If a country experiences a biased growth towards food, and this country exports

Question

If a country experiences a biased growth towards food, and this country exports food and imports cloth, then this country’s terms of trade will ( ); this change on terms of trade will generate a ( ) to its own economy.

A. Increase; secondary benefit

B.Decrease; secondary benefit

C. Increase; secondary burden

D. Decrease; secondary burden

E. Cannot conclude

If Home experiences a biased growth towards cloth, and Home exports food and imports cloth, then Foreign’s terms of trade will ( ); Foreign will be ( ) because of Home’s biased growth.

A. Increase; better off

B. Decrease; better off

C. Increase; worse off

D. Decrease; worse off

E. Cannot conclude

Which of the following circumstance does NOT have increasing return to scale?

A. A factory manager decides to produce more using the same factory

B. The Autarky economy in the Ricardian Model

C. A start-up company launching its first Android phone in South Korea

D. A couple in New York raising their fourth child

Explanation / Answer

First question is answered below

1. Correct option is: (a) increase, secondary benefit

Reason: With increased production of food, the country has now more goods to export and make money. This will increase its bargaining power in the world, leading to better and improved terms of trade, which will benefit the country in striking acbetter deal or bargain.

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