IB DP Economics: Economic integration – 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 4.4, Economic integration. Questions not labelled HL are SL and HL. Questions labelled HL only cover trade creation, trade diversion and the advantages and disadvantages of monetary union. All countries, firms and figures are fictional, and the guide lists no calculations for this sub-topic, so the arithmetic is practice for the ideas. The marks shown in the answers are a revision aid. Real answers are judged against IB criteria, not point by point.

Related pages: the study guide, the revision notes, the IB DP Economics hub and the printable checklist. For a quick check of what to revise, use the free 10-minute diagnostics.

Questions

1. Contrast a free trade area with a customs union. [2]

2. Outline the meaning of bilateral, regional and multilateral trade agreements. [3]

3. Explain how a common market differs from a customs union, and one way this can benefit workers. [4]

4. (HL only) Marnia has a 20% tariff on all imports. Its own firms make a good at a cost of 48. Partner Kelvo makes it at 44 and outsider Pasha at 41. Marnia then forms a customs union with Kelvo. (a) Calculate the price of the good from Kelvo and from Pasha before the union. [2] (b) Identify where Marnia buys the good before and after the union, and name the effect. [2] (c) If 20 000 units switch, calculate the saving in production cost. [1]

5. (HL only) Tarsa has a 25% tariff on all imports. Its own cost for a good is 70. Partner Lund makes it at 60 and outsider Moro at 50. Tarsa forms a free trade area with Lund. (a) Show that the union causes trade diversion. [2] (b) Calculate the net loss to Tarsa if 8 000 units switch, counting the price change and lost tariff revenue. [3]

6. In a free trade area, partner A charges 10% on goods from outsiders and partner B charges 40%. An outsider’s good costs 50. Calculate the price in B if sent directly and if sent through A, and explain how a customs union would remove the difference. [4]

7. Fictional Hallow Steelworks has fixed costs of 900 000 and a variable cost of 6 a unit. It sells 30 000 units at home. After its country joins a bloc it sells 180 000 units. Calculate the percentage fall in average cost, to one decimal place. [3]

8. (HL only) A firm converts 1 500 000 units of currency a year between two members’ currencies, losing 1.8% each time. The members form a monetary union. (a) Calculate the yearly saving. [2] (b) Explain one other advantage of monetary union. [2]

9. (HL only) A monetary union has two members. Corvan has 55% of the union’s weight and inflation of 8%. Delmar has 45% and inflation of 1%. (a) Calculate the union’s average inflation rate. [2] (b) Explain one disadvantage of a single interest rate for these members. [2]

10. Explain two factors that limit the influence of the World Trade Organization. [4]

11. Evaluate the advantages and disadvantages for a small country of joining a customs union. [10]

12. (HL only) Zenora joins a bloc. The table shows the effects. Each figure is a change in resource cost per unit.

Good	Effect	Units	Change per unit
X	Trade creation	12 000	saving of 5
Y	Trade diversion	9 000	increase of 8
Z	Trade creation	4 000	saving of 6

(a) Calculate the net change in resource cost. [3] (b) Evaluate whether Zenora gains from joining. [5]

Answers

1. Both remove barriers between members [1]. Only the customs union has one shared tariff on outsiders; in the other, every member picks its own [1]. Examiner insight: A contrast answer needs an explicit difference, not two separate definitions; name what is shared, then what differs.

2. Bilateral: an agreement between two countries [1]. Regional: an agreement among several countries in one area [1]. Multilateral: an agreement among many countries worldwide, such as through the WTO [1]. Examiner insight: Outline needs a brief account of each; one clear phrase per type usually earns its mark.

3. A common market is a customs union that also allows free movement of labour and capital [1], which a customs union does not [1]. Workers can take jobs in any member without a permit [1], so those in a high-unemployment member can find work in a member with vacancies [1]. Examiner insight: Link the benefit to the feature you named, because a benefit with no stated mechanism earns less.

4. (a) Kelvo: 44 × 1.2 = 52.8 [1]. Pasha: 41 × 1.2 = 49.2 [1]. (b) Before, domestic at 48 is cheapest [1]. After, Kelvo at 44 is cheapest, so the switch is from domestic to partner: trade creation [1]. (c) (48 − 44) × 20 000 = 80 000 [1]. Examiner insight: Write each price before comparing; a bare conclusion with no price list is hard to credit.

5. (a) Before: Lund 60 × 1.25 = 75, Moro 50 × 1.25 = 62.5, own 70, so Tarsa buys from Moro at 62.5 [1]. After: Lund at 60 is cheapest, so the trade moves from outsider to partner: trade diversion [1]. (b) Consumers pay 62.5 − 60 = 2.5 less [1]. Tariff revenue lost is 50 × 0.25 = 12.5 a unit [1]. Net = (2.5 − 12.5) × 8 000 = loss of 80 000 [1]. Examiner insight: A price fall alone can mislead; counting lost tariff revenue shows you see the full effect.

6. Directly to B: 50 × 1.40 = 70 [1]. Through A: 50 × 1.10 = 55 [1]. The detour saves 15 a unit [1]. A customs union has one external tariff, so the good costs the same whichever member it enters [1]. Examiner insight: Show both prices and the gap, and then say why a common tariff removes the incentive.

7. Home: (900 000 + 6 × 30 000) ÷ 30 000 = 1 080 000 ÷ 30 000 = 36 [1]. Bloc: (900 000 + 6 × 180 000) ÷ 180 000 = 1 980 000 ÷ 180 000 = 11 [1]. Fall = 25 ÷ 36 × 100 = 69.4% [1]. Examiner insight: A percentage change is measured against the starting figure; using the new one is a common slip.

8. (a) 1 500 000 × 0.018 = 27 000 [1][1]. (b) Exchange-rate risk between members disappears [1], so firms can plan and invest across borders with more certainty [1]. Examiner insight: Give a reason and a consequence, because naming an advantage alone earns little.

9. (a) 0.55 × 8 + 0.45 × 1 = 4.4 + 0.45 = 4.85% [1][1]. (b) A rate suited to about 4.85% is too loose for Corvan, where inflation is 8% [1], and too tight for Delmar, where inflation is 1% [1]. Examiner insight: Apply the disadvantage to the numbers given rather than stating it in general.

10. First factor: difficulty of reaching agreement on services [1], because barriers are regulations rather than tariffs and are hard to compare and trade off [1]. Second factor: unequal bargaining power [1], because large members can threaten retaliation and fund legal teams, while small members often cannot [1]. Examiner insight: Explain each factor with a reason, because a list of factors earns less than a short chain for each.

11. Plan with indicative points; the real response is judged on quality, not a count. Advantages: larger market lets firms raise output and lower average cost [1], with a short example or figure [1]. Bargaining as part of a group carries more weight in talks [1]. Closer ties support political stability [1]. Disadvantages: the member must adopt the common external tariff and lose control of its own [1], which reduces sovereignty in other policy too [1]. Blocs may challenge multilateral negotiations [1]. Judgement: a conclusion that weighs both sides [1], using criteria such as the size of the country, the cost gap with partners and the time period [1], and a reasoned final choice [1]. Examiner insight: An evaluate question rewards a verdict supported by criteria; two lists with no weighing leave the top marks out of reach.

12. (a) Gains: 12 000 × 5 + 4 000 × 6 = 60 000 + 24 000 = 84 000 [1]. Loss: 9 000 × 8 = 72 000 [1]. Net = 84 000 − 72 000 = a fall in resource cost of 12 000 [1]. (b) The net gain is small compared with the totals, so creation only just outweighs diversion [1]. Lost tariff revenue and the price paid by consumers are not in the table [1]. Longer-term gains such as economies of scale may add to the benefit [1], while sovereignty costs are not shown [1]. A supported judgement, such as a modest gain that depends on the omitted items, completes the answer [1]. Examiner insight: Use the figures in your evaluation, and state what the data leaves out before you judge.

Where marks are usually lost

• Crediting a free trade area with a tariff wall shared by all its members.
• Using the new average cost, not the old one, as the base for a percentage fall.
• Calling a switch to a partner trade creation when it came from an outsider (HL only).
• Counting only the price fall and ignoring lost tariff revenue in diversion questions (HL only).
• Naming monetary union advantages with no link to the case given (HL only).
• Listing WTO factors with no explanation.
• Giving both sides of an evaluation but no verdict.
• Skipping the working in a calculation, so a small slip loses every mark.

Next steps

• Re-read the revision notes for the definitions and methods.
• Go back to the study guide for worked explanations.
• Tick off outcomes on the printable checklist and visit the IB DP Economics hub.
• Take a free 10-minute diagnostic to pick your next topic.
• Book a free trial class for live feedback on the answers you found hardest.

Official syllabus

IB Diploma Programme Economics guide, first assessment 2022, published by the International Baccalaureate Organization, February 2020. Sub-topic 4.4, Economic integration.