Terms of trade improve with rising export prices relative to import prices

Steps:

• Define terms of trade as the ratio of export price index to import price index, multiplied by 100.
• An improvement occurs when this ratio increases, meaning export prices rise faster than import prices.
• Evaluate options by checking if they describe a relative price change favoring exports.
• Select the option matching the price-based definition.

Why C is correct:

• Terms of trade formula (export prices / import prices) rises when import prices increase less than export prices, directly improving the ratio.

Why the others are wrong:

• A confuses terms of trade with trade balance, focusing on values rather than prices.
• B refers to quantities (volumes), irrelevant to price-based terms of trade.
• D describes balance of payments (payments vs. receipts), not price terms of trade.

Final answer: C