The Terms of Trade Refers to

question 298

Multiple Choice

The terms of trade refers to

• A) the documents that two countries sign in order to facilitate trade.
• B) the conditions imposed by the importing country regarding the quality of the imported goods.
• C) the exchange rate determined by the exporting and the importing countries.
• D) the ratio at which one country trades a domestic product for imported product.

---

Definitions:

Average Variable Cost

The sum of all costs that vary with output levels, divided by the total output generated.

Economies of Scale

The cost advantage that arises with increased output of a product, as the fixed costs are spread over more units of production.

Adam Smith

An 18th-century Scottish economist and philosopher, best known for his theories of the free market and the "invisible hand" guiding economies.

Diseconomies of Scale

Diseconomies of scale occur when a firm's costs per unit increase as it produces more units, due to inefficiencies.