WAEC Economics 2012 Paper

Concept:Terms of trade show the relationship between export prices and import prices.Explanation:Terms of trade is calculated as:$$\text{Terms of Trade} = \frac{\text{Export Prices}}{\text{Import Prices}} \times 100$$When terms of trade improve, this ratio increases.This means export prices have risen relative to import prices.So a country can buy more imports with the same quantity of exports.Equivalently, imports are cheaper relative to exports.Answer:B. imports are cheaper relative to exports.