Q.Define Terms of Trade.

Terms of trade is the ratio of export prices to import prices; it shows how many units of imports a country can obtain per unit of its exports. When a country trades, it exports some goods and imports others. The terms of trade tell us the exchange relationship between the two. - Commodity (net barter) terms of trade = (Price index of exports / Price index of imports) x 100. - If export prices rise relative to import prices, the terms of trade improve (favourable) — the country gets more imports for the same exports. - If import prices rise faster than export prices, the terms of trade worsen (unfavourable). - Favourable terms of trade raise a country's gains from trade and its real income. …