Patterns/Terms of trade

Question 1

Comparative advantage TOT

Answer 1

Developing countries have a CA in manufactured goods
Lower labour costs
Established factories

Offshoring to Bangladesh

Question 2

Emerging economies TOT

Answer 2

BRICS

Growing middle classes
Import more goods

Question 3

Trading blocs TOT

Answer 3

More trade between certain countries

EU
ASEAN
BRICS

Question 4

Exchange rates TOT

Answer 4

ER affects prices of goods

China have kept their ER low to increase their exports

Question 5

Terms of trade formula

Answer 5

Average export prices/ Average import prices x 100

Question 6

TOT definition

Answer 6

How many exports need to be sold to buy a given level of imports

IMPROVEMENT - They can buy more imports with the same exports
WORSENING - They can buy less imports with the same exports

Question 7

Improving TOT

Answer 7

Higher export prices
Higher demand for exports
Higher inflation
Higher incomes

Question 8

Prebisch singer hypothesis

Answer 8

Long run price of primary goods declines compared to manufactured goods

Question 9

Impact of improvements of TOT

Answer 9

Inelastic demand for imports, little movement, more exports, improve balance of payments

Improvement, export prices rise, less exports, import prices fall, more imports, less domestic output, less employment, fall in GDP