The document defines different types of terms of trade for a nation: - Commodity or net barter terms of trade is the ratio of the price index of a nation's exports to the price index of its imports. - Income terms of trade also uses export and import price indexes but includes the volume of exports. - Single factorial terms of trade includes export and import price indexes and the productivity index of the export sector. - Double factorial terms of trade is the export/import price index ratio multiplied by the productivity index ratio of the export and import sectors.

1. Dr.Sreejith A.
KSM DB College
Sasthamcotta

2.  The terms of trade of a nation are defined as
the ratio of the price of its export commodity
to the price of its import commodity.
 Since in a two-nation world, the exports of a
nation are the imports of its trade partner,
the terms of trade of the latter are equal to
the inverse, or reciprocal, of the terms of
trade of the former.

3.  In a world of many (rather than just two)
traded commodities, the terms of trade of a
nation are given by the ratio of the price index
of its exports to the price index of its imports.
 This ratio is usually multiplied by 100 in order
to express the terms of trade in percentages.
 These terms of trade are often referred to as
the commodity or net barter terms of trade
 An improvement in a nation’s terms of trade is
usually regarded as beneficial to the nation in
the sense that the prices that the nation
receives for its exports rise relative to the
prices that it pays for imports

6. Commodity, or Net Barter Terms of Trade (N)
Commodity, or net barter, terms of trade (N)
as the ratio of the price index of the nation’s
exports (PX ) to the price index of its imports
(PM ) multiplied by 100 (to express the terms
of trade in percentages). That is:
N = (PX /PM ) 100

7. Income Terms of Trade (I )
 Income terms of as the ratio of the price index of the
nation’s exports (PX ) to the price index of its imports
(PM ) multiplied by index of the volume of exports
I = (PX /PM ) QX
 where QX is an index of the volume of exports. Thus, I
measures the nation’s export-based capacity to import.

8. Single Factoral Terms of Trade (S )
 Single factor terms of trade as the ratio of the
price index of the nation’s exports (PX ) to
the price index of its imports (PM ) multiplied
by productivity index in the nation’s export
sector
 S = (PX /PM ) ZX
 where ZX is a productivity index in the
nation’s export sector.
 Thus, S measures the amount of imports the
nation gets per unit of domestic factors of
production embodied in its exports

9. Double Factoral Terms of Trade (D)
 The ratio of the price index of the nation’s
exports to the price index of its imports
times the ratio of the productivity index in
the nation’s export sector to the productivity
index in the nation’s import-competing
sector.
D = (PX /PM )(ZX /ZM ) 100