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AAEC 2305 Fundamentals of Ag Economics - page 21 / 27

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Shift in the Demand Curve in an Open Economy

The shift in demand and supply curves have different effects in an open economy compared to an economy closed to international trade.

In an open economy, the domestic price and the world price are the same at Pw.  Changes in domestic demand do not change the price because the country’s exports are not large enough to alter the world price (small country assumption)

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