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    trade of the importing country and the exporting country

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    What would each of the following events do to the terms of trade of the importing country and the exporting country, other things being equal ?

    a- A blight destroys a large part of the coffe beans produced in the world.

    b-The koreans cut the price of the steel they sell to Canada.

    c-General inflation of 10 percent occurs around the world.

    d- Violation of OPEC output quotes leads to a sharpfall in the price of oil.

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    Solution Preview

    a) If a large part of the coffee beans produced in the world was destroyed then those exporting countries such as Indonesia, Brazil, Kenya etc who rely on exports of coffee will likely experience a negative impact on their terms of trade. As their exports will now fall, their imports may be greater than their exports, creating a trade deficit.
    For those usually importing coffee beans, their terms of trade are likely to get better as they may substitute the imports of coffee with something produced at home and will no longer import so much. This will improve their trade balance.

    b)If Korea cuts the price of steel, it is likely that this increases demand by Canada and this will improve their ...

    Solution Summary

    Issues of trade of the importing country and the exporting country are highlighted.