Trinidad and Tobago has been attempting to diversify its economy away from petroleum. Which of the following BEST explains why economic diversification is important for development?

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Question

Trinidad and Tobago has been attempting to diversify its economy away from petroleum. Which of the following BEST explains why economic diversification is important for development?

Accepted Answer

It reduces vulnerability to external price shocks — Award 1 mark for understanding that diversification spreads risk across multiple industries. A is incorrect because diversification reduces, not increases, dependence on a single commodity. C is incorrect because diversification typically increases employment opportunities. D is incorrect because diversification can increase foreign exchange earnings from multiple sources.

Answer

It limits foreign exchange earnings

Answer

It decreases employment opportunities

Answer

It increases dependence on a single commodity

Answer

It reduces vulnerability to external price shocks

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