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Economics Terms of Trade Quiz

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Questions and Answers

What scenario describes a country experiencing favourable terms of trade?

Export prices decline while import prices remain constant.

Import prices rise while export prices decline.

Import prices remain constant while export prices increase. (correct)

Both import and export prices increase, but the rate of increase in imports is higher.

Which of the following scenarios indicates unfavourable terms of trade?

Import prices decrease and export prices increase.

Import prices increase while export prices remain constant.

Import prices remain constant while export prices decline. (correct)

Both import and export prices increase at the same rate.

In which situation would a country experience favourable terms of trade?

Import prices increase while the prices of exports remain the same.

Import prices increase while export prices increase at a lower rate.

Both import and export prices decrease, but import prices decrease more. (correct)

Import prices decline while export prices remain constant.

What is a condition for a country having favourable terms of trade?

<p>Export prices increase while import prices decrease.</p> Signup and view all the answers

Which of the following is NOT indicative of favourable terms of trade?

<p>Both import and export prices rise, but at the same rate.</p> Signup and view all the answers

Study Notes

Favourable Terms of Trade

Occurs when the prices of imports decline while export prices remain constant, enhancing purchasing power.
Experienced when import prices decrease and export prices increase, benefiting the country's trade balance.
Happens if import prices stay constant while export prices rise, leading to increased revenue from exports.
Arises when both import and export prices rise, but the export price increase outpaces that of imports, improving terms of trade.
Can occur when both import and export prices drop, provided the decrease in import prices is greater, resulting in better trade conditions.

Unfavourable Terms of Trade

Occurs when import prices rise while export prices fall, decreasing the value derived from trade.
Experienced if import prices remain constant while export prices decline, resulting in lower revenue from exports and negatively affecting the economy.

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Description

Test your understanding of the factors affecting terms of trade in economics. This quiz covers the conditions that lead to either favorable or unfavorable trade terms. Assess your knowledge on import and export price dynamics and their economic implications.