Given that a country's index of export price is 180 and that of import is 200, the terms of trade is

Step 1: Analyze the question We are asked to find the terms of trade given the export price index (180) and the import price index (200).

Step 2: The concept The commodity (net barter) terms of trade measure how much imports a country can obtain for its exports:

Terms of Trade = (Index of Export Prices ÷ Index of Import Prices) × 100

• A value above 100 means the terms of trade are favourable (export prices are rising faster than import prices).
• A value below 100 means they are unfavourable.

Step 3: Solution

Terms of Trade = (180 ÷ 200) × 100 = 0.9 × 100 = 90

Step 4: Interpretation Since 90 is less than 100, the country's terms of trade are unfavourable. Its exports now buy fewer imports than in the base year.

Step 5: Check the options

• A. 0.09: wrong, a miscalculation of the decimal place.
• B. 2.00: wrong.
• C. 90.00: correct.
• D. 380.00: wrong, this simply adds 180 and 200.

Exam tip: Remember the order: Exports over Imports, times 100. Think "Every Index ×100". If the answer is under 100, the trade is against the country. If it is over 100, it favours the country. Always multiply by 100 when the question gives index numbers.