Business, 17.03.2020 02:56 KylieAnne

6. Provide a concise statement about the relationship between a developing country’s emphasis on the export of traditional commodities and: (a) export earnings stability; (b) comparative advantage; (c) terms of trade.

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Answer from: KaylaMaria

(a) Traditional commodities may experience higher price fluctuations.

(b) Developing countries tend to have comparative advantage in traditional commodities.

Explanation:

(a) Traditional commodities tend to experience fluctuations in price which will invariably lead to fluctuations in export earnings. Many developing countries concentrate on the exportation of primary products which are usually affected by shifts in supply and demand and are more price inelastic. The uncertainty caused from commodity price fluctuations can hamper economic growth and may increase poverty.

(b) Comparative advantage is the advantage a country gets by producing a good or service at a lower opportunity cost than other countries. Even though the nation may not be the best at producing that particular thing, the good or service has a low opportunity cost. Many developing countries have a comparative advantage in the production of traditional commodities because of natural endowments and low labour costs.

(c) Terms of trade is the ratio of a country's average export price to the country's average import price. For developing countries, the terms of trade for traditional commodities tends to fall with time. The Prebisch–Singer thesis proposed that the price of primary or traditional commodities reduces relative to the price of manufactured products over the long term, thereby causing deterioration in the developing economies terms of trade.

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a progressive tax is a tax that imposes a lower tax rate on low-income earners compared to those with a higher income, making it based on the taxpayer's ability to pay. that means it takes a bigger percentage from high income earners than it does from low income people.

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