Multiple choice

Which type of elasticity plays a crucial role in determining international trade?

  1. Elasticity of demand

  2. Price elasticity of demand

  3. Income elasticity of demand

  4. Cross elasticity of demand
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

If the demand for imports is inelastic, the increase in prices as a result of devaluation will adversely affect the balance of payments, because at higher prices of the imports and almost the same quantity of imports, the country would have to spend more on the imports than before and vice versa. Hence, price elasticity plays significant role in international trade.

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