OCR A Level Economics: Economic integration, the EU and the WTO (H460) – 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 the second part of Trade policies and negotiations in the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021: integration, the EU and the WTO. All countries and figures are invented. Read the study guide and revision notes first. The OCR Economics hub, the checklist and the free diagnostics help you track progress.

Questions

1. Explain how a customs union differs from a free trade area. [3]

2. Country A charges a 10% tariff and Country B a 40% tariff on radios. Outside producers sell radios at 100 each. A and B form a free trade area.

(a) Calculate the landed price of an outside radio in each country. [2] (b) Explain what trade deflection is and one way to prevent it. [2]

3. Country P has home demand Qd = 240 − 3P and home supply Qs = 30 + P (thousand units, price in ducats). Partner R sells at 30. P charges a tariff of 6 on every unit imported, then forms a customs union with R.

(a) Calculate imports before and after the union and say whether this is trade creation or trade diversion. [3] (b) Calculate the net change in welfare using changes in consumer surplus, producer surplus and tariff revenue. [3] (c) Show that your answer equals the sum of the production and consumption effects. [2]

4. Country P also buys cloth. An outsider sells at 25 and R at 31. P’s common external tariff is 8 per unit. The same demand and supply apply as in question 3.

(a) Explain why imports switch to R when P and R form a customs union. [2] (b) Calculate the net welfare change. [4] (c) Explain why it is negative even though P gains from the production and consumption effects. [2]

5. In a monetary union the common nominal interest rate is 4.5%. Inflation is 7.5% in Country X and 1.0% in Country Y.

(a) Calculate the real interest rate in each country. [2] (b) Explain the problems this causes. [3] (c) State two ways the union could help members adjust. [2]

6. In one year Country M pays 14.4bn to the EU budget and receives 21.6bn. Its GNI is 480bn.

(a) Calculate its net position as a percentage of GNI. [2] (b) Explain why the net budget position does not show whether membership benefits M. [3]

7. A firm’s average cost falls from 14 to 11.2 when output rises from 40,000 to 64,000 units after a customs union opens a larger market.

(a) Calculate the percentage change in average cost and in output. [2] (b) Explain how integration can bring economies of scale. [3]

8. Country S pays an export subsidy of 12 per tonne on 8 million tonnes of wheat. The world price falls from 150 to 138 per tonne. A developing country exports 3 million tonnes.

(a) Calculate the cost of the subsidy. [1] (b) Calculate the percentage fall in the world price. [1] (c) Calculate the revenue lost by the developing exporter, assuming it sells the same quantity. [2] (d) Explain why agricultural disputes are hard to settle in the WTO. [3]

9. A WTO member has bound its tariff on an item at 30% and applies 18%. The item costs 200 at the border.

(a) Calculate the tariff paid now and the most it could charge without breaking its commitment. [2] (b) Explain how a bound tariff helps trade. [2]

10. Evaluate whether a customs union benefits its members. [9]

11. Evaluate the progress made and the difficulties faced by the WTO. [9]

Answers

1. In both, members remove tariffs on each other’s goods [1]. In a customs union they also adopt a common external tariff on outsiders [1], whereas in a free trade area each member sets its own external tariffs [1]. [3] Examiner insight: Contrast needs two sides. Describing only the customs union leaves the comparison half made.

2. (a) A: 100 × 1.10 = 110 [1]. B: 100 × 1.40 = 140 [1]. [2] (b) Trade deflection is outside goods entering the area through the low-tariff member A and then being re-sold to B at a price below 140 [1]. It can be prevented with rules of origin, or by a common external tariff [1]. [2] Examiner insight: Use the numbers from the question to show the gap of 30 rather than explaining deflection in general terms.

3. (a) Before: P = 30 + 6 = 36. Qd = 132, Qs = 66, imports 66 [1]. After: P = 30. Qd = 150, Qs = 60, imports 90 [1]. Home output falls and is replaced by cheaper partner imports, so this is trade creation [1]. [3] (b) Consumer surplus gain = 6 × 132 + ½ × 6 × 18 = 846 [1]. Producer surplus loss = 6 × 60 + ½ × 6 × 6 = 378, and tariff revenue lost = 6 × 66 = 396 [1]. Net = 846 − 378 − 396 = +72 [1]. [3] (c) Production effect = ½ × 6 × 6 = 18 [1]. Consumption effect = ½ × 6 × 18 = 54. 18 + 54 = 72 [1]. [2] Examiner insight: Show each area separately so your working is easy to check.

4. (a) Landed prices before: outsider 25 + 8 = 33; R 31 + 8 = 39, so P buys from the outsider [1]. After the union R’s price is 31, below the outsider’s 33, so imports switch to R [1]. [2] (b) Before: P = 33, Qd = 141, Qs = 63, imports 78 [1]. After: P = 31, Qd = 147, Qs = 61, imports 86 [1]. Consumer surplus gain = 2 × 141 + ½ × 2 × 6 = 288, producer surplus loss = 2 × 61 + ½ × 2 × 2 = 124 [1]. Tariff revenue lost = 8 × 78 = 624, so net = 288 − 124 − 624 = −460 [1]. [4] (c) The production and consumption triangles give 2 + 6 = 8 [1]. But the 78 units that cost 25 now cost 31, an extra 6 × 78 = 468, so 8 − 468 = −460 [1]. [2] Examiner insight: Explain which price is the benchmark. The extra cost of 6 per unit is measured against the outsider’s price, not P’s landed price.

5. (a) X: 4.5 − 7.5 = −3.0% [1]. Y: 4.5 − 1.0 = +3.5% [1]. [2] (b) In X a negative real rate encourages borrowing and spending, which adds to overheating and inflation [1]. In Y a high real rate discourages spending and may raise unemployment [1]. Neither can change its own interest rate or exchange rate to correct this [1]. [3] (c) Any two from flexible wages, labour mobility between members, or fiscal transfers [1] [1]. [2] Examiner insight: Link the real rate to its effect on demand. Naming the problem as one-size-fits-all without the mechanism makes an answer thinner.

6. (a) Net position = 21.6 − 14.4 = 7.2bn receipt [1]. 7.2 ÷ 480 × 100 = 1.5% of GNI [1]. [2] (b) The net figure ignores trade gains from tariff-free access to the market [1]. It ignores benefits such as inward investment and competition, and costs such as higher food prices from farm policy [1]. Receipts and gains may be concentrated in some regions or sectors while others lose [1]. [3] Examiner insight: Show a balance of budget and non-budget effects. One-sided answers rarely develop the evaluation point.

7. (a) Average cost: (14 − 11.2) ÷ 14 × 100 = a 20% fall [1]. Output: (64,000 − 40,000) ÷ 40,000 × 100 = a 60% rise [1]. [2] (b) A larger market lets firms build larger plants and specialise [1]. Fixed costs are spread over more output [1]. Lower average costs improve competitiveness and can be passed on in lower prices [1]. [3] Examiner insight: Distinguish a fall in average cost from a fall in total cost. Total cost here rises, from 560,000 to 716,800.

8. (a) 12 × 8 = 96 million [1]. [1] (b) 12 ÷ 150 × 100 = 8% [1]. [1] (c) Price fall of 12 per tonne [1]. 12 × 3 = 36 million [1]. [2] (d) Farm groups are politically influential and protect rural jobs [1]. Governments value food security and self-sufficiency [1]. Rich members want to keep support while poorer members want market access and subsidy cuts, so consensus is hard [1]. [3] Examiner insight: State your assumption in (c). The loss only equals the whole price fall if the exporter sells at the world price.

9. (a) Tariff paid: 0.18 × 200 = 36 [1]. Maximum: 0.30 × 200 = 60 [1]. [2] (b) A bound tariff is a ceiling that the member cannot exceed without negotiation [1]. Exporters can plan with certainty about the highest cost they will face [1]. [2] Examiner insight: A bound rate is not the same as a rate applied today. Use the gap of 12 percentage points to show the point.

10. Credit for any nine of the following, in a developed argument. Trade creation replaces dearer home output with cheaper partner goods [1]. Consumers gain lower prices and more choice [1]. Scale economies and competition lower costs [1]. Inward investment may be attracted by access to the whole market [1]. Trade diversion occurs if the CET shields dearer partners from cheaper outsiders [1]. Tariff revenue is lost and some home firms close, with local unemployment [1]. The net effect depends on the gap between partner and outsider prices and on the height of the old tariff [1]. Members with efficient exporters and a high share of trade inside the bloc gain more [1]. Judgement: a customs union is likely to benefit members on balance where creation dominates and where adjustment help is given, but less so where trade diversion is large [1]. [9] Examiner insight: Use data from the context if the question gives it. End with a judgement that names its condition.

11. Credit for any nine of the following. Progress: successive rounds have cut tariffs on goods [1]. The Uruguay Round created the WTO and brought in agriculture and services [1]. The Trade Facilitation Agreement (agreed in 2013) aims to speed customs procedures [1]. In 2015 members agreed to phase out agricultural export subsidies [1]. MFN and bound tariffs make trade policy more predictable [1]. Difficulties: decisions need consensus, and the Doha Round launched in 2001 has largely stalled [1]. Agriculture splits rich and poor members over subsidies and market access [1]. Regional and bilateral deals have multiplied, and since December 2019 the Appellate Body has been unable to review new appeals [1]. Judgement: the WTO has done most where rules are specific and agreed by all, and least in areas where members’ interests conflict, so overall its record is strong on goods tariffs but mixed on agriculture and disputes [1]. [9] Examiner insight: Weigh progress against difficulties and reach a verdict. Description without assessment stays descriptive.

Where marks are usually lost

• Giving a free trade area one shared outside tariff, which belongs to a customs union.
• Calling tariff revenue a net gain when it is a transfer.
• Measuring diversion against the wrong price.
• Writing “one interest rate does not suit everyone” without the effect on demand.
• Evaluating the EU in general terms with no reference to a member’s size, trade or budget position.
• Treating the WTO as able to punish members.
• Ending an evaluation without a verdict.

Next steps

• Review the revision notes and the study guide.
• See the OCR Economics hub and the checklist.
• Try all the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OCR, A Level in Economics (H460), Version 3.0 (June 2026), for first assessment in 2021: The global context, Trade policies and negotiations.