Trade & Open Economy · intermediate
What moves on the Tariffs & Protection (Small Open Economy) diagram
Falling domestic productivity shifts domestic supply left at an unchanged world price, widening the import gap while leaving consumer prices and consumption unchanged.
The gap between domestic consumption and domestic supply at the world price is the volume of imports.
Years of underinvestment leave local plants aging and costly to run.
Domestic supply shifts left while consumers keep buying at the same world price.
The import gap widens. Notice consumers are unaffected here: they still pay the world price. It is producers and their workers who bear the adjustment.
Examiners ask this as: industry decline, domestic supply falls, imports rise, uncompetitive, factory closures.
Other scenarios on Tariffs & Protection (Small Open Economy)