Factors that may lead to either favourable or unfavourable terms of trade

Business studies study module

The country is experiencing a favourable terms of trade if:

  • The prices of imports decline and those of export remains the constant
  • The prices of imports declines while those of exports increase
  • The price of imports remains constant while those of exports increase
  • The prices of import and export increases but the rate of increase in export is higher
  • Both prices decrease but the decrease in import prices is higher

The country will experience unfavourable terms of trade if;

  • Prices of import increases while those of exports decline
  • Prices of import remains constant while those of export declines
  • Prices of import increase as the export remains constant
  • Both prices increase, but for imports increases at a higher rate than export
  • Both prices decrease, but for export decreases at a higher rate than import



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