Unit VI - Terms of trade

Day and Date:

Unit Highlights…

 Terms of trade

 Factors affecting terms of trade

Text book reference chapters…

 International Economics by Dominick

Salvatore – Chapter 4 & 11

 International Economics by Francis

Cherunilam – Chapter 7
Terms of Trade…concept

 Ratio of the price of its export commodity to

the price of its import commodity.
Terms of Trade…types

 Commodity/net barter terms of trade

 Gross barter terms of trade
 Income terms of trade
 Single factorial terms of trade
 Double factorial terms of trade
Terms of Trade…Commodity/net
barter terms of trade

The ratio (expressed as a percentage) of

relative export and import prices when
volume is held constant.
Terms of Trade… Gross barter
terms of trade

The ratio (expressed as a percent) of a

quantity index of exports to a quantity index
of inputs.
Terms of Trade…Income terms
of trade

The ratio (expressed as a percent) of the

value of exports to the price of imports.
Terms of Trade… Single
factorial terms of trade

Net barter terms of trade adjusted for

changes in the productivity of exports.
Terms of Trade… double
factorial terms of trade

This adjusts for both the productivity of

exports and the productivity of imports.
Factors affecting Terms of
Trade

 Dependency on foreign sourcing

 Relative competitiveness in production
 PESTLE aspects of business environment -
intra-country and the rest of the world
To conclude…

Economic efficiency is enhanced when

nations engage in mutually beneficial
exchange.
You should now be able to,

 Explain the concept and types of terms of

trade.

 Identify factors that determine favorable

terms of trade.