Terms of Trade Exercise
Terms of trade is a concept that compares the value of a country’s exports to that of its imports. It is a way of answering the following question: “How many exports do I have to sell to purchase my imports?”
Let’s illustrate this in a personal way. In the input box below enter:
- The hourly wage for your job (or a job that you would like to have).
- A consumer good that you purchase regularly.
- The price of this good.
When you click ‘add row’ you will add rows to a table that will show:
- The number of working hours required to purchase the good
- Your ‘Terms of Trade’
| Hourly Wage | Price of Good | Hours Worked to Purchase Good | Terms of Trade |
|---|
Explore what happens with the following tasks:
- Gradually change the price of the good you purchase while keeping your hourly wage constant. What happens to the hours worked to purchase the good? What happens to your terms of trade?
- Gradually change your wage while keeping the price of the good constant. What happens to the hours worked to purchase the good? What happens to your terms of trade?
Summary Questions:
- Would you rather have a strong or a weak terms of trade? Explain.
- How is the ‘Hours Worked to Purchase Good’ column calculated?
- How is the ‘Terms of Trade Column’ calculated?
- What does the ‘Terms of Trade’ mean? i.e. What does a value of 110 mean compared to a value of 90?
- Extension: Your hourly wage is a way of brining money into your life; it’s an export. Your purchase of consumer goods is money going out of your life; it’s an import. Use the information in this exercise to create a formula that will explain terms of trade for a country rather than an individual.