With the help of a formula, explain two reasons for an improvement in the terms of trade and

consider the extent to which an improvement in the terms of trade will benefit an economy.

[8]

Many students tend to write two reasons for a rise in the terms of trade (TOT) under AO2, but evaluation requires considering whether an improvement in the TOT will benefit an economy (it depends on various factors). Therefore, AO2 should focus on explaining the advantages and disadvantages of a rise in the TOT. As for explaining two reasons, that belongs under AO1. In this case, the official mark scheme only requires "higher export price (1)" relative to "import price (1)" as the two reasons.