Gce Model Questions Vol1 2025 Economics Question 13

Practice objective / multiple choice question 13 from the 2025 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2025 Economics Objective / Multiple Choice Medium Difficulty
Question 13 GCE_MODEL_QUESTIONS_VOL1 • 2025 • ECONOMICS • objective

Country A imports machinery and exports coffee. The world price of coffee rises from \(\$2\) to \(\$3\) per kg, while the price of machinery stays at \(\$5\) per unit. Because of the price increase, coffee export quantity falls from 1,000 kg to 800 kg (price elasticity of export demand = \(-0.5\)). Import quantity of machinery remains 200 units. Calculate the change in Country A's trade balance (in dollars) and state the new terms of trade.

Answer Options

A. Trade balance unchanged; new terms of trade = 0.6
Correct Answer B. Trade balance increases by $400; new terms of trade = 0.6
C. Trade balance increases by $600; new terms of trade = 0.75
D. Trade balance decreases by $200; new terms of trade = 0.5
Correct Answer
B
Correct Option:
Trade balance increases by $400; new terms of trade = 0.6

About This Question

This is Gce Model Questions Vol1 2025 Economics Question 13. It is one of the objective questions from the 2025 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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