Terms of Trade Improvement Steps:

• Terms of trade (ToT) = (Export price index / Import price index) × 100; rising from 100 to 120 indicates export prices increased relative to import prices.
• This allows the country to purchase more imports per unit of exports, improving purchasing power.
• Evaluate statements: Assume 1 claims export volume fell (incorrect, ToT doesn't specify volumes); 2 states welfare likely rose (correct, via better exchange terms); 3 says import prices fell absolutely (incorrect, only relative change).
• Only statement 2 holds true based on ToT definition.

Why D is correct:

• D selects "2 only," matching the sole accurate statement on welfare gain from improved ToT.

Why the others are wrong:

• A includes 1 (false, ToT ignores volumes).
• B selects only 1 (false, as above).
• C includes 3 (false, ToT is relative, not absolute import price drop).

Not enough information on exact statements 1–3, but D fits standard ToT analysis.

Final answer: D