IB MYP Individuals and Societies – Trade, Aid and Exchange Study Guide

This study guide is for IB MYP Individuals and Societies and follows the International Baccalaureate Organization, Middle Years Programme Subject Brief – Individuals and societies, from 2014. It teaches trade, aid and exchange, a topic the brief lists for the individuals and societies on-screen examinations, and suits MYP years 4 and 5. MYP has no SL/HL split, so everything here applies to every student, with the on-screen examinations at the end of MYP year 5 in mind.

MYP has no prescribed content list – schools design their own units. This page covers a topic the IB’s brief lists, using standard economics, geography and history. Your teacher will share the task-specific clarifications.

Use it with the trade, aid and exchange revision notes and the trade, aid and exchange practice questions. For the course as a whole, see the MYP Individuals and Societies hub and the printable checklist.

What this unit covers

Area	What you must be able to do	Criterion it mainly trains
Balance of trade	Define imports and exports; calculate a surplus or deficit	A and B
Why countries trade	Explain absolute and comparative advantage using opportunity cost	A
Free trade and protection	Explain tariffs, quotas and subsidies; weigh both sides	A and D
Trade blocs	Distinguish the levels of integration and give real examples	A
Fair trade	Explain how certification works and judge its effects	A and D
Aid	Classify types of aid; weigh the arguments for and against	A, C and D
Exchange in history	Explain how trade moved goods, ideas and diseases	A
Data and sources	Read fictional data; judge sources	B and D

The brief lists globalization and sustainability among its related concept examples, and fairness and development among the global contexts. This topic fits all three.

Imports, exports and the balance of trade

• Export – a good or service sold to another country.
• Import – a good or service bought from another country.
• Visible trade is in goods; invisible trade is in services (tourism, banking, shipping).
• Balance of trade = value of exports − value of imports.
• A positive balance is a trade surplus; a negative balance is a trade deficit.

A deficit is not always bad: imported machines may raise future output. A long, large deficit may mean borrowing abroad.

Many low-income countries depend on a few primary products (cocoa, copper, coffee) whose prices swing sharply. Richer economies export more manufactured goods and services, which add more value.

Worked example 1 – balance of trade

Norland is a fictional country. All figures are in billions of dollars (bn). Last year it exported goods worth 40 bn. This year it exported 48 bn and imported 55 bn.

Balance of trade = exports − imports
                 = 48 − 55
                 = −7 bn   (a trade deficit)

Percentage change in exports = (new − old) ÷ old × 100
                             = (48 − 40) ÷ 40 × 100
                             = 20%

Keep the minus sign: “7 bn” alone hides whether it is a deficit.

Why countries trade: absolute and comparative advantage

A country has an absolute advantage in a good if it makes more of it than another country with the same resources.

A country has a comparative advantage in a good if it makes it at a lower opportunity cost – it gives up less of another good. David Ricardo set out this idea in 1817: both countries can gain even when one is better at making everything.

Opportunity cost = what you give up ÷ what you gain.

Worked example 2 – comparative advantage

Two fictional countries each have 10 workers. The table shows what one worker can make in a day.

	Coffee (sacks)	Textiles (rolls)
Arlen	12	6
Belmar	4	4

Step 1 – absolute advantage. Arlen makes more of both goods per worker.

Step 2 – opportunity costs.

Arlen:  1 roll of textiles costs 12 ÷ 6 = 2 sacks of coffee
        1 sack of coffee costs 6 ÷ 12 = 0.5 rolls of textiles
Belmar: 1 roll of textiles costs 4 ÷ 4 = 1 sack of coffee
        1 sack of coffee costs 4 ÷ 4 = 1 roll of textiles

Step 3 – comparative advantage. Belmar gives up less for textiles (1 sack against 2), so it has the comparative advantage in textiles. Arlen gives up less for coffee (0.5 rolls against 1), so it has the comparative advantage in coffee.

Step 4 – show the gain. Without trade, each country splits its workers five and five:

Arlen:  5 × 12 = 60 coffee,  5 × 6 = 30 textiles
Belmar: 5 × 4  = 20 coffee,  5 × 4 = 20 textiles
Total:           80 coffee,           50 textiles

With specialisation, Belmar puts all 10 workers on textiles and Arlen puts 7 on coffee and 3 on textiles:

Arlen:  7 × 12 = 84 coffee,  3 × 6  = 18 textiles
Belmar:           0 coffee,  10 × 4 = 40 textiles
Total:           84 coffee,           58 textiles

Total output rises by 4 sacks and 8 rolls. If Belmar swaps 16 rolls for 24 sacks (1 roll = 1.5 sacks), Belmar ends with 24 coffee and 24 textiles (was 20 and 20) and Arlen with 60 coffee and 34 textiles (was 60 and 30). Both gain. The rate works because 1.5 lies between the two opportunity costs (1 and 2).

Limits of the model: it ignores transport costs, assumes workers switch jobs easily, and ignores who gets the gains.

Free trade and protectionism

Free trade has no government barriers. Protectionism uses barriers to shield domestic producers:

• Tariff – a tax on imports. A 15% tariff on an imported bicycle priced at 200 dollars raises its price to 200 × 1.15 = 230 dollars.
• Quota – a limit on the quantity that may be imported.
• Subsidy – a government payment to domestic producers so they can sell more cheaply.

Arguments for protection	Arguments for free trade
Protects jobs in domestic firms	Consumers pay lower prices and get more choice
Lets new (“infant”) industries grow before facing foreign rivals	Countries specialise, so total output rises
Keeps key goods (food, medicine) in national hands	Competition pushes firms to become efficient

The World Trade Organization (WTO) began work in 1995, taking over from the General Agreement on Tariffs and Trade (GATT) of 1947. It sets trade rules for members and settles disputes.

Trade blocs

A trade bloc is a group of countries that agree to reduce or remove trade barriers between themselves. There are levels of integration, each adding to the one before:

Level	What members agree	Example
Free trade area	No tariffs between members; each keeps its own tariffs on outsiders	USMCA (replaced NAFTA in 2020); the African Continental Free Trade Area (trading began 2021)
Customs union	Free trade inside plus a common external tariff	Mercosur, founded 1991 by Argentina, Brazil, Paraguay and Uruguay (its common tariff has many exceptions)
Common market	Customs union plus free movement of labour and capital	The EU single market
Economic union	Common market plus shared economic policies, sometimes a single currency	The euro area within the EU

Benefits for members: bigger markets, cheaper inputs, more investment.

Costs: more competition for firms inside; trade diverted from cheaper outside producers; less control over national trade policy. Outsiders find it harder to sell to the bloc.

For how the EU and ASEAN work as organisations, see the superpowers, empires and alliances study guide.

Fair trade

Fair trade aims to give small producers in low-income countries a better deal. Under Fairtrade certification:

• buyers pay at least a minimum price, meant to cover the cost of producing sustainably, even when the world price falls;
• buyers also pay a Fairtrade Premium, which producer groups spend on projects they choose together (a school, a well, better equipment);
• producers must meet standards on working conditions, child labour and the environment.

Worked example 3 – who gets the money?

In a fictional supermarket (prices in dollars), a conventional bag of coffee costs 8.00 and the grower receives 0.40. A fair-trade bag costs 8.40 and the grower receives 0.64.

Conventional share = 0.40 ÷ 8.00 × 100 = 5.0%
Fair-trade share   = 0.64 ÷ 8.40 × 100 = 7.6% (to 1 d.p.)

The grower’s share rises, but most of the price still goes to processing, shipping, shops and tax.

Debate. Supporters say fair trade gives stable incomes and funds community projects. Critics say only a small share of trade is certified, certification costs money the poorest farmers may lack, and a guaranteed price may keep farmers in a crop when switching would earn more.

Aid

Aid is a transfer of money, goods, skills or services to help another country. Official government aid is official development assistance (ODA).

Type	Meaning	Example
Bilateral	Government to government	A donor funds a road abroad
Multilateral	Donors pay an international body, which distributes it	The World Bank; UN agencies
Voluntary (NGO)	Charities spend money given by the public	A charity digs village wells
Short-term (emergency)	Food, shelter, medicine after a disaster	Relief after the Indian Ocean tsunami of December 2004
Long-term (development)	Raises living standards over years	Schools, clinics, farm training
Tied aid	Must be spent on the donor’s goods or services	A loan that must buy the donor’s machinery

Aid can also be top-down (large government projects, such as a dam) or bottom-up (small projects run with local people).

In 1970 the UN General Assembly set a target: donor countries should give 0.7% of gross national income (GNI) as aid.

Worked example 4 – aid as a share of income

A fictional donor has a GNI of 600 bn dollars and gives 2.7 bn in aid.

Aid as % of GNI = 2.7 ÷ 600 × 100 = 0.45%
Aid needed for 0.7% = 600 × 0.007 = 4.2 bn
Shortfall = 4.2 − 2.7 = 1.5 bn

The aid debate

Arguments for aid	Arguments against (or for reform)
Saves lives after disasters	Can create dependency on donors
Funds health and education that raise future income	Money may be lost to corruption or waste
Historical example: the US Marshall Plan (1948–1952) helped Western Europe rebuild after the Second World War	Tied aid benefits donor firms more than recipients
Can reduce poverty that drives conflict	Loans add to debt; conditions may force spending cuts

Debt grew so heavy that the IMF and World Bank launched the Heavily Indebted Poor Countries (HIPC) Initiative in 1996 to reduce it. Some argue “trade, not aid” is the better long-term route; others reply that poor countries need aid to build the roads, ports and skills trade requires. Present both views with evidence.

Exchange in history

Trade has always moved more than goods.

• The Silk Roads – routes linking China with the Middle East and the Mediterranean. Silk and spices moved along them, and so did religions such as Buddhism, and diseases.
• The Columbian Exchange – after 1492, maize, potatoes, tomatoes and cacao went from the Americas to Europe, Africa and Asia; horses, cattle, wheat and sugar cane went the other way. Diseases such as smallpox and measles killed very large numbers of Indigenous people in the Americas.

Both show globalization at work long before modern trade blocs.

Common errors

• Writing the balance of trade as imports − exports, which flips surplus and deficit.
• Saying the country with the absolute advantage should make everything: specialisation follows comparative advantage.
• Opportunity cost upside down: for “1 roll”, divide the coffee given up by the rolls gained.
• Calling every trade bloc a customs union: a free trade area has no common external tariff.
• Arguing that aid “always” or “never” works: it depends on the type, purpose and management of the aid.

Next steps

Test yourself with the practice questions, then use the revision notes. For the criteria, read criteria in practice; for sources, see source-evaluation exam preparation.

Official syllabus

This study guide is aligned to the International Baccalaureate Organization, Middle Years Programme Subject Brief – Individuals and societies, from 2014. The brief lists “trade, aid and exchange” among the topics explored in the on-screen examinations. The full subject guide is available to schools through the IB.