Question

Unstable export markets, worsening terms of trade, and limited access to the markets in advanced countries are just a few of the problems that have plagued developing nations in Africa, Asia, Latin America, and the Middle East. For example, developing countries have unstable export markets because of:

1. wide fluctuations in prices due to inelastic supply
2. temporary tariffs on manufactured imports
3. the high price elasticity of demand

Developing nations have formed international commodity agreements (ICAs) between leading producing and consuming nations of commodities. To promote stability in commodity markets, ICAs have relied on production and export controls, buffer stocks, and multilateral contracts. For example, providing loans to developing nations may help to:

1. diversity exports
2. reduced poverty and foster economic development
3. maximize cartel profits

Answer 1

A major problem or issue related to the unstable export markets faced by the developing countries is that developing countries increasingly specialize on one or a few specific export commodity/s, product/s, and/or service/s. A relatively inelastic elasticity of supply of the export commodities produced and exported by the developing countries in the international market usually causes significant fluctuations in the price of the concerned commodity/s/product/s in the international market. For example, if the supply of export commodities is inelastic or relatively unresponsive and there is a positive change in the export demand in the international market, the export price can rise considerably and vise versa. Therefore, the answer in this case, is option 1. given in the answer choices or options or wide fluctuations in prices due to inelastic supply.

The financial loans or assistance provided by the World Bank and International Monetary Funds(IMF) to the developing can commonly be used for the improvement and development of domestic and internal infrastructural conditions and poverty reduction within the countries that can eventually promote economic growth or development in these countries. In this context, the various infrastructural improvements can include development and improvement of the transportation system, better road conditions and accessibility of input or factor market facilities by the domestic firms and companies, higher energy generation, various input or factor market improvements which can promote business and commercial growth in any country. Financial loans and assistance can also be utilized in achieving various poverty alleviation or reduction goals and objectives. On many occasions, developing countries can also use the financial loans or assistance in compensating for or mitigating Balance of Payments(BOP) deficit as these countries can face lack of sufficient currencies or foreign reserves to pay for the deficit or to fulfill the financial liabilities to other countries in this process. Hence, the answer, in this case, would be option 2. given in the answer choices or options or reduce poverty and foster economic development.