International supply in an economy

Yesterday I talked about how the domestic inflation rate is determined by the international production and supply. Today I want to discuss further the international supply in an individual economy. In a normal perfectly competitive market, the supply curve is usually modelled as an upward sloping curve, as when the price increases, the supply will increase. When it comes to the supply in an economy from the entire world, this supply law is also correct. Once in one country, the price level increases, more goods and services will be imported into this country, as companies can make more revenues and profits.

However, the slope of the supply curve also matters. When the slope is relatively flatter, it implies the price change in one economy can be more moderate; if the slope is relatively sharp and steep, the price change in the economy is more violent. The international total production is distributed based on wealth distribution that wealthier countries get more proportions of the production and poorer countries get smaller proportions of the production. Once the production and supply are determined by the outputs of the economy, the supply curve is definitely not a straight upward sloping line. Moreover, to the imports from overseas, the prices are usually pre-determined, as the imports generally have extra costs including transport costs, tariffs, that make them have higher costs of supply. Therefore, the price is pre-determined, and the imports will see the pre-determined price and choose their levels of supply. Under such circumstance, the supply from other parts of the world chooses its supply level while seeing the demand in the economy.

Overall, I think the total supply from the whole in an economy is close to a flat line, that the imports from the other parts world will enter the market after the domestic supply and the level will be equal to the shortage of the domestic demand, and as long as the price is above the cost of supply, the imports will be willing to occupy the gap between the domestic supply and the domestic demand.