Cambridge A Level Economics: Globalisation, trading blocs, trade creation and diversion (9708) – 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 section 11.6 (outcomes 11.6.1 to 11.6.3) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. The syllabus treats topics 1 to 6 as AS Level and topics 7 to 11 as A Level; section 11.6 is A Level content only. All countries, firms and figures are invented, and money is in currency units (cu). Read the study guide and the revision notes first. The course hub and checklist show the rest of the syllabus, and the free diagnostics help you pick what to practise next.

Questions

1. Define globalisation. [2]

2. Explain two causes of globalisation. [4]

3. Distinguish a free trade area from a customs union. [3]

4. Name the form of economic integration described in each case. [4]

(a) Members remove all tariffs between themselves and each keeps its own tariffs on outsiders. (b) Members share a currency and a central bank but do not coordinate tax and spending. (c) Members remove internal tariffs and apply one common tariff to outsiders. (d) Members share a currency and central bank and also harmonise fiscal and other policies.

5. Country M makes sandals at a cost of 50 cu a pair. Partner P can supply them at 44 cu and outside Country Z at 40 cu. Country M charges a 30% tariff on all imports. Demand in M is Q = 700 − 10P, and domestic firms supply at a constant cost.

(a) Show that M buys from domestic firms before it joins a customs union with P. [2] (b) Calculate the welfare gain to M after the union is formed. [3]

6. Country M also imports cloth. Outside Country Z supplies it at 8 cu a metre and partner P at 10 cu. M’s tariff on all imports is 50%. Demand is Q = 390 − 20P.

(a) Explain why M’s imports of cloth switch to P after the customs union is formed. [3] (b) Calculate the net effect on M, showing the consumer gain, the lost tariff revenue and the extra resource cost. [3]

7. Explain why a customs union needs a common external tariff, whereas a free trade area does not need one but does need rules of origin. [4]

8. Explain one advantage and one disadvantage for a member of joining a monetary union. [4]

9. Total imports into a bloc were 400 units before a customs union and 460 units after. Imports from members were 120 units before and 180 units after.

(a) Calculate the change in the intra-bloc share of imports. [2] (b) Assess whether the data show trade creation or trade diversion. [3]

10. A member of a bloc finds that trade creation on one good replaces 120 units of higher-cost output with a saving of 3 cu per unit, while trade diversion on another good costs 80 units at 4 cu each of extra resource cost. Calculate the net resource effect and say what it implies for the bloc. [3]

11. Discuss whether globalisation benefits a developing country. [8]

12. Evaluate whether joining a customs union is likely to benefit a country. [12]

Answers

1. Globalisation is the growing integration and interdependence of national economies [1] through rising cross-border flows of goods, services, capital, labour, technology and information [1]. [2] Examiner insight: A definition that mentions only trade between countries is incomplete; naming a second flow (capital, labour, technology or production) shows you see the wider process.

2. Any two causes, each with a developed link. For example: lower transport costs [1] mean goods and components can be moved cheaply, so production can be split across countries [1]. Information and communication technology [1] lets firms manage suppliers and customers abroad and trade services at low cost [1]. Others that earn credit with an explanation: trade liberalisation, capital mobility, multinational companies. [4] Examiner insight: Explain how each named cause lowers cost or risk; two explained causes show more understanding than a list of four labels.

3. Both remove tariffs between members [1]. A free trade area lets each member keep its own tariffs on non-members [1], whereas a customs union applies a common external tariff to all non-members [1]. [3] Examiner insight: A distinction needs both sides; saying what a customs union has without saying what a free trade area lacks leaves the contrast incomplete.

4. (a) Free trade area [1]. (b) Monetary union [1]. (c) Customs union [1]. (d) Full economic union [1]. [4] Examiner insight: Take care with (b) and (d): the difference is whether wider policies, such as fiscal policy, are harmonised.

5. (a) Landed price from Z = 40 × 1.30 = 52 cu and from P = 44 × 1.30 = 57.2 cu [1]. Domestic cost is 50 cu, below both, so M buys 200 units (700 − 500) from its own firms [1]. [2] (b) After the union P’s price is 44 cu, below domestic 50 cu and Z’s landed 52 cu, so M imports from P; Q = 700 − 440 = 260 [1]. Production effect = 200 × (50 − 44) = 1,200 cu [1]. Consumption effect = ½ × 6 × 60 = 180 cu, so the total gain is 1,380 cu [1]. [3] Examiner insight: Show the landed-price comparison before the union, because it is what proves the switch is trade creation and not just assertion; give the unit with the final figure.

6. (a) Before the union the landed price from Z is 8 × 1.5 = 12 cu and from P is 10 × 1.5 = 15 cu, so M imports from Z [1]. After the union P’s goods are tariff-free at 10 cu, while Z’s landed price remains 12 cu [1]. M switches to P because it is now cheaper for buyers, even though Z has the lower production cost: this is trade diversion [1]. [3] (b) Q before = 390 − 240 = 150; Q after = 390 − 200 = 190. Consumer gain = (12 − 10) × (150 + 190) ÷ 2 = 340 cu [1]. Lost tariff revenue = 150 × (12 − 8) = 600 cu [1]. Net effect = 340 − 600 = −260 cu (made up of a consumption gain of 40 cu less an extra resource cost of 150 × 2 = 300 cu) [1]. [3] Examiner insight: The net figure is negative because of the resource cost of buying from the dearer producer; explaining that in words alongside the number shows you know why diversion is a loss.

7. Without a common external tariff, outsiders can send goods through the member with the lowest tariff [1], then move them tariff-free to other members; this is trade deflection [1]. A customs union removes the incentive because every member applies the same tariff [1]. A free trade area leaves members free to set their own tariffs, so it must use rules of origin to check where goods were made [1]. [4] Examiner insight: Connect the cause (different tariffs) to the consequence (goods re-routed); a bare statement that the common external tariff “stops cheating” earns little.

8. Advantage: no currency conversion costs or exchange rate risk among members [1], which encourages trade and investment [1]. Disadvantage: one interest rate has to suit every member [1], so a country hit by a shock cannot cut its own rate or devalue, and must adjust through wages, prices or labour mobility [1]. [4] Examiner insight: Answer with one advantage and one disadvantage as asked; extra points beyond the two requested rarely add credit.

9. (a) Share before = 120 ÷ 400 = 30% [1]. Share after = 180 ÷ 460 = 39.1%, a rise of 9.1 percentage points [1]. [2] (b) Imports from outside the bloc were 280 units before (400 − 120) and 280 after (460 − 180) [1], so there is no evidence of switching away from outsiders, which is what diversion would show [1]. Total imports rose by 60 units, all from members, which is consistent with trade creation, but growth in demand could also explain the rise, so the data are not conclusive [1]. [3] Examiner insight: A rising share alone proves nothing; the stronger answers compare imports from outside, and finish with a limit on the data.

10. Gain from creation = 120 × 3 = 360 cu [1]. Loss from diversion = 80 × 4 = 320 cu [1]. Net effect = 360 − 320 = 40 cu gain; creation outweighs diversion, so the bloc is a net gain in resource terms, though a narrow one [1]. [3] Examiner insight: Show both products before subtracting, and state what the sign of the result means.

11. Gains, up to 3 marks. Access to larger export markets lets firms exploit economies of scale and raises growth [1]; inward investment by multinational companies brings capital, jobs and technology [1]; cheaper imported inputs and consumer goods lower costs and prices [1]. Costs, up to 3 marks. Domestic firms in declining industries face competition and close, causing structural unemployment [1]; reliance on a few exports exposes the country to world price shocks [1]; multinational companies may move profits abroad or leave if costs change [1]. Evaluation, 2 marks. The outcome depends on the country’s comparative advantage, skills and labour flexibility, and on policies such as retraining [1]. Gains are likely to be larger in the long run than the short run, so a supported judgement is needed [1]. [8] Examiner insight: Essays that list gains then costs and stop earn less than those that weigh them; a conditional judgement, such as “provided the country can diversify its exports”, is the clearest form of evaluation.

12. Analysis, up to 6 marks. A customs union removes tariffs on partner goods and applies a common external tariff [1]. Trade creation: domestic output replaced by cheaper partner imports gives production and consumption gains [1]. Trade diversion: imports switch from cheaper outsiders to dearer partners, causing a resource loss and lost tariff revenue [1]. A before and after comparison of landed prices (cost × (1 + tariff)) as illustration [1]. Dynamic gains: a bigger market gives scale economies, competition and investment [1]. Loss of control of trade policy to a common external tariff [1]. Evaluation, up to 6 marks. Net benefit depends on the balance of creation and diversion [1]; on how far partner costs exceed world costs [1]; on whether the common external tariff is lower than old tariffs, which reduces diversion [1]; on price elasticity of demand, which affects the consumption gain [1]; on the time period, as dynamic gains take time [1]. A judgement stating likely benefit if partners are efficient and close to world costs, and likely loss if trade is mainly diverted from low-cost outsiders [1]. [12] Examiner insight: A strong answer uses figures or a before and after comparison of landed prices to support the claim, then ends with a judgement tied to named conditions rather than a general statement that “it depends”.

Where marks are usually lost

• Writing “customs union” when the description has no common external tariff.
• Defining globalisation as trade only.
• Comparing supplier costs without adding the tariff, so the cheapest source is misjudged.
• Calling every rise in intra-bloc trade trade creation, without checking imports from outside.
• Giving the net effect of trade diversion without saying why it is a loss.
• Stopping an essay at costs and gains with no weighing of which matters more and why.

Next steps

• Revise with the revision notes and re-read the study guide.
• Check your coverage on the Cambridge A Level Economics checklist and the course hub.
• Take one of the free 10-minute diagnostics to find weak spots.
• Book a free trial class at /trial/.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge Assessment International Education), section 11.6.