Cambridge O Level Economics: Globalisation, multinational companies and free trade (2281) – 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 sections 6.2.1 to 6.2.3 of the Cambridge O Level Economics 2281 syllabus for examination in 2026: globalisation, multinational companies (MNCs) and the benefits of free trade. All figures are invented and illustrative. Stuck? Read the study guide or the revision notes. Course links: hub, checklist and free 10-minute diagnostics.

Questions

1. State what is meant by globalisation. [2]

2. Country P records the following (billions of currency units). Year 1: exports 22, imports 26, GDP 150. Year 8: exports 45, imports 51, GDP 240.

(a) Calculate trade openness, (exports + imports) / GDP × 100 (a teaching device that the syllabus does not require), for each year. [3] (b) Comment on what the change suggests about Country P. [1]

3. Define a multinational company and explain what is meant by its host country. [3]

4. An MNC employs 500 workers at 8,000 a year each in Country K. Its annual profit there is 18 million. Country K taxes profit at 25%, and 60% of profit after tax is sent to the MNC’s home country.

(a) Calculate the wage bill and the tax paid. [2] (b) Calculate the profit sent to the home country. [2] (c) Explain why the profit sent home is a cost to Country K. [2]

5. Explain two benefits that an MNC may bring to a host country. [4]

6. Explain two costs that an MNC based in a home country may cause that country. [4]

7. In Country D the demand for shoes is Qd = 900 − 3P and the supply is Qs = −300 + 3P, where P is the price in dollars and Q is pairs of shoes (thousands).

(a) Calculate the equilibrium price and quantity with no international trade. [2] (b) Free trade opens at a world price of 140. Calculate the quantity demanded, the quantity supplied and the quantity imported. [3] (c) Calculate the percentage fall in price. [1] (d) Explain one effect of free trade on shoe producers in Country D. [2]

8. A furniture firm in a small country has fixed costs of 240,000 and a variable cost of 5 per unit.

(a) Calculate average cost at 30,000 units and at 120,000 units. [2] (b) Give the fall in average cost as a percentage, to one decimal place. [1] (c) Explain how free trade could allow the firm to move from 30,000 to 120,000 units. [2]

9. Country X cuts corporation tax from 30% to 20%. An MNC earns 50 million profit a year.

(a) Calculate the tax payable at each rate. [2] (b) Explain how the cut may affect where the MNC locates its head office, and one gain to Country X if it does. [2]

10. Explain two benefits of free trade for the economy of a country. [4]

11. An MNC plans a large factory in a developing country. Evaluate whether the host country is likely to gain. [8]

12. Country E is small and sells mainly farm products. Discuss whether free trade would benefit its consumers, producers and economy. [8]

Answers

1. Economies becoming more tied together and dependent on each other [1], through trade, investment and the spread of technology or information [1]. [2] Examiner insight: “More trade” alone describes only part of the idea. A second element such as integration, investment or technology is what turns a partial answer into a full one.

2. (a) Year 1: (22 + 26) / 150 × 100 [1] = 32% [1]. Year 8: (45 + 51) / 240 × 100 = 40% [1]. [3] (b) Openness rose by 8 percentage points, so Country P is more integrated with the world economy [1]. [1] Examiner insight: Write out the addition before the division so that your method can be followed. Say “percentage points” for a change between two percentages.

3. An MNC is a business with production or operations in two or more countries [1]. A host country is a place where it runs a factory, shop or office [1], as distinct from the home country that holds its head office [1]. [3] Examiner insight: Naming the home country for contrast makes the host definition clear. Do not define an MNC as just a “large firm”.

4. (a) Wages: 500 × 8,000 = 4,000,000 [1]. Tax: 25% × 18,000,000 = 4,500,000 [1]. [2] (b) Profit after tax: 18,000,000 − 4,500,000 = 13,500,000 [1]. Sent home: 60% × 13,500,000 = 8,100,000 [1]. [2] (c) The profit leaves the host economy [1], so it cannot be spent or invested there and local income is lower than the firm’s profit suggests [1]. [2] Examiner insight: Use profit after tax as the base for the 60%. Using 18 million gives a different figure and loses the answer.

5. Jobs [1], so workers earn wages and spend them locally [1]; tax revenue from profits [1], which the government can spend on services [1]. Other acceptable benefits: technology and skills, or investment that raises capacity, each developed in the same way. [4] Examiner insight: A benefit named without a consequence earns less than one with a consequence attached. Two separate benefits are required, not one repeated in different words.

6. Jobs lost [1] because production moves abroad, raising unemployment at home [1]; less investment at home [1], so capacity and future growth are lower [1]. Other acceptable costs: profits shifted to low-tax countries, or wages held down because the firm can threaten to move work abroad. [4] Examiner insight: Answer from the home country’s side. Writing about host-country benefits here is off-target.

7. (a) 900 − 3P = −300 + 3P [1]; 1,200 = 6P, so P = 200 and Q = 900 − 600 = 300 [1]. [2] (b) Qd = 900 − 3(140) = 480 [1]; Qs = −300 + 3(140) = 120 [1]; imports = 480 − 120 = 360 [1]. [3] (c) (200 − 140) / 200 × 100 = 30% [1]. [1] (d) Output falls from 300 to 120 thousand [1], because foreign shoes at 140 undercut them, so firms lose sales and may cut jobs or close [1]. [2] Examiner insight: Quote figures from your own working in part (d). Giving a percentage change needs the original price as the base.

8. (a) 240,000 / 30,000 + 5 = 13 [1]; 240,000 / 120,000 + 5 = 7 [1]. [2] (b) (13 − 7) / 13 × 100 = 46.2% [1]. [1] (c) Free trade gives access to buyers abroad [1], so output can rise beyond the small home market, spreading the fixed cost over more units [1]. [2] Examiner insight: Show 6 / 13, not 6 / 7. Linking “bigger market” to “fixed cost per unit” is the chain the question wants.

9. (a) At 30%: 0.30 × 50,000,000 = 15,000,000 [1]. At 20%: 10,000,000 [1]. [2] (b) The MNC keeps 5 million more profit each year in Country X [1]; if it moves its head office there, X gains jobs or tax revenue from the new activity [1]. [2] Examiner insight: The consequence has to be a gain for the country, not just a gain for the firm.

10. Specialisation [1], so more is produced from the same resources [1]; higher output and growth [1], because export demand adds to total demand [1]. Other acceptable benefits: jobs in export industries, or better resource allocation as resources move to efficient firms. [4] Examiner insight: The question asks about the economy, so do not answer with lower prices for consumers alone.

11. One way to earn 8: benefits of jobs and wages [1], with development that incomes and spending rise [1]; tax and technology or skills [1], with development that these can raise future output [1]; costs of profit sent abroad [1], so less local income [1]; costs of pollution or exploitation [1]; a conclusion that says which side wins and why, for example “yes, if the MNC buys locally and trains workers, no if most profit leaves and jobs are few” [1]. [8] Examiner insight: A conclusion should hinge on a stated condition, such as local purchases or skills. A balanced list that stops without deciding often leaves marks unclaimed.

12. One way to earn 8: consumers gain lower prices [1] and more choice [1]; producers gain a larger market [1], which allows economies of scale [1]; the economy gains export earnings [1] and can import machinery [1]; a limit: the country relies on few farm exports and is exposed to falling world prices [1]; a judgement, such as that gains are likely overall but uneven, with some local producers losing [1]. [8] Examiner insight: Refer to Country E’s size and farm exports in each paragraph. An answer that stays general about trade gains less than one built around this country.

Where marks are usually lost

• Defining globalisation as “trade” alone.
• Using pre-tax profit as the base when a share of after-tax profit is sent home.
• Describing benefits without a consequence, such as “jobs” with no wages or spending.
• Writing about the host country when the question asks about the home country.
• Using the new value as the base when finding a percentage change.
• Giving only one side in an evaluation question.
• Leaving out a conclusion that judges which factor matters most.
• Answering a free trade question with tariffs and quotas.

Next steps

• Revise with the revision notes.
• Re-read the study guide.
• Go to the Cambridge O Level Economics hub and the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge O Level Economics 2281, syllabus for examination in 2026 (version 2), published by Cambridge University Press & Assessment (Cambridge International Education): section 6.2, topics 6.2.1 to 6.2.3.