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3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, , , , Meaning, Net Barter Terms of Trade or Commodity Terms of Trade, , Gross Barter Terms of Trade, Income Terms of Trade, , Single Factoral Terms of Trade, Double Factoral Terms of Trade, Factors Affecting Terms of Trade, , , , A, / International trade is based on international specialisation i.e., ~production on the basis of comparative advantage. Trade involves, not only production but also the exchange of goods between the, countries. The rate at which goods are exchanged between the, countries is called terms of trade. As there are hardly any barter, exchange but purchase and sale of goods between the countries, the, terms of trade are usually referred to the price ratio of exports and, , imports., , Gn a simple manner, terms of trade of a nation are defined as "the, ratio of Price of its export commodity to the price of its import, commodity," It an be stated as :
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ics - VI (T.Y.B.Com. : SE w, , 28 Business Econom a, Teck, Pin 5 ., = Price, where T = Terms of trade P, m = imports, , x= Exports, , is exported and imported, price ratio of, , Itiplied by 100., , is 100, we have terms of trade, , When a single commodity, exports and imports 1s mu, , For example, if P, is 95 and P,,, 95, =— x 100=95., ae 100, , Terms of trade above hundred is favourable to the ex porting country., Less than hundred is unfavourable. In our example, terms of trade, are unfavourable, as we receive less price for our exports than what, we pay for our imports., , When many commodities are traded, the terms of trade of a nation, , are expressed by the ratio of price index of its exports to the price, index of its imports., , There are different methods or concepts to measure the terms of, trade. Based on prices of exports and imports, we have :, , (i) Net Barter Terms of Trade, (ii) Gross Barter Terms of Trade, (iii) Income Terms of Trade, (iv) On the basis of productivi, | productivity of factors of Production, We have, (a) Single Factoral Terms of Trade, , (b) Double Factoral Terms of Trade
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29, Terms of Trade, (g2 NET BARTER TERMS OF TRADE Of, COMMODITY TERMS OF TRADE (To), , , , (T,) is the ratio of the, ts to the prices it pays for its imports., some base year ratio; the, ed or deteriorated. For, d imports prices, , The commodity or net barter terms of trade, , s acountry gets for its expor, ratio when compared to the, ade can be understood as improv, a country’s export an, , price:, This price, terms of tr, this purpose index number of, of the base and current years are used,, , measured by obtaining, a ratio of the, , The new terms of trade can be, lex as shown, , new export price index to the new import price inc, , , , , , below., P. Pn 4, y 1 ,, To = — + —"l x 100 OR a x 100, Pxo Png my, where Tc = Commodity terms of trade, , P = Price index, , x = Exports, , m = Imports, , 1 = Current year, , 0 = Base year, , Base year index is = 100, , Taking 2011 as the base year and expressing the price index of India’s, exports and imports for that year as 100 and the price index of exports, and imports in 2018 changed to 125 and 150 respectively, the terms, of trade would be :, , To = 22 x 100 = 8333, c "150 te, , Since im rT ices is ri rt pr Ss rms, ade o ndi eri I Vis : S, la have been det riorated. he country 1s worse off as it
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Business Economics ~ VI (T-Y.B.Com, : SEM-vj, a than what it receives. The terms of trade have, more tha, , 6.66%. The movement of terms of trade is compare, worsened by 16. - of trade which is = 100. For a country if curren, ee oe ae are more than 100 then the terms of trade are, year's terms gue ; Tove below 100, the terms of trade are, favoutetl suede to that country. The commodity terms of, eich tailgate the direction of gains from trade, are not free, rade,, , from limitations., , has to pay, , f, _AIMITATIONS, , 1. Quality neglected : The commodity terms a a ae, with prices and changes therein. C hanges in Pe a eae ; a e, the changes in terms of trade. Price changes may ta ce place, due toa change in quality. We may pay higher prices for imports, because of improved quality. So also a change in export prices, may be due toa change in quality. Commodity terms of trade,, however, do not take into account the changes in quality of, exports and imports., , 2. Problems associated with the construction of index numbers:, Changes in commodity terms of trade are understood through, the changes in price index of exports and imports. Terms of, trade based on index number are subject to the problems, , associated with the construction of index number. Even if the, index number is constructed by taking only the, the composition of exports, comparison difficult., , traded goods,, and imports change, rendering, , 3. Non-mercantile items are not included ;, trade take into account of only the me, International trade comprises both goods and service. besi, the unilateral receipts and payments. Exclusion of the =, does not give us the total or actual ree, , picture of gain or, the trade. Therefore commodity terms of o. (Tr from, comprehensive measure of terms of trade. EROS, , Net barter terms of, rcantile or tangible goods., , 4. Concentrates on price rather than incom, of trade are based on prices of exports and imports. Favour b, or unfavourable terms of trade are understood Only: =<, comparing the changes in the prices of exports and imports. 2, , e: Commodity terms, , or
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>", , Terms of Trade, decline in price say,, them enabling the country to e, , Higher export income brings more ;, better off. In other words, it is argued that income terms of trade, , are better index of gain than the commodity terms of trade as, atter considers only the price of traded goods rather than, , and quantity exported., , of exports will increase the demand for, arn more foreign exchange., , imports making, the country, , the |, , price, 5. Neglects productivity of inputs : Even without a change in, and imports or even with an adverse change, erms of trade may still be favourable if, productivity of factors is considered. An improvement of, productivity of factors used in export goods would reduce the, cost per unit and increase the gain from trade. The commodity, , ms of trade do not consider this aspect of trade., , prices of exports, , in prices, the t, , ter, , , , terms of trade led economists specially, of terms of trade called Gross, , The limitations of commodity, Taussig! to develop new measure, , Barter Term of Trade., , Q Q Or, Gm = — > + —+ x 100 OR ™1 ¥:100, , i Qing Qxo Qx,, , where G,, = Gross barter terms of trade, , , , , , Q,, = Physical quantity of imports, Q, = Physical quantity of exports, , 0 = Base period, , , , 1= Current period, , fe orreble gross barter terms of trade indicates that the country, von can have more imports for a given exports. In other, ords, its capacity to import increases., , , , 2021/02/09 12:53, , 1, F os 3, rank William Taussig (1859-1940), American Economist.
