Question

. Suppose that an offer curve diagram has developed countries exports on one axis and developing countries' exports on the other axis. Explain the predicted impact, other things equal, on the terms of trade of developing countries of relatively slow growth in demand for developing countries goods by developed countries combined with relatively rapid growth in demand by developing countries for developed countries' goods. 8. In the past, the members of OPEC have been able to raise the relative price of petroleum by a large amount with a relatively small decrease in export volume thereby increasing substantially the revenues they received from the buyers of their petroleum exports. Describe the likely shapes of the offer curves of the importing countries shapes that enabled the OPEC countries to pursue their trade strategy successfully

Answer 1

7. The developed countries offer curve shifts slightly upward with relatively slow growth in demand for developing countries products.The developing countries offer curve shifts rightward to a relatively large extent.The terms of trade denudes for a developing nation.The decline would have been even sharper if developed countries were in inelastic range of their offer curve.

8.The offer curve of the oil importing countries is inelastic.It is because the rise in price of oil exports produced greater revenue being spent on the imports by any importing country.Hence they were in the backward bending portion of their offer curves.