Lesson 33 - Terms of Trade Flashcards
How are the terms of trade measured?
An index that shows the value of average export prices to average import prices.
What is the equation for terms of trade?
Index of export prices / Index of import prices
X100
Identify three reasons why the price of exports and imports might change?
Changes in demand for commodities - oil, copper, gold etc
Changes in income levels in different countries
Changes in productivity
Changes in inflation rates
Changes in exchange rates
Why do the terms of trade matter?
The terms of trade affect the gains from trading with other countries.
Countries need to be aware of the impact of changes in the terms of trade
What do terms of trade show?
The terms of trade depends on changes in the price of imports and exports. It shows how many imports can be bought for each unit of exports sold.
