Imports and Exports

Imports are goods and services that a domestic economy (i.e., households, firms, and government) purchases from other countries.

Exports are goods and services that a domestic economy sells to other countries.

The terms of trade are defined as the ratio of the price of exports to the price of imports, representing those prices by export and import price indexes, respectively.

If the prices of exports increase relative to the prices of imports, the terms of trade have improved because the country will be able to purchase more imports with the same amount of exports.

If the price of exports decreases relative to the price of imports, the terms of trade have deteriorated because the country will be able to purchase fewer imports with the same amount of exports.

Net exports is the difference between the value of a country’s exports and the value of its imports.

Value of exports > Value of imports, trade surplus. Value of exports < Value of imports, trade deficit.