The term 'J-Curve Effect' in international economics refers to:
A. No effect of exchange rate on trade balance
B. Immediate improvement in trade balance after depreciation
C. Initial worsening of trade balance after depreciation followed by improvement
D. Continuous deterioration of trade balance
Answer: Option C
Solution (By JKSSB Mock Tests)
The J-curve effect describes the pattern where a currency depreciation first worsens the trade balance (due to existing contracts) before improving it as quantities adjust.
Explanation:
Product differentiation is a feature of monopolistic competition, not perfect competition. In perfect competition, products are homogeneous.
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