Final answer:
In a two-nation model, international equilibrium is determined by the import demand of one country and the export supply of the other country. Without trade, each country will have its own equilibrium price and quantity determined by the intersection of its domestic supply and demand curves. When trade is allowed, the world equilibrium price and the levels of exports and imports are determined by the intersection of the import demand curve and the export supply curve.
Step-by-step explanation:
In a two-nation model, international equilibrium is determined by the import demand of one country and the export supply of the other country. Import demand refers to the quantity of goods that one country is willing to import at a given price, while export supply refers to the quantity of goods that another country is willing to export at a given price.
Without trade, each country will have its own equilibrium price and quantity determined by the intersection of its domestic supply and demand curves. However, when trade is allowed to occur, the world equilibrium price and the levels of exports and imports will be determined by the intersection of the import demand curve and the export supply curve.