When a nation's commodity terms of trade deteriorate and its single factor terms of trade improve,the nation's welfare:

Question

Quizplus · Accepted Answer

When a nation's commodity terms of trade deteriorate, it means the country's export prices fall relative to its import prices. This leads to a decrease in welfare. However, if the nation's single factor terms of trade improve, it means that the price of the nation's most important factor of production (such as labor) has increased relative to its export price. This leads to an increase in welfare.

Therefore, in this scenario, the positive effect of the improvement in single factor terms of trade outweighs the negative effect of the deterioration in commodity terms of trade, leading to a net increase in welfare. Hence, the correct answer is B- rises.

When a Nation's Commodity Terms of Trade Deteriorate and Its