One of the topics that comes up regularly, especially in essays, is terms of trade. Although many people find this a confusing topic it is one that if you can master is great for evaluation. The most important thing to remember is that the terms of trade are all about changes in the prices of exports and imports. Most of the confusion comes about when linking an improvement or deterioration in the terms of trade to the impact on the current account. The current account is about the value of exports and imports, which is the price of those multiplied by the quantities. As a result, we have to think about the effect on the value when the price changes, and this is generally determined by the price elasticity of demand. Remember that if a product is inelastic then an increase in price will cause a proportionately smaller decrease in the quantity, therefore the spending on the product will rise.