The theory of reciprocal demand does NOT well apply when one country
A) produces under constant-cost conditions.
B) produces along its production possibilities frontier.
C) is of minor economic importance in the world marketplace.
D) partially specializes the production of its export good.

Question

Quizplus · Accepted Answer

The theory of reciprocal demand, which explains how the terms of trade are determined, assumes that countries have significant economic influence in the world marketplace. When a country is of minor economic importance, its ability to influence the terms of trade through its demand and supply patterns is limited, making this theory less applicable.

The Theory of Reciprocal Demand Does NOT Well Apply When