Terms of trade analysis

• According to the video, what factors determine if improvements or deteriorations in terms of trade are good or bad for a nation?

  Important factors at the end of the review
• What key information does the terms of trade equation miss, that's needed to determine whether improvements or deteriorations are good or bad?

  Key bits of information
• What does the theory suggest will happen to export quantities when the terms of trade improves?

  Quantity levels of export remain the same
• According to the theory, under what condition can a nation buy more imports after an improvement in the terms of trade?

  If export revenues are higher
• What is necessary for an improvement in the terms of trade to be beneficial for a nation?

  An increase in revenues
• If a change in fashion increases demand for a nation's exports, and this leads to an improvement in the terms of trade, what is the likely outcome?

  Higher export revenues for the nation
• What is on the x-axis on the diagram?

  Average export price for a nation
• What is on the y-axis on the diagram?

  Quantity of exports for a given nation
• What happens to the demand curve for exports when there's a change in fashion and taste towards a nation's exports?

  It shifts to the right
• According to the video, if demand for a country's exports increases, leading to an increase in the price of exports, what is the effect on revenues?


  Revenues increase
• Why is an increase in demand for exports, which leads to an increase in the price of exports and an improvement in the terms of trade, generally considered a good thing?

  Because it translates into higher export revenues
• According to the video, what additional information is needed to assess the impact of high relative inflation rates on a nation's terms of trade?

  The elasticity of demand for exports
• What does the video suggest about the relationship between higher export prices and export revenues when demand for exports is price inelastic?

  Export revenues will go up
• What happens to export revenues if demand for exports is elastic and prices increase?

  Revenues generated is actually going to fall
• What assumption does the terms of trade equation make about quantity levels when export prices increase?

  Quantity levels will stay the same
• According to the video, why might a deterioration in the terms of trade not always be a bad thing for a nation?

  Due to improved productivity or technology
• According to the video, what can improvements in productivity or technology lead to?

  Greater quantities of exports being sold
• For developing countries, what does the video suggest can be a very bad consequence of a deterioration in the terms of trade?

  Links back to incomes
• According to the video, what factors does the terms of trade ignore?

  Quantity impacts and PED
• What does the video state is more important than the terms of trade?

  Revenues and import expenditures
• What link should be made before assuming that a country is going to suffer because it can buy less imports?

  Revenues and import expenditures
• What links should be made before assuming an improved terms of trade means a country can buy in more imports?

  To revenues and import expenditures
• What is the equation for terms of trade?

  Terms of Trade = (Index of Export Prices / Index of Import Prices) * 100
• What must happen for an increase in the price of exports to translate into real benefits for a nation?

  An increase in export revenues
• What is the most important determining factor as to whether the Improvement will translate into higher export revenues when there is an increase in relative inflation rates pushing up export prices?

  Elasticity of demand
• According to the video, what factors are important in determining the final impact on aggregate demand in the economy?

  PED of exports and imports
• What might a deterioration in the terms of trade as a result of a country being more internationally competitive lead to?

  More benefits for an economy