Terms of Trade

• definition of terms of trade: Index of export prices/ index of import prices × 100
• Consequences of a change in the terms of trade for a country's balance of payments and domestic economy
• The significance of deteriorating terms of trade for developing countries
• Measurement of terms of trade
• Causes of changes in country's terms of trade in the short-run and long-run
• Elasticity of demand for imports and exports
• Possible inverse relationship between Terms of Trade and Balance of Payments - depends on elasticity for imports and exports (Price and Income elasticities)