Neco Model Questions Vol1 2021 Economics Question 26

Practice objective / multiple choice question 26 from the 2021 Neco Model Questions Vol1 Economics examination.

Neco Model Questions Vol1 2021 Economics Objective / Multiple Choice Hard Difficulty
Question 26 NECO_MODEL_QUESTIONS_VOL1 • 2021 • ECONOMICS • objective

A country exports wheat and imports coffee. Initially the world price of wheat is $200 per ton and the world price of coffee is $150 per ton. The government imposes a 20\% tariff on coffee imports and at the same time the world price of wheat falls by 10\%. Assuming export and import quantities remain unchanged, (i) calculate the new terms of trade (ratio of export price to import price), (ii) determine the percentage change in the terms of trade, and (iii) state whether the country's welfare improves, deteriorates or is unchanged.

Answer Options

A. Terms of trade = 0.8 (i.e., 4:5); change = -20%; welfare deteriorates.
Correct Answer B. Terms of trade = 1 (i.e., 1:1); change = -25%; welfare deteriorates.
C. Terms of trade = 0.9 (i.e., 9:10); change = -10%; welfare unchanged.
D. Terms of trade = 1.2 (i.e., 6:5); change = +15%; welfare improves.
Correct Answer
B
Correct Option:
Terms of trade = 1 (i.e., 1:1); change = -25%; welfare deteriorates.

About This Question

This is Neco Model Questions Vol1 2021 Economics Question 26. It is one of the objective questions from the 2021 Neco Model Questions Vol1 Economics examination.

Difficulty level: Hard .

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