TOT INDEX

An improvement of
tot:
TOT Index :
1. An increase in
Export price index x export prices,
100 ceteris paribus.
Import price Index 2. A decrease in import
prices, ceteris
In the base year, TOT paribus.
index = 100 3. Export prices rise
faster than import
prices.
Changes in TOT Index
 Balance of Trade
Positive BOT

The difference
between the value
of commodity
exports and
imports.

BOT = Export revenue (X) -

Import spending (M)
Effects of an Improvement of the TOT on
BOP
Px TOT
increase/improve Pm TOT improves
1. If foreigners DX is price- 1. If domestic DM is price-
elastic: elastic:
o. Qd of export will fall more than o. Qd of import will rise more
proportionately than proportionately
o. Export revenue (X) falls o. Import spending (M) rises
o. BOP worsens o. BOT worsens

2. If foreigners DX is Price- 2. If domestic DM is price-

inelastic: inelastic:
o. Qd of exports will fall less o. Qd of import will rise less than
than proportionately proportionately
o. Export revenue (X) rises o. Import spending (M) falls
o. BOT improves o. BOT improves
 PROTECTIONISM
An act of impossing tariffs
and non-tariff barriers to
prevent free trade from
taking place.

Policies that prevent the

free movement of goods
and services between
countries.