanol)
Importer Trade Exporter S S ES Pw Pw Pw D2 ED D D Qw2 Qw1 QT Qw2 Qw1 8
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Shifts Excess Supply – world price increases but trade falls
Importer Trade Exporter S S ES Pw Pw Pw D2 ED D D QT1 Qw2 Qw1 QT2 Qw2 Qw1 All Same Quantity!! 9
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Trade Without Costs Export Supply Shift (Drought)
Importer Trade Exporter S S ES Pw Pw Pw D2 ED D D Qw2 Qw1 QT Qw2 Qw1 10
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Also Shifts Excess Supply – world price increases but trade falls
Importer Trade Exporter S S ES Pw Pw Pw D2 ED D D Qw1 Qw2 Qw1 Qw2 Qw2 Qw1 All Same Quantity!! 11
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Trade with costs - start at no cost equilibrium
Importer Trade Exporter ES1 S S ES Pw Pw Pw ED D D Qw2 Qw1 QT Qw2 Qw1 12
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Trade with costs of transport increases the price to
importers to cover costs Importer Trade Exporter ES1 S Costs S ES Pw Pw Pw ED D D Qw2 Qw1 QT1 Qw2 Qw1 13
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Where new supply plus cost meets ED we set new importer price
and quantity traded Importer Trade Exporter EScst S Costs S ES1 Pw1 Pw1 Pw Pw Pw ED D D Qw2 Qw1 QT2 QT1 Qw2 Qw1 Qw4 Qw3 14
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But lower effective price due to costs of transport
Where old supply meets new Q we set new exporter price – same Q as importer But lower effective price due to costs of transport Importer Trade Exporter EScst S Costs S ES Pw1 Pw1 Pw Pw Pw Pw2 ED D D Qw2 Qw1 QT2 QT1 Qw2 Qw1 Qw4 Qw3 Qw4 Qw3 15
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Trade with costs of transport – Importer price higher
Exporter price lower and trade lower with higher costs Importer Trade Exporter S EScst Costs S ES Pw1 Pw1 Pw Pw2 ED D D Qw2 Qw1 QT2 QT1 Qw2 Qw1 Qw4 Qw3 Qw4 Qw3 All Same Quantity!! 16
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Demand effects with costs – Prior to demand shift
Importer Trade Exporter EScst S S ES Pw1 Pw1 Pw2 ED D D QT2 Qw4 Qw3 Qw4 Qw3 17
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Importer effects - demand shifts out
Trade Exporter S EScst S ES Pw1 Pw1 Pw2 ED D D QT2 Qw4 Qw3 Qw4 Qw3 Demand Increases 18
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Excess Demand starts at higher point
Importer effects – Excess Demand Shifts out Importer Trade Exporter S EScst S ES Pw1 Pw1 Pw2 ED D D QT2 Qw4 Qw3 Qw4 Qw3 Excess Demand starts at higher point 19
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Importer effects – New Equilibrium Trade – more trade and
higher P for importer and exporter Importer Trade Exporter S EScst S ES Pw1 Pw1 Pw2 ED D D Old Trd Old Trd New Trd New Trd Old Trd New Trd 20
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Importer effects – New Equilibrium Trade – more Q and higher P
Exporter S EScst S ES Pw1 Pw1 Pw2 ED D D New Trd New Trd New Trd All Same Quantity!! 21
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Exporter Demand effects – Prior to export demand shift
Importer Trade Exporter S EScst S ES Pw1 Pw1 Pw2 ED D D QT Qw4 Qw3 Qw4 Qw3 22
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Exporter Demand effects with trade costs – exporter demand shifts out
Demand Increases Importer Trade Exporter S EScost S ES D ED D 23
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Exporter Demand effects – excess supplies (with and without costs)
shifts in Demand Increases Importer Trade Exporter S EScost S ES D ED D 24
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Exporter Demand effects – Prices increase but trade falls
Demand Increases Importer Trade Exporter S EScost S ES Pw1 Pw2 D ED D QTr2 Qw4 Qw3 Qw4 Qw3 25
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Exporter Demand effects – Prices increase but trade falls
Demand Increases Importer Trade Exporter S EScost S ES Pw1 Pw2 D ED D QTr2 Qw4 Qw3 Qw4 Qw3 All Same Quantity!! 26
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Trade with costs (flat Import demand) - start at no cost equilibrium
Importer Trade Exporter S ES D S Pw D ED Qw2 Qw1 QT Qw2 Qw1 27
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Trade with costs (flat Import demand) – adding costs
Importer Trade Exporter S ES2 Costs ES D S Pw D ED Qw2 Qw1 QT Qw2 Qw1 28
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Trade with costs and flat Import demand – price impact much larger for exporter
Importer Trade Exporter S ES2 Costs ES D S Pi Pw Pe D ED Qw2 Qw1 QT Qw2 Qw1 29
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Flat ED – Exporter price shifts down (further than Importer
price shift up) Trade falls Importer Trade Exporter S ES2 Costs ES S D Pwi1 Pw2 D ED Qw2 Qw1 QTnew Qw2 Qw1 30
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Flat ED – Exporter price shifts down (further than Importer
price shift up) Trade falls Importer Trade Exporter S ES2 Costs ES S D Pwi1 Pw2 D ED Qw2 Qw1 QTnew Qw2 Qw1 All Same Quantity!! 31
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Supply effects with cost – Importer crop failure Supply shifts
Trade Exporter S2 S EScst S ES Pw1 Pw1 Pw2 ED D D QT2 Qw4 Qw3 Qw4 Qw3 Supply Decreases 32
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Excess Demand starts at higher point
Importer supply effects – Excess Demand Shifts out – same as if Importer demand shifts out Importer Trade Exporter S EScst S ES Pw1 Pw1 Pw2 ED D D QT2 Qw4 Qw3 Qw4 Qw3 Excess Demand starts at higher point 33
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Importer effects – New Equilibrium Trade – more trade and
higher P for importer and exporter Importer Trade Exporter S EScst S ES Pw1 Pw1 Pw2 ED D D Old Trd Old Trd New Trd New Trd Old Trd New Trd 34
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Importer effects – New Equilibrium Trade – more trade and
higher P for importer and exporter Importer Trade Exporter S EScst S ES Pw1 Pw1 Pw2 ED D D Old Trd Old Trd New Trd New Trd Old Trd New Trd All Same Quantity!! 35
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