In Figure 4-3, we show how the movement from the no-trade equilibrium point
A to a trade equilibrium at a higher relative price of computers leads to an upward sloping export supply, from points A to D in panel (b).
a. Suppose that the relative price of computers continues to rise in panel (a), and label the production and consumption points at several higher prices.
b. In panel (b), extend the export supply curve to show how the quantity of exports at the higher relative prices of computers.
c. What happens to the export supply curve when the price of computers is high enough? Can you explain why this happens? Hint: An increase in the relative price of a country's export good means that the country is richer because its terms of trade have improved. Explain how that can lead to fewer exports as their price rises.