Relationship between the prices at which a country sells its
exports and the prices paid for its
imports. If the prices of a country’s exports rise relative to the prices
of its imports, one says that its terms of trade have moved in a favourable
direction, because, in effect, it now receives more imports for each unit of
The terms of trade, which depend on the world supply of and demand for the goods involved, indicate how the gains from international trade will be distributed among countries.