Answer to Question #292796 in Economics for Hafsa

Question

What does an improvement in a nation’s terms of trade mean? What effect does this have on the nation’s welfare?

Answer 1

An improvement or increase in a country's TOT generally indicates that export prices have gone up as import prices have either maintained or dropped. Conversely, export prices might have dropped but not as significantly as import prices.

Generally, this leads to an improvement in living standards as imported goods appear cheaper to consumers.