25 The terms of trade

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Economics

A-Level Economics

Edexcel

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4 Terms

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index of terms of trade

(index of export prices /index of imports priced)*100

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terms of trade

the ratio of export prices to import prices

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Factors influencing the terms of trade

  • Relative inflation rates

  • Relative production rates

  • Relative labour costs

  • The exchange rate

  • commodity Prices

  • changing incomes

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effects of changes in the terms of trade on export revenues and balance of trade

  • Exports are price elastic

    → swap

  • Exports are price inelastic

    → normal

  • Imports price inelastic

    → swap

  • Imports are price elastic

    → normal