1- When a nation\'s terms of trade worsens: a. The nation has to stop trading wi
ID: 1201182 • Letter: 1
Question
1- When a nation's terms of trade worsens:
a. The nation has to stop trading with other nations. b. The nation should only be engaged in importing. c. The nation should increase its export. d. The nation has to order its citizens not to purchase imported products. e. None of the above is a solution.
2- Ricardo's theory unlike Smith theory, is based on the assumption that costs of production change with the level of production. True False
3- As the world is becoming "flat", the relevance of absolute cost advantage in international trade:
a. become embolden. b. diminishes. c. becomes applicable developed countries. d. none of the above is choices is correct. e. only implies to developing countries.
Explanation / Answer
1. c. The nation should increase its export.
Terms of Trade = Index of Export Prices/ Index of Import Prices * 100
If the Terms of Trade for a country worsens, it has to export more to purchase a given quantity of imports.
2. False
Ricardian Theory only assumeshow supply of production influences the international price of the product.
3. a) becomes embolden.
As the world is becoming flat, the countries which can produce greater quantity of goods orservicesusing the same amount of resources will have an upper hand and thus exports the products to other countries.
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