Question

Japar primary exports manufactured goods, while importing raw materials such as food and ot Determine the impact on Japan's arms of trade of the following events: a. Awer in the Middle East dins lucely Korea develops the ability to produce tomobiles that it can sell in Canada and the United State c. U.S. engineers develop a fusion reactor that replaces fossilfull y plants d. Aharvest failure in Russia . A reduction in Japan's tarifs on imported bed and mus fruit

Answer 1

(a) War in the Middle East will disrupt the oil supply and this will decrease the supply of raw materials which in turn would increase the relative supply. The world relative supply curve will shift out, decreasing the world relative price of manufactured goods and thus deteriorating terms of trade for Japan.

(b) Korea will start producing automobile at an increased rate. This will increase the supply of manufacturers which in turn increases the world relative supply. The world relative supply curve will shift out, decreasing the world relative price of manufactured goods and thus deteriorating terms of trade for Japan.

(c) This will decrease the demand for raw materials. This increases the world relative demand and the world relative demand curve will shift out increasing the world relative price of manufactured goods and improving Japan’s terms of trade.

(d) Harvest failure in Russia will decrease the supply of raw materials which will increase the world relative supply and the RS curve will shift out. The demand of Russia for manufacture will also decrease which reduces the world demand, so that the world RD curve shifts in. Thus will decrease the world relative price of manufactured goods and weaken Japan’s terms of trade.