AQA A-level Economics: Protectionism, trading blocs and the WTO (7136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover tariffs, quotas, export subsidies, the causes and consequences of protectionism, customs unions, the Single European Market and the WTO for AQA A-level Economics (7136), specification version 1.3, section 4.2.6.2 (3.2.6.2 on the AQA website). Every country and figure is invented and illustrative. Read the study guide and revision notes first. Course pages: AQA A-level Economics hub, checklist and free diagnostics. Show your working. Quantities are in thousands and prices in c, an invented currency.

Questions

1. Country Ash puts a 20% ad valorem tariff on imported lamps. The import price before the tariff is 45 c.

(a) Calculate the price paid by buyers after the tariff. [2] (b) Imports after the tariff are 80 thousand. Calculate the tariff revenue. [2]

2. Country Elm is a small economy. In its market for blankets, Qd = 160 − 2P and Qs = 2P − 20. The world price is 30 c.

(a) Calculate imports under free trade. [2] (b) A tariff of 5 c is imposed. Calculate the new price, imports and tariff revenue. [3] (c) Calculate the deadweight loss. [3]

3. In Elm’s blanket market (question 2), a quota of 40 thousand units on imports is imposed instead of the tariff.

(a) Show that the domestic price rises to 35 c. [2] (b) Calculate the quota rent. [2] (c) Explain why a quota could leave Elm worse off than the tariff. [2]

4. Country Fenn exports dried apricots. Qd = 100 − P and Qs = 2P − 20. The world price is 50 c.

(a) Calculate exports with no subsidy. [2] (b) An export subsidy of 6 c per unit is introduced. Calculate the new domestic price, exports and cost to the government. [3] (c) Calculate the net change in Fenn’s economic welfare. [3]

5. Explain two reasons why a government might adopt protectionist policies. [4]

6. Country Hale has a tariff of 8 c per unit on all imports of a good and buys 50 thousand units. Outsider Ivor sells at 15 c. Partner Jorn sells at 19 c. Hale and Jorn form a customs union.

(a) State where Hale buys before the union, and the price paid. [2] (b) State where Hale buys after the union and name the effect. [2] (c) Calculate the net effect on Hale, assuming it still buys 50 thousand units. [3]

7. Distinguish between a customs union and the Single European Market. [4]

8. Explain two roles of the World Trade Organisation (WTO). [4]

9. In question 2, each thousand blankets made at home needs 10 workers.

(a) Calculate the jobs protected by the 5 c tariff. [2] (b) Calculate the consumer loss per job protected. [3]

10. Two countries choose between free trade and a tariff. Payoffs (A, B) are: both free trade 10, 10; A tariff and B free trade 14, 4; B tariff and A free trade 4, 14; both tariff 6, 6.

(a) Show that each country’s best choice is a tariff whatever the other does. [2] (b) State the outcome and compare combined payoffs with free trade. [2] (c) Explain how the WTO might help the countries reach a better outcome. [3]

11. Using your answer to question 6 and other knowledge, evaluate whether Hale’s government should join a customs union with Jorn. [12]

Answers

1. (a) Tariff = 0.20 × 45 = 9 c [1]. Price = 45 + 9 = 54 c [1]. [2] (b) Revenue = 9 × 80 [1] = 720 thousand c [1]. [2] Examiner insight: Convert a percentage tariff to a sum per unit first. Revenue uses imports after the tariff, not before.

2. (a) Qd = 160 − 60 = 100 and Qs = 60 − 20 = 40 [1]. Imports = 60 thousand [1]. [2] (b) Price = 30 + 5 = 35 c [1]. Qd = 90, Qs = 50, imports = 40 thousand [1]. Revenue = 5 × 40 = 200 thousand c [1]. [3] (c) Production triangle = 1/2 × 5 × (50 − 40) = 25 [1]. Consumption triangle = 1/2 × 5 × (100 − 90) = 25 [1]. Deadweight loss = 50 thousand c [1]. [3] Examiner insight: Take the base of each triangle from the change in quantity along a curve, and keep the revenue rectangle out of the loss. A check against the consumer loss of 475 (= 225 + 200 + 50) shows the answer is consistent.

3. (a) Set Qd − Qs = 40: (160 − 2P) − (2P − 20) = 40 [1]. 180 − 4P = 40, so P = 35 c [1]. [2] (b) Rent = (35 − 30) × 40 [1] = 200 thousand c [1]. [2] (c) If licences go to foreign exporters or importers, the 200 leaves Elm [1]; under the tariff the government collects the same 200 as revenue [1]. [2] Examiner insight: A quota answer gains from saying who holds the licences. Stating that quota and tariff give the same price is not enough on its own.

4. (a) Qd = 100 − 50 = 50 and Qs = 100 − 20 = 80 [1]. Exports = 30 thousand [1]. [2] (b) Domestic price = 56 c [1]. Qd = 44, Qs = 92, exports = 48 thousand [1]. Cost = 6 × 48 = 288 thousand c [1]. [3] (c) Producer gain = (80 + 92)/2 × 6 = 516 [1]. Consumer loss = (50 + 44)/2 × 6 = 282 [1]. Net = 516 − 282 − 288 = −54 thousand c [1]. [3] Examiner insight: The subsidy cost is paid on all exports after the subsidy. Say the net result is a loss and name where it comes from.

5. Any two developed reasons, for example: infant industries: a new industry has high unit costs while small [1], so a tariff gives time to reach scale and cut costs [1]. Anti-dumping: foreign firms may sell below cost to win share [1], and a tariff raises the price to a fairer level, though consumers lose cheap goods [1]. [4] Examiner insight: A reason becomes a developed point when you link it to a mechanism and a limit. A bare list of reasons with no chain of reasoning gains less.

6. (a) Ivor: 15 + 8 = 23; Jorn: 19 + 8 = 27 [1]. Hale buys from Ivor at 23 c [1]. [2] (b) After the union Jorn’s price is 19 c [1], below Ivor’s 23, so this is trade diversion [1]. [2] (c) Consumers save (23 − 19) × 50 = 200 [1]. Tariff revenue lost = 8 × 50 = 400 [1]. Net effect = −200 thousand c [1]. [3] Examiner insight: Show the comparison of landed prices before you name the effect. The result can be cross-checked: the extra world resource cost is (19 − 15) × 50 = 200.

7. Customs union: no tariffs on trade between members [1] and a common external tariff on non-members [1]. SEM: free movement of goods and services, capital and labour [1] with common rules or standards so that barriers other than tariffs fall [1]. [4] Examiner insight: Distinction answers do best when each side gets its own feature. Stating both are “trading blocs” earns little.

8. Any two, each explained: negotiating agreements that lower trade barriers [1], which widens access to markets [1]; setting rules such as non-discrimination [1], so members treat each other’s goods equally [1]. Settling disputes or monitoring policies are also valid. [4] Examiner insight: Pair a role with its effect on trade. Saying the WTO “stops protectionism” overstates it, because some exceptions exist.

9. (a) Output rises from 40 to 50 thousand [1]. Jobs = 10 × 10 = 100 [1]. [2] (b) Consumer loss = (100 + 90)/2 × 5 = 475 [1]. Per job = 475 ÷ 100 [1] = 4.75 thousand c [1]. [3] Examiner insight: Be clear about which loss you use. The net loss of 50 gives 0.5 thousand c per job. Either figure can be used if you label it.

10. (a) If B plays free trade, A gets 14 from a tariff against 10 [1]. If B tariffs, A gets 6 against 4, so a tariff is best either way (the same holds for B) [1]. [2] (b) Both tariff, payoffs 6, 6 [1]. Combined 12 against 20 under free trade, so 8 lower [1]. [2] (c) Members commit to cut tariffs through agreements [1]. Monitoring and dispute settlement make cheating costly [1]. Repeated talks build trust so both choose free trade and gain 10 each [1]. [3] Examiner insight: Show both comparisons for each country. Explain why the rules change incentives, not just that they exist.

11. A strong answer could combine these points. Trade creation: cheaper member output replaces dearer home output [1], with an example such as a lower price for buyers [1]. Trade diversion: in question 6, buying switches from Ivor to Jorn [1], for a net loss of 200 [1]. The common external tariff keeps prices of outside goods high [1]. A larger tariff-free market allows scale economies [1] and more competition [1]. Hale gives up an independent trade policy [1]. The result depends on how efficient Jorn is relative to outsiders [1] and on how much trade shifts [1]. Judgement on size or time [1], ending in a justified conclusion [1]. [12] Examiner insight: A strong evaluation uses the numbers from question 6 and reaches a decision with reasons, for instance that Hale gains only if trade creation or scale benefits outweigh the 200 loss.

Where marks are usually lost

• Finding revenue from pre-tariff import volumes.
• Taking the whole consumer loss as deadweight loss.
• Drawing or describing the tariff line at the wrong price.
• Not saying who holds quota licences.
• Writing “trade diversion” without comparing landed prices.
• Treating a customs union and the SEM as the same.
• Giving WTO roles with no effect on trade.
• Ending evaluation with “it depends” and no reason.

Next steps

• Review the revision notes and study guide.
• See the AQA A-level Economics hub and the checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

AQA, AS and A-level Economics specification (7135 and 7136), version 1.3, first teaching from September 2015, section 4.2.6.2 Trade (the protectionism, customs union, SEM and WTO points).