Question

What features or characteristics of these primary commodities led to the differences in the trends of the relative prices of each of the following products in panels (a), (b), and (c)? Why do some primary commodities show decline, increase, and no trend over time? 2.

Answer 1

There are different reasons that can be attributed to different price trends shown by primary commodities on the basis of export statistics between 1870 & 1940 an economist named Raul Prebish proved that overtime terms of trade have a tendency to move against primary products and would favour manufactured and capital goods. He stored that the least developing economies are involved in the export of primary products over a period of time, as income rises and there is technological progress in advanced economies, these advanced economies would experience a shift in demand from primary to manufactured products. Prebish also assumed that new substitutes would be developed which would least developing contries are always under pressure to pay many External debts. All these factor would eventually lead to decline in price of primary product and deteriotation in terms of trade But this hypothesis was criticised on several grounds. The first argument is that many least developing economies export manufactured goods so