4.1.4 terms of trade

Question 1

Terms of trade

Answer 1

-Price of nations exports relative to their imports
-Calculated from weighted average of thousands of different export and import prices

Average export price index/
Average import price index
x100

Question 2

Factors influencing a countrys terms of trade

Answer 2

-Rise in export prices and fall in import prices causes an improvement in terms of trade - favourable as a country can buy more imports with same level of exports

-Exchange rates, inflation, changes in s+d of x+m affect relative prices of x+m

-LR Improvement in productivity decreases terms of trade as export prices fall relative to import prices - caused by new tech, more efficient labour

-LR changing incomes - affects pattern of demand for g+s
-Prebisch singer hypothesis - LR price of primary goods declines in proportion to manufactured goods - those dependent on primary goods will see a fall in terms of trade