IB DP Economics: Benefits of international trade – 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 – the IB holds copyright in its own papers. Use these alongside the official past papers available through your school or the IB store.

This set follows the IB Diploma Programme Economics guide (first assessment 2022, published February 2020), the course examined from the 2022 session onwards. It covers sub-topic 4.1, Benefits of international trade. Questions not labelled HL are SL and HL. Questions labelled HL only cover absolute and comparative advantage, the HL calculations and the limitations of the theory. All countries, firms and figures are fictional.

Related pages: the study guide, the revision notes, the IB DP Economics hub, the printable checklist and the free 10-minute diagnostics.

Questions

1. Outline two ways in which increased competition from imports can benefit consumers. [2]

2. A fictional firm, Ostrel Pottery, has fixed costs of 180 000 currency units and a variable cost of 4 units per item. Calculate its average cost at 15 000 items and at 45 000 items, and the percentage fall to one decimal place. [3]

3. In the fictional market for rice in Norvale, the world price is above the domestic equilibrium price. Draw and label a diagram of free trade in this market, and explain the effect on domestic consumers and producers. [4]

4. (HL only) The market for cut flowers in Marenda has demand Qd = 240 − 4P and supply Qs = 6P − 60 (quantity in thousands of stems, price in currency units). (a) Calculate the equilibrium price and quantity without trade. [2] (b) The world price is 36. Calculate the quantity of exports. [2] (c) Calculate export revenue. [1]

5. In the fictional market for tea in Hesper, the world price is below the domestic equilibrium price. Explain, with reference to a diagram, why Hesper imports tea and what happens to domestic producers. [4]

6. (HL only) The market for canned fish in Tolvia has demand Qd = 300 − 5P and supply Qs = 3P + 20. The world price is 25. (a) Calculate the quantity demanded and the quantity supplied at the world price. [2] (b) Calculate the quantity of imports. [1] (c) Calculate import expenditure. [1] (d) Calculate imports as a percentage of the quantity demanded, to one decimal place. [1]

7. (HL only) Hours needed to make one unit: in Pelmar, a bicycle takes 4 hours and a crate of spice takes 2 hours. In Quenda, a bicycle takes 6 hours and a crate takes 5 hours. (a) Which country needs fewer hours for each good? Name the advantage this shows. [1] (b) Work out how many crates each country gives up to make one more bicycle. [2] (c) Say which country should export which good, and why. [2]

8. (HL only) Use the data in question 7. Each country has 1 200 hours. (a) Calculate the maximum output of each good in each country. [2] (b) Describe the PPC diagram for the two countries, with crates on the vertical axis. [2] (c) Before trade, Pelmar makes 60 bicycles and Quenda makes 120 bicycles, each on its own PPC. Find each country’s output of crates. [1] (d) Each country now specialises completely. Quenda sells 70 bicycles to Pelmar at 1.5 crates per bicycle. Calculate each country’s consumption and its gain over the pre-trade position. [3]

9. Explain how international trade can lead to (i) more efficient resource allocation and (ii) more efficient production. [4]

10. (HL only) Discuss the limitations of the theory of comparative advantage. [8]

11. Extract (original text written for Marlbridge): “Dorrin is a small fictional island with no oil or coal and 300 000 people. Its farms export vanilla. Fuel, vehicles and medical equipment are imported.” Using the extract, explain two benefits of trade for Dorrin. [6]

12. (HL only) Explain two possible sources of comparative advantage. [4]

Answers

1. Home firms must cut prices or improve quality to keep customers [1], so consumers pay less or get better goods; or consumers can choose between more varieties [1]. Any two distinct valid ways. [2] Examiner insight: “Outline” asks for a brief account, so give two short, separate points rather than one point repeated.

2. At 15 000: (180 000 + 4 × 15 000) ÷ 15 000 = 240 000 ÷ 15 000 = 16 [1]. At 45 000: (180 000 + 180 000) ÷ 45 000 = 8 [1]. Fall = (16 − 8) ÷ 16 = 50.0% [1]. [3] Examiner insight: Show the total-cost step before dividing, since the guide’s meaning of calculate is to show the stages of working.

3. Diagram: price up the side, quantity along the bottom, D and S crossing at the no-trade price [1]; horizontal world price line above it, with Qd and Qs read at that price and exports Qs − Qd [1]. Consumers pay a higher price and buy less, so consumer surplus falls [1]. Producers receive a higher price and sell more, so producer surplus rises, by more than consumers lose [1]. [4] Examiner insight: Label axes, curves, Pw, Qd, Qs and the export gap. An unlabelled sketch is hard to credit.

4. (a) 240 − 4P = 6P − 60, so 300 = 10P, P = 30 [1]; Q = 240 − 120 = 120 [1]. (b) At 36: Qd = 240 − 144 = 96 and Qs = 216 − 60 = 156 [1]. Exports = 156 − 96 = 60 thousand stems [1]. (c) 36 × 60 = 2 160 thousand currency units [1]. [5] Examiner insight: Revenue uses the world price. Using 30 gives a wrong answer even if the export quantity is right.

5. The world price is below the domestic equilibrium price, so at that price quantity demanded exceeds quantity supplied [1]. The gap, Qd − Qs, is met by imports [1]. Domestic producers receive a lower price [1] and cut output, so producer surplus falls and some domestic jobs may be lost [1]. [4] Examiner insight: Mention the losers. Gains for consumers alone make a one-sided answer.

6. (a) Qd = 300 − 125 = 175 [1]; Qs = 75 + 20 = 95 [1]. (b) Imports = 175 − 95 = 80 [1]. (c) 25 × 80 = 2 000 [1]. (d) 80 ÷ 175 × 100 = 45.7% [1]. [5] Examiner insight: Keep the sign convention straight: imports are Qd − Qs. A negative answer shows the subtraction is back to front.

7. (a) Pelmar, for both goods, as it needs fewer hours for each. This is absolute advantage [1]. (b) Pelmar: 4 ÷ 2 = 2 crates [1]. Quenda: 6 ÷ 5 = 1.2 crates [1]. (c) Quenda should export bicycles (1.2 < 2) [1]. Pelmar should export spice, since its opportunity cost of a crate is 0.5 bicycle against Quenda’s 0.83 [1]. [5] Examiner insight: A reason for comparative advantage needs both opportunity costs compared. Naming the country without the comparison is incomplete.

8. (a) Pelmar: 1 200 ÷ 4 = 300 bicycles or 1 200 ÷ 2 = 600 crates [1]. Quenda: 1 200 ÷ 6 = 200 bicycles or 1 200 ÷ 5 = 240 crates [1]. (b) Two straight lines, because opportunity costs are constant [1]. Pelmar’s runs from 600 on the crate axis to 300 on the bicycle axis (slope 2), Quenda’s from 240 to 200 (slope 1.2); the different slopes show the different opportunity costs [1]. (c) Pelmar: 600 − 2 × 60 = 480 crates. Quenda: 240 − 1.2 × 120 = 96 crates [1]. (d) Pelmar: bicycles 70, crates 600 − 1.5 × 70 = 495 [1]. Quenda: bicycles 200 − 70 = 130, crates 1.5 × 70 = 105 [1]. Gains: Pelmar +10 bicycles and +15 crates, Quenda +10 bicycles and +9 crates [1]. [8] Examiner insight: Finish with the comparison to the pre-trade position. The gain is the point of the question.

9. (i) Trade pushes resources towards goods in which the country is relatively strong [1], so the same resources yield more of what people value, or gain more through exchange [1]. (ii) Competition and larger markets push firms to cut waste [1] and adopt better methods or scale, so the cost of each unit falls [1]. [4] Examiner insight: The two parts are different. Allocation concerns which goods; production concerns how efficiently each is made.

10. Indicative points, one mark each, up to 8. The theory assumes constant opportunity costs, but real costs often rise with output [1]. It ignores transport costs, which can cancel small gains [1]. It assumes mobile, fully employed resources, but displaced workers may stay unemployed [1]. Heavy reliance on one product carries price risk [1]. It assumes perfect competition, ignoring scale effects [1]. Gains are uneven, so some groups lose [1]. Environmental costs are not counted [1]. A balanced judgement on how serious the limits are [1]. [8] Examiner insight: “Discuss” sits at evaluation depth, so treat the points above as a revision checklist and finish with a reasoned judgement rather than a list.

11. Acquisition of resources: Dorrin has no oil or coal [1], so imports of fuel give it energy it cannot produce [1], and imports of vehicles and equipment add capital and health care [1]. More foreign exchange earnings (or access to larger markets): vanilla exports sell beyond a population of 300 000 [1], earning foreign currency [1] that pays for the imports [1]. [6] Examiner insight: Tie each benefit to a detail in the extract. A generic list will not use the context.

12. Factor endowments: a country with fertile land and a suitable climate can grow a crop at lower opportunity cost [1], so it gains an advantage in that crop [1]. Technology or skills: a better-trained workforce raises output per worker in some industries [1], lowering the opportunity cost of those goods [1]. [4] Examiner insight: Link each source to a lower opportunity cost, since that is what comparative advantage means.

Where marks are usually lost

• Using the domestic price rather than the world price for revenue or expenditure.
• Reversing the subtraction for exports and imports.
• Dividing the wrong way round when finding opportunity cost.
• Omitting working, when the command term is calculate.
• Naming a benefit without the mechanism that produces it.
• Ignoring the losers from free trade in discuss or evaluate answers.
• Unlabelled diagrams: missing axes, Pw, Qd or Qs.
• Treating absolute advantage as the same as comparative advantage.
• Not using the extract in a context question.

Next steps

• Re-read the revision notes for any question you lost marks on.
• Go back to the study guide for the worked examples.
• Tick off outcomes on the printable checklist and visit the IB DP Economics hub.
• Take the free 10-minute diagnostics to find other gaps.
• Book a free trial class if you want a teacher to go through your answers.

Official syllabus

IB Diploma Programme Economics guide, first assessment 2022, published by the International Baccalaureate Organization in February 2020. This page covers sub-topic 4.1 of Unit 4, The global economy.