If the ratio of price of cloth (P_C)divided by the price of food (P_F)increases in the international marketplace,then A)the terms of trade of cloth exporters will improve. B)all countries would be better off. C)the terms of trade of food exporters will improve. D)the terms of trade of all countries will improve. E)the terms of trade of cloth exporters will worsen.

Question

Quizplus · Accepted Answer

If the ratio of price of cloth divided by the price of food increases, it means the price of cloth has become relatively more expensive compared to food. This would benefit cloth exporters as they would receive more income for their exports. However, it would disadvantage food exporters as they would receive less income for their exports. Therefore, the terms of trade of cloth exporters would improve, but the terms of trade of food exporters would worsen. All countries would not necessarily be better off, and the terms of trade of all countries would not necessarily improve.

If the Ratio of Price of Cloth (PC)divided by the Price

If the Ratio of Price of Cloth (P_C)divided by the Price