Question
Describe the Types of Terms of Trades?
✓
Answer
Types of Terms of Trade:
The different concepts of terms of trade were classified by Gerald M.Meier into the following three categories:
Terms of Trade related to the Ratio of Exchange between Commodities:
Net Barter Terms of Trade:
Net Barter Terms of Trade:
1. This type was developed by Taussig in 1927.
2. The ratio between the prices of exports and of imports is called the "net barter terms of trade'.
3. It is named by Viner as the 'commodity terms of trade'.
It is expressed as:
$T_n=\left(P_x / P_m\right) \times 100$
Where,
$T_n=$ Net Barter Terms of Trade
$P_{ x }=$ Index number of export prices
$P_m=$ Index number of import prices
This is used to measure the gain from international trade.
If ' $T_n$ ' is greater than 100 , then it is a favourable terms of trade which will mean that for a rupee of export, more of imports can be received by a country.
2. Gross Barter Terms of Trade:
1. This was developed by Taussig in 1927 as an improvement over the net terms of trade.
2. It is an index of relationship between total physical quantity of imports and the total physical quantity of exports.
$T=\left(Q_m / Q_x\right) \times 100 \text { Where, }$
$Q_m=$ Index of import quantities.
$Q_x=$ Index of export quantities
If for a given quantity of export, more quantity of import can be consumed by a country, then one can say that terms of trade are favourable.
3. Income Terms of Trade:
1. The income terms of trade was given by G.S.Dorrance in 1948.
2. It is the index of the value of exports divided by the price index for imports multiplied by quantity index of experts.
3. In other words, it is the net barter terms of trade of a country multiplied by its exports - volume index.
$T=\left(P_x / P_m\right) Q$
Where,
$P_x=$ Price index of exports
$P_m=$ Price index of imports
$Q_{ x }=$ Quantity index of exports
The different concepts of terms of trade were classified by Gerald M.Meier into the following three categories:
Terms of Trade related to the Ratio of Exchange between Commodities:
Net Barter Terms of Trade:
Net Barter Terms of Trade:
1. This type was developed by Taussig in 1927.
2. The ratio between the prices of exports and of imports is called the "net barter terms of trade'.
3. It is named by Viner as the 'commodity terms of trade'.
It is expressed as:
$T_n=\left(P_x / P_m\right) \times 100$
Where,
$T_n=$ Net Barter Terms of Trade
$P_{ x }=$ Index number of export prices
$P_m=$ Index number of import prices
This is used to measure the gain from international trade.
If ' $T_n$ ' is greater than 100 , then it is a favourable terms of trade which will mean that for a rupee of export, more of imports can be received by a country.
2. Gross Barter Terms of Trade:
1. This was developed by Taussig in 1927 as an improvement over the net terms of trade.
2. It is an index of relationship between total physical quantity of imports and the total physical quantity of exports.
$T=\left(Q_m / Q_x\right) \times 100 \text { Where, }$
$Q_m=$ Index of import quantities.
$Q_x=$ Index of export quantities
If for a given quantity of export, more quantity of import can be consumed by a country, then one can say that terms of trade are favourable.
3. Income Terms of Trade:
1. The income terms of trade was given by G.S.Dorrance in 1948.
2. It is the index of the value of exports divided by the price index for imports multiplied by quantity index of experts.
3. In other words, it is the net barter terms of trade of a country multiplied by its exports - volume index.
$T=\left(P_x / P_m\right) Q$
Where,
$P_x=$ Price index of exports
$P_m=$ Price index of imports
$Q_{ x }=$ Quantity index of exports
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