The terms of trade is described as unfavourable when
Answer Details
The terms of trade are described as unfavorable when the price of imports rises relative to those of exports. The terms of trade refer to the ratio between the prices of a country's exports and imports. When the prices of a country's exports increase relative to those of its imports, the terms of trade are said to be improving. However, when the prices of a country's imports increase relative to those of its exports, the terms of trade are said to be deteriorating or unfavorable.
For instance, if a country exports $100 worth of goods and imports $200 worth of goods, it would need to export two times more goods to pay for the same amount of imports if the prices of its exports and imports remain constant. If the prices of its exports decline, then the country would need to export even more goods to pay for the same amount of imports. This makes it more difficult for the country to finance its imports, leading to a less favorable balance of trade. Therefore, when the price of imports rises relative to those of exports, the terms of trade are considered unfavorable.