Instructor’s Manual
(2) buffer stocks, and (3) multilateral contracts. In general, these policies have had only modest success in
stabilizing commodity markets. To further help developing countries improve their economic well-being,
industrial countries have extended nonreciprocal tariff preferences to exports of developing countries.
OPEC is discussed as a way in which otherwise marginalized nations collectively derive power. Foreign aid
is offered as a substitute as provided by the institutions of the World Bank and IMF.
To enhance economic growth, developing countries have enacted an inward-looking strategy (import
1. Developing nations often contend that the existing pattern of trade and specialization has made them
excessively dependent on primary products, which has led to unstable export markets and secularly
2. To promote stability in commodity markets, international commodity agreements have relied on
production and export controls, buffer stocks, and multilateral contracts.
3. International commodity agreements have been applied to commodities such as tin, cocoa, coffee,
sugar, and wheat. Deciding on acceptable ranges for price and output fluctuations has been difficult.
Convincing countries to accept production and export quotas has also been difficult, especially during
Instructor’s Manual
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4. Many developing countries find that their economies are greatly tied to the export of one commodity,
such as tin. Since the price elasticities of supply and demand of most commodities are low, modest
5. During the 1960s oil was relatively abundant at the world level, which limited OPEC’s ability to raise oil
prices. By the 1970s oil was perceived as being in short supply. Following the Yom Kippur War in
1973, OPEC realized that market conditions would support substantial increases in the price of oil.
6. The purpose is a cartel is to restrict market output, thus driving up price and profits; output restriction
requires cartel members to sell no more than their quotas. An individual cartel member has the
7. Under the GSP program, industrial countries reduce tariffs on imports from developing countries below
8. Developing countries use import substitution policies to restrict the import of manufacturers so that
domestic producers can take over established markets. Export promotion policies attempt to replace
9. East Asia’s growth strategy has emphasized high rates of investment combined with high and
increasing endowments of human capital due to universal primary and secondary education. East
Asia’s economies have followed a flying geese pattern of growth in which countries gradually move up
10. Since the 1970s, China has abolished much of its centrally-planned economy and allowed free
enterprise to replace it. This move toward capitalism has dramatically improved the productivity and
export performance of the Chinese. In the United States, there has existed pressure to use China’s
11. Prior to the 1990s, India adopted a system of import substitution to protect its young producers from
foreign competition. As India became isolated from the global economy, its economic growth suffered
and poverty became widespread. By the 1990s, the government of India realized that a movement