Suppose that the U.S. imports cloth from India. Describe what will happen to the price and quantity produced of cloth in both countries.

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The Answer is The results of the U.S. importing cloth from India can be seen in the graph below. In the U.S. the price of cloth will decline from P₁as the supply of domestic cloth is augmented by imports from India. In India, the price of cloth increases from P₂ as some of the domestic production of cloth is exported to the U.S. The consumption of cloth will rise in the U.S. to point B and fall in India to point C. As the price of cloth falls in the U.S., domestic production will fall to point A and be replaced by imports from India. In India, the production of cloth will rise to point D as the price of cloth rises.

The results of the U.S. importing cloth from India can be seen in the graph below. In the U.S. the price of cloth will decline from P<sub>1 </sub>as the supply of domestic cloth is augmented by imports from India. In India, the price of cloth increases from P<sub>2</sub> as some of the domestic production of cloth is exported to the U.S. The consumption of cloth will rise in the U.S. to point B and fall in India to point C. As the price of cloth falls in the U.S., domestic production will fall to point A and be replaced by imports from India. In India, the production of cloth will rise to point D as the price of cloth rises.

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