Question

Imagine that a fungus that adversely affects wheat is discovered in Europe and that this decreases the U.S.’s willingness to trade. Demonstrate this change in the offer curve framework, and discuss the likely effects on U.S. terms of trade and volume of trade.

Answer 1

Due to the discovery of fungus U.S 's willingness to terms of trade decrease so in the figure TOT shifts upward from TOT1( to TOT2. so the home country's offer curve shift to upward. so to the response that the foreign country's curve will cut the point from its above at point 2.so less willingness will decrease from Y to Y' the import of the home country and decrease the export from Q to Q1. here the home country loss more quantity in terms of export to import ofY to Y'.