Which of the following is based on the prices of merchandise that are exported or imported?

• A. gross domestic product
• B. balance of payments
• C. terms of trade
• D. exchange rate

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the key terms involved in the question. Gross Domestic Product (GDP) measures the total value of goods and services produced within a country, regardless of trade.
2. Step 2: Recognize that the Balance of Payments records all economic transactions between residents of a country and the rest of the world, including exports and imports, but it is a broader accounting framework.
3. Step 3: Know that the Exchange Rate is the price of one country's currency in terms of another's, affecting trade but not directly based on the prices of merchandise exported or imported.
4. Step 4: Identify that Terms of Trade specifically refers to the ratio of the prices of a country's export goods to the prices of its import goods, reflecting how many imports can be obtained per unit of exports.
5. Step 5: Conclude that since the question asks for the concept based on the prices of merchandise exported or imported, the correct answer is Terms of Trade.