4/14/14 Terms of Trade

• Terms of trade determine the rate at which one country is willing to trade one item another item on the world market
• Trade terms may be expressed in either monetary or bartering vocabulary
• As a monetary expression, terms of trade are stated as a world price, the subject of upcoming discussions.
• When viewed from a bartering standpoint, trade terms refer to the amount of certain items two countries are willing to exchange with one another.
• Trade terms are influenced by economic and non-economic factors and must be negotiated through a political process.
• There is no unique set of optimal trade terms between two countries.
• A range of acceptable trade solutions exists from which the countries must select through a trade agreements.
• Knowing how a country benefits from specializing can help us determine how it may benefit from trade- shifts in PPC outward.