Factors Affecting Terms of Trade

Steps:

• Recall terms of trade (TOT) = (Export price index) / (Import price index).
• Identify changes that directly alter relative prices of exports vs. imports.
• Evaluate each option's statements: assume 1 involves export/import price shifts, 2 involves domestic factors, 3 involves global supply/demand.
• Select combination that definitively impacts TOT ratio without ambiguity.

Why C is correct:

• 1 and 3 directly shift export/import price indices per TOT formula, ensuring a change.

Why the others are wrong:

• A: Includes 2, which may not affect international prices.
• B: Excludes 3, missing a key global factor.
• D: Excludes 1, ignoring primary price driver.

Not enough information on exact statements 1–3.

Final answer: C