Most candidates who answered this question were not able to define Terms of Trade as required in the (a) part. They however performed fairly well in the (b) part. The overall performance of candidates in the question was above average.
Candidates were required to provide the following answers to obtain the maximum marks for this question.
(a)Terms of Trade is defined as the rate at which a country’s exports exchange for imports. It is calculated as:
Index of Export Prices x 100
Index of Import Prices 1
(b) Countries trade with one another for the following reasons:
- Natural Resources: Different countries have different natural endowments, hence there is the need for trade.
- Difference in Climate: Different countries are located in different climatic zones and so produce different agricultural goods – thus the need for trade and exchange.
- Technical know-how. Advanced countries use their knowledge to produce machines and equipment which they can sell to the less developed countries via international trade.
- Access to capital: Through trade, countries with no capital can have access to capital from countries that have.
- Countries have different comparative advantages in the production of various commodities.
- Differences in demand – to find markets for local produce.
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