Factors affecting the relative prices of imports and exports

  

Date Posted: 5/8/2012 7:11:12 AM

Posted By: rodriguez mwalenga  Membership Level: Silver  Total Points: 110

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* The elasticity of demand for exports
Where demand for exports is inelastic, an increase in supply would tend to depress prices, thereby adversely affecting the exporting country's terms of trade.

* The elasticity of supply of imports
If the supply of imports is inelastic, an increase in prices that would adversely affect the terms of trade for the importing country.

* Tastes and fashion
This relates to the trends in the demand for exports and imports. Changes in tastes and fashion can affect the demand for exports and imports and hence affect terms of trade.

* Changes of exchange rates
When they occur, these changes directly influence relative prices of imports and exports, thereby affecting the terms of trade. It is worthwhile noting the persistently unfavorable terms of trade that developing countries experience in their trade relations with developed countries.

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