The table below shows Ireland's terms of trade for selected years. (Base Year = 2010) Year Index of Export prices Index of Import prices Terms of Trade 2010 100 100 ? 2011 96.6 98.7 ? 2015 106.8 100.3 ? (i) Explain the phrase terms of trade. (ii) Calculate the terms of trade for 2011 from the data above. (Show your workings.) (iii) Outline the possible effects on the Irish economy of the movement shown in the Terms of Trade for 2015, relative to the base year 2010.

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The table below shows Ireland's terms of trade for selected years - Leaving Cert Economics - Question c - 2017

Question c

The table below shows Ireland's terms of trade for selected years. (Base Year = 2010) Year Index of Export prices Index of Import prices T... show full transcript

Worked Solution & Example Answer:The table below shows Ireland's terms of trade for selected years - Leaving Cert Economics - Question c - 2017

Step 1

Explain the phrase terms of trade.

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Answer

Terms of trade refers to the ratio of a country's export prices to its import prices, typically expressed as a percentage. It is calculated using the formula:

$\text{Terms of Trade} = \frac{\text{Index of Export prices}}{\text{Index of Import prices}} \times 100$

This concept is critical as it helps to indicate how much a country can import from its trading partners relative to what it exports. A favorable change in terms of trade means the country can obtain more imports for a given quantity of exports.

Step 2

Calculate the terms of trade for 2011 from the data above. (Show your workings.)

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Answer

To calculate the terms of trade for 2011, we use the indices provided:

$\text{Terms of Trade}_{2011} = \frac{96.6}{98.7} \times 100$

Calculating this gives:

$\text{Terms of Trade}_{2011} = \frac{96.6}{98.7} \times 100 \approx 97.9$

Thus, the terms of trade for 2011 is approximately 97.9.

Step 3

Outline the possible effects on the Irish economy of the movement shown in the Terms of Trade for 2015, relative to the base year 2010.

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Answer

The movement in the terms of trade for 2015 compared to the base year 2010 suggests an improvement. The possible effects on the Irish economy may include:

Effect on Export Sector: An improvement in the terms of trade can lead to higher export prices, benefiting the export sector by potentially increasing profits for exporters.
Effect on Import Costs: If import prices are stable while export prices are increasing, this could lead to an improved balance of trade, allowing the nation to import more goods for the same quantity of exports.
Effect on Employment: An increase in exports may necessitate an increase in production staff, leading to job creation in export-oriented industries.
Effects on Government Revenue: Increased export activity can lead to higher profits and subsequently to larger tax revenues for the government, resulting in additional funds for public services and infrastructure improvements.

The table below shows Ireland's terms of trade for selected years - Leaving Cert Economics - Question c - 2017

Worked Solution & Example Answer:The table below shows Ireland's terms of trade for selected years - Leaving Cert Economics - Question c - 2017

Explain the phrase terms of trade.

Calculate the terms of trade for 2011 from the data above. (Show your workings.)

Outline the possible effects on the Irish economy of the movement shown in the Terms of Trade for 2015, relative to the base year 2010.

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