The terms of trade
A)equal the equilibrium price in a competitive market
B)equal a nation's imports minus its exports
C)determine whether specialization according to comparative advantage is economically rational
D)are equal to 1.0 in market equilibrium
E)determine how the gains from international trade are distributed among countries

Question

Quizplus · Accepted Answer

Terms of trade refer to the ratio at which a country can trade its exports for imports. It determines how gains from international trade are distributed among countries. A higher ratio of the terms of trade means a country can import more goods for a given amount of exports, which leads to an improvement in the country's standard of living. Therefore, it is essential to keep track of a country's terms of trade while engaging in international trade.

The Terms of Trade