Consider the following two statements: (i) The terms of trade of a nation are defined as the ratio of…
Statement (i) is incorrect and statement (ii) is correct. Commodity terms of trade are the ratio of export prices to import prices, rather than the ratio of total export…
Choose your answer
Consider the following two statements:
(i) The terms of trade of a nation are defined as the ratio of the value of its exports to the value of its imports.
(ii) The terms of trade of one of the trade partners are equal to the inverse of those of the other partner.
Answer and explanation
Correct answer D
Statement (i) is incorrect and statement (ii) is correct. Commodity terms of trade are the ratio of export prices to import prices, rather than the ratio of total export value to total import value. In bilateral trade, reversing the trading partner reverses this price ratio, giving its reciprocal.
Practice for these exams
-
West Bengal SET (WB SET)