SCENARIO: HOME'S WILLINGNESS TO TRADE WHEAT FOR CLOTH
Home has a comparative advantage in wheat, and Foreign has a
Comparative advantage in cloth.Once trade occurs, Home produces
1,500 bushels of wheat, and Foreign produces 1,000 yards of cloth.The
Following table shows the amount of wheat that Home is willing to trade
To acquire more cloth.
Reference: Ref 213
(Scenario: Home's Willingness to Trade Wheat for Cloth) Suppose that
Home's export price rose from 0.5 bushel of wheat per yard of cloth in
2009 to a bushel of wheat per yard of cloth in 2010.What does this
Movement represent in terms of Home's terms of trade?
A)It is an improvement in Home's terms of trade.
B)It is a deterioration in Home's terms of trade.
C)There is no change in Home's terms of trade.
D)The answer cannot be determined based on the information provided.

Question

SCENARIO: HOME'S WILLINGNESS TO TRADE WHEAT FOR CLOTH
Home has a comparative advantage in wheat, and Foreign has a
Comparative advantage in cloth.Once trade occurs, Home produces
1,500 bushels of wheat, and Foreign produces 1,000 yards of cloth.The
Following table shows the amount of wheat that Home is willing to trade
To acquire more cloth. 
Reference: Ref 2­13
(Scenario: Home's Willingness to Trade Wheat for Cloth) Suppose that
Home's export price rose from 0.5 bushel of wheat per yard of cloth in
2009 to a bushel of wheat per yard of cloth in 2010.What does this
Movement represent in terms of Home's terms of trade?
A)It is an improvement in Home's terms of trade. 
B)It is a deterioration in Home's terms of trade. 
C)There is no change in Home's terms of trade. 
D)The answer cannot be determined based on the information provided.

Quizplus · Accepted Answer

A rise in Home's export price from 0.5 bushel of wheat per yard of cloth in 2009 to 1 bushel of wheat per yard of cloth in 2010 indicates that Home can now buy fewer yards of cloth with the same amount of wheat. This means that Home's terms of trade have deteriorated.