Neco Model Questions Vol1 2022 Economics Question 16

Practice objective / multiple choice question 16 from the 2022 Neco Model Questions Vol1 Economics examination.

Neco Model Questions Vol1 2022 Economics Objective / Multiple Choice Hard Difficulty
Question 16 NECO_MODEL_QUESTIONS_VOL1 • 2022 • ECONOMICS • objective

A country exports coffee and imports wheat. Initially the export price of coffee is \(\$2.00\) per kg and the country exports 1,000,000 kg. The import price of wheat is \(\$1.20\) per kg and the country imports 500,000 kg. Afterwards the coffee price rises to \(\$2.50\) per kg and coffee exports fall to 800,000 kg, while the wheat price falls to \(\$1.00\) per kg and wheat imports rise to 600,000 kg.\n\n(i) Compute the terms of trade (export price ÷ import price) before and after the change and state the percentage change.\n(ii) Calculate export revenue, import expenditure and the trade balance (exports - imports) before and after the change.\n(iii) Based on these figures, does the country's trade position improve, worsen or stay the same?

Answer Options

A. Initial ToT = 1.67, new ToT = 2.00 (≈20% increase). Export revenue = $2,000,000 both periods; import expenditure = $600,000 both periods; trade balance = $1,400,000 both periods. The trade position stays the same.
B. Initial ToT = 1.67, new ToT = 2.50 (≈50% increase). Export revenue = $2,500,000 before, $2,000,000 after; import expenditure = $600,000 both periods; trade balance = $1,900,000 before, $1,400,000 after. The trade position improves.
Correct Answer C. Initial ToT = 1.67, new ToT = 2.50 (≈50% increase). Export revenue = $2,000,000 both periods; import expenditure = $600,000 both periods; trade balance = $1,400,000 both periods. The trade position stays the same.
D. Initial ToT = 1.67, new ToT = 2.50 (≈50% increase). Export revenue = $2,000,000 both periods; import expenditure = $500,000 before, $600,000 after; trade balance = $1,500,000 before, $1,400,000 after. The trade position worsens.
Correct Answer
C
Correct Option:
Initial ToT = 1.67, new ToT = 2.50 (≈50% increase). Export revenue = $2,000,000 both periods; import expenditure = $600,000 both periods; trade balance = $1,400,000 both periods. The trade position stays the same.

About This Question

This is Neco Model Questions Vol1 2022 Economics Question 16. It is one of the objective questions from the 2022 Neco Model Questions Vol1 Economics examination.

Difficulty level: Hard .

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