Answer to Question #143188 in Microeconomics for nur aliah

Question

a. Developing countries that export agricultural products to industrialized countries frequently argue that unless they expand their manufacturing sectors, they will always remain relatively poor. Use the elasticity concept to explain such an argument.

Answer 1

Elasticity measures the change in the aggregate quantity demanded for a good and service in relation to the price movements of that good or service.

The demand for agricultural products in the developing countries will increase turning the terms of trade against the countries, lowering it's share in the gains.