[PDF Notes] How to calculate the Reciprocal Demand Elasticity?

The reciprocal demand elasticity refers to the ratio of proportional change in the quantity of imports demanded to the proportional change in the price of exports relative to the price of imports. Thus, elasticity of reciprocal demand


e = Elasticity of reciprocal demand

ΔM = Change in quantity of imports

ΔPX = Change in price of exports

ΔPm = Change in price of imports

If e >1, then terms of trade will be favourable for the concerned country and its share of gain will be larger; if e <1, terms of trade will for the concerned country and the share of gain will be relatively less; if c = 1, the gain from trade will be equally distributed between the two countries.

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