FIGURE 8-3 The Domestic Market with Exports

Here the world price, P_W, is greater than the autarky price, P_A. When the economy is opened to international trade, some of the domestic supply is now exported. The domestic price rises from the autarky price, P_A, to the world price, P_W. As the price rises, the domestic quantity demanded falls from Q_A to Q_D and the domestic quantity supplied rises from Q_A to Q_S. The portion of domestic production that is not consumed domestically, Q_S − Q_D, is exported.