, ECS3702 Semester 2 Assignment 2 2025 -
Due 22 September 2025
1. Define Terms of Trade (TOT) [1 mark]
Terms of Trade (TOT) is the ratio of a country’s export prices to
its import prices. It indicates how many units of imports a
country can purchase per unit of exports. If export prices rise
relative to import prices, the TOT improves; if export prices fall
relative to import prices, the TOT deteriorates.
2. How is Terms of Trade measured [2 marks]
It is measured using price indices. Specifically one
commonly used formula is:
TOTt=Pexports,tPimports,t×100 \text{TOT}_t = \frac{P_{\
text{exports},t}}{P_{\text{imports},t}} \times 100TOTt
=Pimports,tPexports,t×100
where Pexports,tP_{\text{exports},t}Pexports,t = export unit
value price index in year ttt, and Pimports,tP_{\
text{imports},t}Pimports,t = import unit value price index in
year ttt.
Indices are usually normalized to a base year (e.g. 100 in
the base year), so you can see how export/import price
relationships evolve over time.
Due 22 September 2025
1. Define Terms of Trade (TOT) [1 mark]
Terms of Trade (TOT) is the ratio of a country’s export prices to
its import prices. It indicates how many units of imports a
country can purchase per unit of exports. If export prices rise
relative to import prices, the TOT improves; if export prices fall
relative to import prices, the TOT deteriorates.
2. How is Terms of Trade measured [2 marks]
It is measured using price indices. Specifically one
commonly used formula is:
TOTt=Pexports,tPimports,t×100 \text{TOT}_t = \frac{P_{\
text{exports},t}}{P_{\text{imports},t}} \times 100TOTt
=Pimports,tPexports,t×100
where Pexports,tP_{\text{exports},t}Pexports,t = export unit
value price index in year ttt, and Pimports,tP_{\
text{imports},t}Pimports,t = import unit value price index in
year ttt.
Indices are usually normalized to a base year (e.g. 100 in
the base year), so you can see how export/import price
relationships evolve over time.
