These are original Marlbridge practice questions, not past exam questions. The mark points are a suggested Marlbridge rubric to help you check your work; they are not an official scoring guideline. All countries, people and data are fictional. A four-function calculator is enough.
Questions 1, 3, 5, 6 and 7 use two fictional countries, Halvar and Isola. Each has the same quantity of resources. The table shows the most each can produce per month if it uses all its resources on one good. Both PPCs are straight lines.
| Country | Sweaters (thousands per month) | Coffee (thousand bags per month) |
|---|---|---|
| Halvar | 60 | 120 |
| Isola | 40 | 40 |
Question 1 (multiple choice · foundation)
Which statement about Halvar and Isola is correct?
- (A) Halvar has the absolute advantage in coffee, and Isola has the comparative advantage in sweaters.
- (B) Halvar has the absolute advantage in coffee and the comparative advantage in sweaters.
- (C) Isola has the absolute advantage in coffee, and Halvar has the comparative advantage in sweaters.
- (D) Halvar has the comparative advantage in both goods.
Answer and explanation
Answer: (A). Halvar makes 120 thousand bags of coffee and Isola 40, so Halvar has the absolute advantage in coffee. A sweater costs Halvar 120 ÷ 60 = 2 bags of coffee but costs Isola 40 ÷ 40 = 1 bag, so Isola has the comparative advantage in sweaters.
- (B) assumes that being able to make more sweaters (60 > 40) means a comparative advantage. That is absolute advantage. Halvar’s opportunity cost of a sweater (2 bags) is higher than Isola’s (1 bag).
- (C) reverses the absolute advantage: Isola makes fewer bags of coffee (40 < 120).
- (D) is impossible when costs differ. Halvar’s comparative advantage is in coffee only (0.5 sweater per bag against Isola’s 1 sweater).
Question 2 (multiple choice · core)
Kofi and Lena are fictional bakers. Kofi needs 2 hours to bake a cake and 1 hour to bake a tray of bread. Lena needs 6 hours to bake a cake and 2 hours to bake a tray of bread. What is Lena’s opportunity cost of baking one cake?
- (A) 3 trays of bread
- (B) 1/3 of a tray of bread
- (C) 6 hours
- (D) 4 trays of bread
Answer and explanation
Answer: (A). These are input data (hours per unit). In the 6 hours Lena spends on one cake, she could bake 6 ÷ 2 = 3 trays of bread. (Kofi’s cost is 2 ÷ 1 = 2 trays, so Kofi has the comparative advantage in cakes, and Lena has it in bread.)
- (B) uses the output rule on input data, which gives the reciprocal (2 ÷ 6). That is Lena’s opportunity cost of a tray of bread, measured in cakes.
- (C) gives the time used, not the bread given up.
- (D) subtracts the hours (6 − 2) instead of dividing them.
Question 3 (multiple choice · core)
Halvar and Isola specialise according to comparative advantage and trade sweaters for coffee. Which terms of trade would make both countries better off?
- (A) 1 sweater for 0.5 bags of coffee
- (B) 1 sweater for 1.5 bags of coffee
- (C) 1 sweater for 2.5 bags of coffee
- (D) 1 sweater for 1 bag of coffee
Answer and explanation
Answer: (B). A sweater costs Isola 1 bag of coffee and costs Halvar 2 bags, so beneficial terms lie strictly between 1 and 2 bags per sweater. At 1.5 bags, Isola gains 0.5 bag on each sweater it sells, and Halvar saves 0.5 bag on each sweater it buys.
- (A) is below Isola’s own cost of 1 bag: Isola would lose on every sweater, so it would refuse.
- (C) is above Halvar’s own cost of 2 bags: Halvar could make sweaters itself more cheaply, so it would refuse.
- (D) equals Isola’s opportunity cost, so Isola gains nothing. The terms must be strictly between the two costs.
Question 4 (calculation · core)
Mina and Omar are fictional tailors. The table shows the hours each needs to make one item.
| Tailor | Hours per jacket | Hours per shirt |
|---|---|---|
| Mina | 3 | 2 |
| Omar | 4 | 4 |
(a) Who has the absolute advantage in each good? (b) Calculate each tailor’s opportunity cost of a jacket and of a shirt. Who has the comparative advantage in each good? (c) Omar offers to sell jackets to Mina at 1 jacket for 1.25 shirts. Show that both gain. (d) Explain why Mina would refuse to pay 2 shirts for a jacket.
Worked solution
(a) Fewer hours per item means more output from the same time. Jackets: 3 < 4. Shirts: 2 < 4. Mina has the absolute advantage in both.
(b) Input data: opportunity cost of 1 X = hours per X ÷ hours per Y.
| Tailor | 1 jacket costs | 1 shirt costs |
|---|---|---|
| Mina | 3 ÷ 2 = 1.5 shirts | 2 ÷ 3 = 2/3 jacket (0.67) |
| Omar | 4 ÷ 4 = 1 shirt | 4 ÷ 4 = 1 jacket |
Jackets: 1 < 1.5, so Omar has the comparative advantage. Shirts: 2/3 < 1, so Mina has the comparative advantage.
Check by output in a 12-hour day: Mina makes 4 jackets or 6 shirts; Omar makes 3 of either.
(c) Omar gives up 1 shirt to make a jacket and receives 1.25 shirts: a gain of 0.25 shirt per jacket. Mina would give up 1.5 shirts to make a jacket herself but pays only 1.25: a saving of 0.25 shirt per jacket. 1.25 lies between 1 and 1.5, so both gain.
(d) Mina can make a jacket herself at a cost of 1.5 shirts. Paying 2 shirts is more than her own opportunity cost, so buying from Omar would make her worse off.
Suggested mark points (4): 1 for absolute advantage in both goods to Mina; 1 for all four opportunity costs with units; 1 for both comparative advantages correctly identified; 1 for (c) and (d), each comparing the rate with the relevant opportunity cost.
Common error: giving Mina’s cost of a jacket as 2/3 shirt. A jacket takes longer than a shirt, so it must cost more than one shirt.
Question 5 (graph · core)
(a) Draw Halvar’s and Isola’s PPCs on one correctly labelled graph, with sweaters on the horizontal axis. (b) Explain how the graph shows which country has the absolute advantage in each good and which has the comparative advantage in sweaters. (c) Before trade, Isola consumes 10 thousand sweaters and 30 thousand bags of coffee. After specialising and trading, it consumes 16 thousand sweaters and 36 thousand bags. Plot both points, label them I₁ and I₂, and explain why Isola could not reach I₂ on its own.
Model answer and suggested Marlbridge rubric
(a) Horizontal axis: “Sweaters (thousands per month)”. Vertical axis: “Coffee (thousand bags per month)”. Halvar’s PPC is a straight line from 120 on the coffee axis to 60 on the sweater axis. Isola’s PPC is a straight line from 40 on the coffee axis to 40 on the sweater axis. Label each line with the country’s name.
(b) Halvar’s line meets both axes farther from the origin (60 > 40 sweaters; 120 > 40 bags), so Halvar has the absolute advantage in both goods. Isola’s line is flatter: its slope has size 40 ÷ 40 = 1, against 120 ÷ 60 = 2 for Halvar. With sweaters on the horizontal axis, the slope is the coffee given up per sweater, so Isola’s lower slope means a lower opportunity cost of sweaters: Isola has the comparative advantage in sweaters.
(c) I₁ (10, 30) lies on Isola’s PPC: 40 − 10 = 30. I₂ (16, 36) lies outside it: with 16 thousand sweaters, Isola could make at most 40 − 16 = 24 thousand bags of coffee, not 36. It reaches I₂ only by specialising in sweaters and trading some for coffee.
| Point | What earns it |
|---|---|
| 1 | Both axes labelled with the good and units; both straight lines with correct intercepts and labels |
| 1 | Absolute advantage in both goods to Halvar, using the intercepts |
| 1 | Comparative advantage in sweaters to Isola, using the flatter slope (lower opportunity cost) |
| 1 | I₁ on Isola’s PPC and I₂ outside it, with the check that at most 24 thousand bags are possible at 16 thousand sweaters |
Do not award the third point for “Isola’s line is lower”. The position of a line shows absolute advantage, not comparative advantage.
Question 6 (constructed response · core)
Before trade, Halvar produces and consumes 20 thousand sweaters and 80 thousand bags of coffee. Isola produces and consumes 10 thousand sweaters and 30 thousand bags.
(a) Calculate total world output of each good before trade. (b) Each country now specialises completely according to comparative advantage. Calculate the new total output of each good. (c) Isola exports 24 thousand sweaters to Halvar at 1 sweater for 1.5 bags of coffee. Calculate what each country consumes after trade. (d) Calculate each country’s gain from trade and state whether its consumption is inside, on or outside its own PPC.
Model answer and suggested Marlbridge rubric
(a) Sweaters: 20 + 10 = 30 thousand. Coffee: 80 + 30 = 110 thousand bags. (Check that both points are on the PPCs: Halvar 120 − 2 × 20 = 80; Isola 40 − 10 = 30.)
(b) Halvar specialises in coffee (120 thousand bags); Isola specialises in sweaters (40 thousand). Totals: 40 thousand sweaters and 120 thousand bags: 10 thousand more of each.
(c) Isola receives 24 × 1.5 = 36 thousand bags.
- Isola: 40 − 24 = 16 thousand sweaters and 36 thousand bags.
- Halvar: 24 thousand sweaters and 120 − 36 = 84 thousand bags.
- Check: 16 + 24 = 40 sweaters; 36 + 84 = 120 bags.
(d)
| Country | Before (thousands) | After (thousands) | Gain |
|---|---|---|---|
| Isola | 10 sweaters, 30 bags | 16 sweaters, 36 bags | +6 thousand sweaters, +6 thousand bags |
| Halvar | 20 sweaters, 80 bags | 24 sweaters, 84 bags | +4 thousand sweaters, +4 thousand bags |
Both are outside their own PPCs. At 16 thousand sweaters, Isola’s PPC allows at most 24 thousand bags (it has 36). At 24 thousand sweaters, Halvar’s PPC allows at most 120 − 48 = 72 thousand bags (it has 84).
| Point | What earns it |
|---|---|
| 1 | Totals before trade: 30 thousand sweaters and 110 thousand bags |
| 1 | Correct specialisation (Halvar coffee, Isola sweaters) and totals of 40 and 120 |
| 1 | Consumption after trade for both countries: Isola (16, 36), Halvar (24, 84) |
| 1 | Gains for both countries and both points shown to be outside the PPCs with a calculation |
Question 7 (explanation · stretch)
(a) A Halvar politician says: “We can make more sweaters and more coffee than Isola. Trading with Isola can only make us poorer.” Evaluate this claim using the data. (b) Isola proposes terms of 1 sweater for 2.5 bags of coffee. Explain which country would reject this, and why. (c) Suppose new machines change Isola’s maximums to 60 thousand sweaters or 120 thousand bags of coffee, the same as Halvar’s. Explain whether the two countries could still gain from specialising and trading.
Model answer and suggested Marlbridge rubric
(a) The first sentence is true: Halvar has the absolute advantage in both goods. The conclusion is wrong, because gains from trade depend on comparative advantage. Halvar gives up 2 bags of coffee for each sweater it makes, while Isola gives up only 1. If Halvar specialises in coffee and buys sweaters for between 1 and 2 bags each, it gets sweaters more cheaply than it can make them. In Question 6, Halvar gained 4 thousand sweaters and 4 thousand bags of coffee.
(b) Halvar would reject it. Halvar imports sweaters. It can make a sweater itself for 2 bags of coffee, so paying 2.5 bags would cost it more than producing at home.
(c) No. Isola’s opportunity cost of a sweater would become 120 ÷ 60 = 2 bags, the same as Halvar’s. Neither country has a comparative advantage. Any rate other than 2 bags per sweater would make one country worse off, and at exactly 2 bags no one gains. Specialisation would not raise total output, so there are no gains from trade in this model.
| Point | What earns it |
|---|---|
| 1 | (a) Identifies absolute advantage in both goods but explains that trade gains come from comparative advantage, using the opportunity costs (2 bags against 1 bag) |
| 1 | (b) Halvar rejects, because 2.5 bags is above its own opportunity cost of 2 bags |
| 1 | (c) Equal opportunity costs mean no comparative advantage and no mutually beneficial terms, so no gains from trade |
How did you do?
- Q1 or Q5(b) wrong: re-read “Absolute advantage”, “Comparative advantage” and Figure 1 in the study guide.
- Q2 or Q4 wrong: re-read “Output data and input data” and Worked example 2.
- Q3, Q4(c) or Q7(b) wrong: re-read “Terms of trade”. The rate must lie strictly between the two opportunity costs.
- Q5(c) or Q6 incomplete: re-read “Specialisation and gains from trade” and Worked example 3.
Then tick off the topic checklist.