kaupmáttarhugmyndinni

The kaupmáttarhugmyndin, or terms of trade in English, refers to the ratio of a country's export prices to its import prices. It is a key indicator of a nation's economic health and its ability to purchase goods and services from abroad using the revenue generated from its exports. A favorable terms of trade occurs when export prices rise relative to import prices, meaning a country can buy more imports for the same amount of exports. Conversely, unfavorable terms of trade occur when export prices fall relative to import prices, requiring more exports to purchase the same volume of imports.

This concept is particularly relevant for countries that heavily rely on the export of a few primary commodities, as their terms of trade can be highly susceptible to global price fluctuations. For instance, a country exporting oil will see its terms of trade improve when oil prices increase and deteriorate when they fall. Changes in the terms of trade can significantly impact a nation's balance of payments, national income, and overall living standards. Policymakers often monitor the terms of trade to assess the competitiveness of their export industries and the cost of imported goods and services.