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JAMB Economics 1984 Question 42

Question 42

International Trade

Let Px represent the price of exports and Pm the price of imports. Then, the terms of trade (TOT) are said to be favourable if

  1. A.Px/Pm < 1
  2. B.Px/Pm = 1
  3. C.Px/Pm > 1
  4. D.Px/Pm ≠ 1
  5. E.0 < Px/Pm < 1
Show the answer and explanation

Answer: C (Px/Pm > 1)

Explanation

Terms of trade are favourable when export prices are high relative to import prices, i.e. Px/Pm is greater than 1.