In the following offer curve diagram,

If, starting from the initial equilibrium point E, countries A and B both increase their Demand for computers, then country A's terms of trade will __________ and the volume of A's exports will __________.
A) improve; fall
B) improve; rise, fall, or stay the same (cannot be determined without more Information)
C) deteriorate; rise
D) improve, deteriorate, or stay the same (cannot be determined without more Information); rise

Question

In the following offer curve diagram,

If, starting from the initial equilibrium point E, countries A and B both increase their Demand for computers, then country A's terms of trade will __________ and the volume of A's exports will __________.
A) improve; fall 
B) improve; rise, fall, or stay the same (cannot be determined without more Information) 
C) deteriorate; rise 
D) improve, deteriorate, or stay the same (cannot be determined without more Information); rise

Quizplus · Accepted Answer

Without knowing the extent to which the demand for computers increased in countries A and B, we cannot determine the specific effect on the terms of trade. However, we know that country A's exports will increase (since both countries increased their demand), but we cannot determine the exact amount without more information. Therefore, the best choice is B, which states that the terms of trade will improve but the volume of A's exports could rise, fall, or stay the same depending on the extent of the demand increase.

In the Following Offer Curve Diagram