A country recorded an Income Terms of Trade index of 144 and an export volume index of 120… — JAMB UTME

A country recorded an Income Terms of Trade index of $144$ and an export volume index of $120$ relative to the base year index of $100$ . If the country's import price index stood at $125$ during the same period, what was its export price index?

Answer: 150

Answer

The export price index is 150.

The Income Terms of Trade (

ITT

) formula is

ITT = \left(\frac{P_x}{P_m}\right) \times Q_x

. Substituting the given values (

ITT = 144

Q_x = 120

P_m = 125

) gives

144 = \left(\frac{P_x}{125}\right) \times 120

. Rearranging the equation to solve for the export price index yields

P_x = \frac{144 \times 125}{120} = 150

Step-by-Step Solution

Identify the relationship between Income Terms of Trade, price indices, and volume index

ITT = \left(\frac{P_x}{P_m}\right) \times Q_x

Income Terms of Trade measures a nation's capacity to import based on export earnings, combining the net barter terms of trade with export quantity.

Substitute given values into the formula

144 = \left(\frac{P_x}{125}\right) \times 120

The given values are

ITT = 144

Q_x = 120

, and

P_m = 125

Isolate the unknown variable

P_x

P_x = \frac{144 \times 125}{120} = 150

Multiplying both sides by

125

and dividing by

120

isolates

P_x

to determine the export price index.

Key Concept

Income Terms of Trade Calculation

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