Terms of trade refer to the relationship between the prices of a country's exports and imports. Specifically, it is the ratio of the price index of a country's exports to the price index of its imports. When a country's terms of trade are favorable, it means that the prices of its exports are higher than the prices of its imports, allowing it to buy more imports for a given amount of exports. Conversely, when a country's terms of trade are unfavorable, it means that the prices of its imports are higher than the prices of its exports, making it more difficult to buy the same amount of imports with a given amount of exports. Therefore, a country with favorable terms of trade will be able to improve its standard of living and economic growth, while a country with unfavorable terms of trade may face challenges in sustaining its economic development.