The theory of reciprocal demand asserts that as the U.S.demand for Canadian wheat rises,the equilibrium terms of trade improve for the United States.

Question

Quizplus · Accepted Answer

The theory of reciprocal demand suggests that as the demand for a country's exports increases, the terms of trade will actually worsen for that country. This is because the increased demand for exports will lead to a rise in the price of those exports, which will make imports relatively cheaper, ultimately leading to a decline in the terms of trade. Therefore, as the U.S. demand for Canadian wheat rises, the equilibrium terms of trade would actually worsen for the United States, not improve.

The Theory of Reciprocal Demand Asserts That as the U