International Trade

However, on the other hand a sole reliance on international trade by SSA countries may not promote economic development due to the volatility in the prices of these goods. The reason for this is that the demand and supply of these natural resources and raw materials are very inelastic due to the time taken for production and the due to the nature of the business cycle. This means that a small change in quantity demanded and supplied will cause a more than proportionally large change in prices. In the long run demand for raw materials is income inelastic and so an increase in income will cause the demand curve to shift from D1 though to D2, and D3 toD4. Also, since supply is inelastic, new technology introduced and improved productivity will shift the supply curve from S1 through to S2 and S3 to S4. Due to the inelastic demand and supply curves the change in price is much greater from P1 down to P4. Overall, this shows how unstainable it is to depend just on international trade in the long run.

However, on the other hand a sole reliance on international trade by SSA countries may not promote economic development due to the volatility in the prices of these goods. The reason for this is that the demand and supply of these natural resources and raw materials are very inelastic due to the time taken for production and the due to the nature of the business cycle. This means that a small change in quantity demanded and supplied will cause a more than proportionally large change in prices. In the long run demand for raw materials is income inelastic and so an increase in income will cause the demand curve to shift from D1 though to D2, and D3 toD4. Also, since supply is inelastic, new technology introduced and improved productivity will shift the supply curve from S1 through to S2 and S3 to S4. Due to the inelastic demand and supply curves the change in price is much greater from P1 down to P4. Overall, this shows how unstainable it is to depend just on