Give below are two statements : Statement - I : The terms of trade of a nation are defined as the ratio…
Statement I is false literally: net barter terms of trade use export price divided by import price, not export production cost divided by import price. Statement II is true…
Choose your answer
Give below are two statements :
Statement - I : The terms of trade of a nation are defined as the ratio of the cost of its export commodity to the price of its import commodity.
Statement - II : The terms of trade of the trade partner are equal to the inverse of the terms of trade of the other nation.
Answer and explanation
Correct answer D
Statement I is false literally: net barter terms of trade use export price divided by import price, not export production cost divided by import price. Statement II is true in the conventional bilateral two-good setting: if one country’s ratio is Pₓ/Pₘ, its partner’s is Pₘ/Pₓ. Thus I is false and II true. With many goods and separately weighted national indices, exact reciprocity need not hold.
Practice for these exams
-
UGC NET Economics