Terms of Trade | A-Level Economics Notes
These revision notes cover everything you need to know about Terms of Trade for A-Level Economics. They're designed for students studying Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.
What are terms of trade?
Terms of trade = (index of export prices/index of import prices) x100
What are three factors that influence a country's terms of trade?
Three factors that can influence terms of trade are:
- relative inflation rates
- exchange rates
- relative productivity rates
What is the main impact of a stronger terms of trade?
A stronger terms of trade means that living standards are likely to increase because less has to be exported to buy a given quantity of imports.
What is the main impact of a weaker terms of trade?
A weaker terms of trade suggests that a country is more internationally competitive, which should lead to an improvement in the current account.
Summary questions
- What are terms of trade?
- What are three factors that influence a country's terms of trade?
- What is the main impact of a stronger terms of trade?
- What is the main impact of a weaker terms of trade?
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