Question

43. Suppose that country I is importing good Y and exporting good X. At a terms of trade of 1X:3Y, country I is willing to import 90 units of Y and to export 30 units of X in exchange; at a terms of trade of 1X:4Y, country I is willing to import 128 units of Y and to export 32 units of X in exchange. Considering just these two offer curve points, country I's demand for imports over the range between these two points is a. inelastic b. unit elastic c. elastic d. inelastic, unit elastic, or elastic - cannot be determined without more information 44. International Monetary Fund data indicate that, with 2005 = 100.0, Sweden's export price index in 2011 was 129.7, its import price index in 2011 was 133.3, its export quantity index in 2011 was 115.9, and its import quantity index in 2011 was 129.0. Given this information, a calculation of Sweden's "income" terms of trade for 2011 would give a result of a. 87.4 b. 112.8 c. 119.1 d. 132.6

Answer 1

43. a) elastic; A deterioration in the terms of trade may improve the trade balance. This will occur when the demand for exports and imports is price elastic.

44. b) 112.8; Terms of trade represent the ratio between a country's export prices and its import prices.The ratio is calculated by dividing the price of the exports by the price of the imports and multiplying the result by 100.