b) Use relative demand and relative supply curves to show the impact of introducing an (C) on the terms of trade of the (D). Use arrows to show any shifts in curves. PE and QE refer to the price and quantity of the exported good of the (D) and Pr and Or refer to the price and quantity of the imported good. Label both the old terms of trade (superscripted 1) and the new terms of trade (superscripted 2). Assume a student ID number that has us consider impact of an import tariff on the country imposing the tariff. RS2 RS PE / PI RD2 ( PE/ PI) RD ( PE/ PI)' QE / QI The import tariff increase the relative price of the imported good in the country imposing the tariff causing firms to produce more of the imported good (and less of the exported good) at a given relative world price. Consumer's substitute away for the now relatively more expensive imported good to the export good. Both the relative demand and supply curves shift. As we are considering the impact of the tariff on the country imposing the tariff the relative supply curve shifts to the left and the relative demand curve shift to the right. Both shifts lead to an increase in the tariff imposing country's terms of trade. 17