Several economists have hypothesized that the terms of trade for developing countries will decline over time. Which of the following might be a cause of this decline?
A) Technological progress in manufactured goods has caused their prices to fall.
B) Some developing countries are able to keep the price of their exports high by restricting supplies on the world market.
C) Increased demand for developing country exports has caused prices of developing country exports to rise.
D) The demand for primary product exports from developing countries has not risen as fast as the demand for manufactured exports of industrialized countries.

Question

Quizplus · Accepted Answer

This is the most likely reason for the decline in terms of trade for developing countries as the demand for primary product exports has not kept pace with the demand for manufactured exports of industrialized countries. This means that developing countries are receiving relatively lower prices for their exports, which leads to a decline in their terms of trade. A is incorrect as falling prices of manufactured goods could actually benefit developing countries if they are able to increase their own production and competitiveness. B is incorrect as restricting supplies would lead to a decline in demand and ultimately lower prices for exports. C is incorrect as increased demand would lead to higher prices, not a decline in terms of trade.

Several Economists Have Hypothesized That the Terms of Trade for Developing