• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

CB2 - Sept 2008, qus26

Bharti Singla

Senior Member
24 Country A exports Good X and imports Good Y from Country B. The price of Good X rises by 20 per cent and the price of Good Y falls by 40 per cent. Which of thefollowing statements is correct about Country A’s terms of trade?
A It has improved by 100 per cent.
B It has improved by 60 per cent.
C It has deteriorated by 100 per cent.
D It has deteriorated by 60 per cent.

May I know why the answer is A?
 
This is how I would see it -

Imagine both good x and good y start out at 100.
Good x increases by 20%, so it's at 120.
Good y decreases by 20%, so it's at 60.

Country A is exporting good x, so getting a the higher price of 120 for goods it sells. It is importing the cheaper good y at 60. So the improvement in terms of trade is 100%. Hope that makes sense, also anyone else feel free to add or correct to my explanation.
 
Back
Top