Pearson Edexcel International Advanced Level Economics: Blocs, WTO, protection (YEC11) – 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 4.3.2 items 4 and 5 of the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics specification (YEC11), Issue 2, June 2018. The specification lists Unit 4 among the International A2 units, so the content is for the full International A Level only. All countries, firms and figures are invented. Teach-yourself material is in the study guide and revision notes. See also the Edexcel economics hub and the printable checklist.

Questions

1. Distinguish between a free-trade area and a customs union. [4]

2. Explain two ways in which the World Trade Organization (WTO) promotes trade liberalisation. [4]

3. Country P charges a 20% tariff on all imports of radios. An outside country sells at 40 per unit and a partner country at 45. Home firms sell at 52. Demand is Q = 400 − 4P. Country P forms a free-trade area with the partner. Calculate the net welfare effect on Country P. [5]

4. Country R makes scooters at a cost of 90. A future partner sells at 70, and Country R charges a 40% tariff. Demand is Q = 300 − 2P. Calculate the welfare gain when R joins a free-trade area with the partner. [5]

5. In Country S the home market for shirts has Qd = 200 − 5P and Qs = 20 + 5P. The world price is 10. The government imposes a tariff of 2 per unit.

(a) Calculate imports before and after the tariff. [2] (b) Calculate tariff revenue. [1] (c) Calculate the welfare loss. [3]

6. Use the market in question 5.

(a) Instead of the tariff, imports are limited by a quota of 60 units. Calculate the quota rent and say who might receive it. [2] (b) Instead, the government pays a subsidy of 2 per unit to home producers. Calculate the cost to the government and the welfare loss. [3] (c) State one advantage of the subsidy for consumers. [1]

7. Explain the infant industry argument and the argument for protecting a geriatric industry. [6]

8. A firm in Country X sells widgets abroad at 18. They cost 22 to make and sell at 25 at home.

(a) Explain why this is dumping. [2] (b) Explain one effect on the importing country. [2]

9. (a) Explain one non-tariff barrier. [2] (b) Explain one benefit and one cost of free movement of labour in a common market. [2]

10. Analyse why a customs union may conflict with the aims of the WTO. [8]

11. Country M is a developing economy. It places a high tariff on imported clothing to protect its new clothing firms, and uses the revenue to fund rural schools. Evaluate the effects of this policy on living standards and equality. [12]

Answers

1. Both remove tariffs between members [1]. In a free-trade area each member keeps its own tariffs on outsiders [1], so rules of origin are needed [1]. A customs union adds a common external tariff, so members set one trade policy towards non-members [1]. [4] Examiner insight: a “distinguish” answer needs the difference stated, not two separate definitions side by side.

2. It runs negotiations that lower bound tariff rates [1], so members cannot raise tariffs above agreed levels, which gives exporters certainty [1]. It applies non-discrimination, so a cut offered to one member goes to all [1], spreading liberalisation widely [1]. (Dispute settlement is another valid route.) [4] Examiner insight: each way earns credit when the feature is linked to lower barriers, not just named.

3. Landed prices: outsider 40 × 1.2 = 48, partner 45 × 1.2 = 54, home 52. Before: buy from the outsider at 48, so Q = 400 − 192 = 208 [1]. After: partner at 45 is cheapest, so Q = 400 − 180 = 220 [1]. Consumer surplus gain = 3 × (208 + 220) ÷ 2 = 642 [1]. Revenue lost = 208 × 8 = 1,664 [1]. Net = 642 − 1,664 = −1,022 [1]. (Check: 18 extra consumption less 5 × 208 = 1,040 extra resource cost.) [5] Examiner insight: compare landed prices first and say which supplier wins before and after; the trade diversion conclusion then follows.

4. Partner landed price = 70 × 1.4 = 98, above 90, so Country R buys at home before the union [1]. Before: P = 90, Q = 120. After: P = 70, Q = 160 [1]. Production effect = 120 × 20 = 2,400 [1]. Consumption effect = ½ × 20 × 40 = 400 [1]. Gain = 2,800 [1]. [5] Examiner insight: show the landed-price test; it proves that the switch is from home output, which is what makes this trade creation.

5. (a) Free trade: Qd = 150, Qs = 70, imports 80 [1]. Tariff (price 12): Qd = 140, Qs = 80, imports 60 [1]. (b) 60 × 2 = 120 [1]. (c) Consumer surplus loss = ½ × (150 + 140) × 2 = 290 [1]. Producer surplus gain = ½ × (70 + 80) × 2 = 150 [1]. Welfare loss = 290 − 150 − 120 = 20 [1]. (Triangles: 10 and 10.) [6] Examiner insight: name the three areas you add and subtract so that your method stays visible even if you slip on the arithmetic.

6. (a) At a price of 12, imports are 60, which equals the quota [1]. Rent = 60 × 2 = 120, received by importers or foreign exporters holding licences (or by the government if licences are auctioned) [1]. (b) Producers receive 12 and supply 80 [1]. Cost = 80 × 2 = 160 [1]. Producer surplus gain is 150, so welfare loss = 160 − 150 = 10 [1]. (c) Consumers still pay 10 and buy 150 [1]. [6] Examiner insight: say who gets the quota rent; it is the point that separates a quota from a tariff.

7. Infant industry: a new industry has high costs because it lacks scale and experience [1]. Temporary protection lets it grow and learn until it can compete without help [1]; the risk is that it never matures [1]. Geriatric industry: a declining industry faces falling demand or lower-cost rivals [1]. Protection slows closures and gives workers time to retrain [1], but it keeps resources in a declining use and raises prices [1]. [6] Examiner insight: keep the two arguments distinct: one looks ahead to future competitiveness, the other eases a decline.

8. (a) The export price 18 is below cost of 22 [1] and below the home price of 25 [1]. (b) Consumers there gain from the low price [1], but home producers lose sales and may close, which may lead to anti-dumping duties [1]. [4] Examiner insight: give both a cost and a price comparison; one alone is incomplete evidence of dumping.

9. (a) For example, a product standard that imported goods must meet [1]. It can be defended as protecting health and is harder for exporters to challenge than a tariff [1]. (b) Benefit: workers move to where jobs are, filling skill gaps [1]. Cost: the origin country may lose skilled workers, or the destination may face pressure on housing and services [1]. [4] Examiner insight: a barrier needs an explained effect on trade, not just a name.

10. A customs union gives members preferential access [1], which breaks the non-discrimination principle [1]. Outside exporters face higher prices than members [1], so trade is diverted from efficient suppliers [1]. The common external tariff may raise barriers to outsiders [1]. The WTO tolerates unions only if they cover substantially all trade and do not raise outside barriers overall [1]. Outsiders may bring disputes or retaliate [1]. However, a union can liberalise faster than global talks [1]. [8] Examiner insight: analysis here is a chain from cause to consequence; a list of facts about the WTO is weaker than linked steps.

11. Living standards: the tariff raises clothing prices, cutting real income [1], but may create jobs in new firms [1] and lead to learning and scale [1]. Revenue funds schools, raising human capital and future productivity [1]. Equality: poor households spend a large share of income on clothing, so a tariff is regressive [1]; rural schooling may offset this [1]; jobs may help low-skilled workers [1]; and owners of protected firms gain [1]. Judgement: the result depends on how long protection lasts [1], the size of price rises [1], whether retaliation hits exporters [1], and whether revenue is spent well [1]. A time-limited tariff with ring-fenced revenue is likelier to help than permanent protection. [12] Examiner insight: reach a reasoned conclusion that names the conditions on which your view depends.

Where marks are usually lost

• Defining a term but not applying it to the figures given.
• Skipping the landed-price comparison, so trade creation and diversion cannot be told apart.
• Treating the quota rent as government revenue.
• Giving only one triangle of welfare loss.
• Writing about consumers and producers but leaving out governments, living standards or equality when the question names them.
• Listing reasons for protection with no counter-argument.
• Ending an evaluation with a summary of points instead of a judgement.

Next steps

• Re-read the revision notes and the study guide.
• Check the Edexcel economics hub and the printable checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class at /trial/.

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics, Specification, Issue 2, June 2018, first teaching September 2018, published by Pearson Education Limited: section 4.3.2 Trade and the global economy, items 4 and 5.