Economics • International Trade

Terms of Trade Lab

ToT = export price index ÷ import price index × 1000

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What it means

Imports that the same quantity of exports buys

The chain (illustrative: a quarter's goods exports $17b, imports $18b, at last quarter's prices)

    Terms of Trade Lab — Mistake review

    Terms of Trade Lab — Explanation

    The terms of trade compare the prices New Zealand gets for its exports with the prices it pays for its imports. Stats NZ publishes them every quarter as an index with a base of 1000:

    Terms of trade = export price index ÷ import price index × 1000

    How to use it. Calculate: choose a story or set last quarter's and this quarter's price indexes (and volumes) and follow the working and the chain. Over time: chart a run of quarters, or build your own one quarter at a time. Practice: 14 questions, from easy to hard, with a review of your mistakes at the end.

    Common exam mistakes

    The numbers in the stories and the quarters are illustrative, not Stats NZ figures. Stats NZ's goods terms of trade index uses the June 2002 quarter as its base (1000). NCEA 91223 is about changes in the value of New Zealand's exports and imports and the balance on goods and services; the terms of trade explain the price part of those changes.

    Objective: NCEA Level 2 Economics 91223 — explain in detail how changes in export and import prices change the terms of trade, export receipts, the balance on goods in the current account and the NZ$ exchange rate.

    Where this fits

    • AQA: AQA A Level Economics (7136)
    • Cambridge: Cambridge A Level Economics (9708); Cambridge AS Level Economics (9708)
    • IB: IB Economics HL
    • NCEA Level 2 Economics: 91223 Analyse international trade using economic concepts and models Goes beyond 91223: Terms of trade isn't in 91223; the page links it to export receipts and the balance on goods, which are.
    • NCEA Level 3 Economics: 91403 Demonstrate understanding of macro-economic influences on the New Zealand economy
    • Pearson Edexcel International: Edexcel International A Level Economics

    Terms of Trade Lab — Key Terms

    Key concepts in English, with te reo Māori, Chinese (Simplified) and Korean.

    EnglishTe reo Māori中文(简体)한국어What it means on this page
    Terms of Tradeno attested term贸易条件 (màoyì tiáojiàn)교역 조건 (gyoyeok jogeon)Export prices compared with import prices: export price index ÷ import price index × 1000 (Stats NZ's base of 1000).
    Export Price Indexno attested term出口价格指数 (chūkǒu jiàgé zhǐshù)수출 물가 지수 (suchul mulga jisu)A price index of the goods and services a country sells abroad, compared with a base year of 100.
    Import Price Indexno attested term进口价格指数 (jìnkǒu jiàgé zhǐshù)수입 물가 지수 (suip mulga jisu)A price index of the goods and services a country buys from abroad, compared with a base year of 100.
    Base Yearno attested term基年 (jīnián)기준 연도 (gijun yeondo)The period an index is measured from. Stats NZ's terms of trade index uses the June 2002 quarter, given the value 1000.
    Improvement in the Terms of Tradeno attested term贸易条件改善 (màoyì tiáojiàn gǎishàn)교역조건 개선 (gyoyeok jogeon gaeseon)A rise in the terms of trade index: export prices have risen relative to import prices, so the same quantity of exports pays for more imports.
    Worsening in the Terms of Tradeno attested term贸易条件恶化 (màoyì tiáojiàn èhuà)교역조건 악화 (gyoyeok jogeon akhwa)A fall in the terms of trade index: export prices have fallen relative to import prices, so more exports are needed to pay for the same imports.
    Export Receiptsno attested term出口收入 (chūkǒu shōurù)수출 대금 (suchul daegeum)The money earned from selling exports overseas: export price × quantity exported. A credit in the current account.
    Import Paymentsno attested term进口支出 (jìnkǒu zhīchū)수입 대금 (suip daegeum)The money paid to overseas sellers for imports: import price × quantity imported. A debit in the current account.
    Trade Balanceno attested term贸易差额 (Màoyì chā'é)무역수지 (Muyeok suji)The balance on goods in the current account: export receipts minus import payments.
    Current Accountno attested term经常账户 (jīngcháng zhànghù)경상수지 (gyeongsangsuji)The part of the balance of payments for trade in goods and services, primary income and secondary income.
    Exportshoko ki tai出口 (chūkǒu)수출 (suchul)Domestically produced goods and services sold to overseas consumers and businesses.
    Importshoko ki uta进口 (jìnkǒu)수입 (suip)Foreign-produced goods and services bought by domestic households and businesses.
    Demand for $NZno attested term货币需求 ($NZ 需求)통화 수요 ($NZ 수요)Purchases of $NZ by overseas buyers to pay for New Zealand exports, tourism, or local investments.
    Appreciationpikinga wāriu升值 (shēngzhí)절상 (jeolsang)An increase in the value of a currency relative to another currency under a floating exchange rate system.

    On the te reo Māori column. Terms marked as gaps have no attested equivalent in the sources checked — Karaitiana Taiuru's Dictionary of Māori Computer and Social Media Terms, Paekupu, the Reserve Bank's te reo financial glossary, NZQA and Te Aka. No coinage is printed as though it were established; where a class needs one, commission it from Te Taura Whiri i te Reo Māori and credit the translator. Te reo Māori is not italicised and takes no plural "s".