Waec Model Questions Vol1 2025 Economics Question 40

Country X's terms of trade (TOT) are currently export price index 100 and import price index 120, giving a TOT of 0.833. The government is considering a specific tariff of 10 % on imported manufactured goods. The price elasticity of demand for imports is -1.5, while the price elasticity of demand for exports (agricultural goods) is -0.8. Initially, export volume is 200 million units at the export price index and import volume is 150 million units at the import price index. Assuming the tariff raises the domestic import price by exactly 10 % and does not affect export prices, compute (a) the new TOT after the tariff, (b) whether the tariff improves the TOT, and (c) the change in the trade surplus (in index‑units).