Several economists have hypothesized that the terms of trade for developing countries will decline over time. Which of the following might be a cause of this decline?
a. Technological progress in manufactured goods has caused their prices to fall.
b. Some developing countries are able to keep the price of their exports high by restricting supplies on the world market.
c. Increased demand for developing country exports has caused prices of developing country exports to rise.
d. The demand for primary product exports from developing countries has not risen as fast as the demand for manufactured exports of industrialized countries.
Ans: d. The demand for primary product exports from developing countries has not risen as fast as the demand for manufactured exports of industrialized countries.
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The United States has a comparative advantage and specialize in the production of airplanes. Compared to the situation with no trade, which of the following will occur?
A) More airplanes will be produced in the United States. B) There will be no change in the price of airplanes in the United States. C) The world price of airplanes will increase. D) The quantity of airplanes demanded in the United States will increase.