OCR A Level Economics: Trade, comparative advantage and the terms of trade (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 topic International trade in Component 2, Macroeconomics, of the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021. Teaching is in the study guide and the revision notes. Course pages: the hub and the checklist. All countries and figures are invented.

Questions

1. Trade concepts.

(a) Explain what is meant by international trade. [2] (b) Distinguish between absolute advantage and comparative advantage. [4]

2. Using all its resources, Country P makes 36 tonnes of tea or 12 machines a month. Country R makes 20 tonnes of tea or 10 machines. Costs are constant.

(a) Which country has an absolute advantage? [1] (b) Calculate the opportunity cost of one machine in each country. [2] (c) Identify each country’s comparative advantage. [2] (d) State the range of terms, in tonnes of tea per machine, that would benefit both, and explain why. [2]

3. Before trade, P makes 24 tonnes of tea and 4 machines, and R makes 10 tonnes of tea and 5 machines. Both then specialise completely in their comparative advantage good and trade at 2.5 tonnes of tea per machine, with P buying 4 machines.

(a) Calculate world output of each good before trade. [1] (b) State output of each good after specialisation. [1] (c) Show that both countries gain. [4] (d) Explain why trade at 4 tonnes of tea per machine would not take place. [2]

4. In Country K (base year 100) the export price index is 118 and the import price index is 131.

(a) Calculate the terms of trade. [2] (b) Interpret your answer. [2] (c) Next year export prices rise 3% and import prices fall 2%. Calculate the new index. [3]

5. Country S has abundant land and scarce capital. Country T has abundant capital and scarce land.

(a) Explain what Heckscher-Ohlin theory predicts about the pattern of trade. [4] (b) Explain two reasons why actual trade may not follow this prediction. [4]

6. Explain two reasons why a developing economy that exports mainly primary products might experience a deterioration in its terms of trade. [6]

7. In Country X the average wage is 24,000 and output per worker is 32,000.

(a) Calculate unit labour cost. [1] (b) Wages rise 5% and productivity 2%. Calculate the percentage change in ULC. [2] (c) In Country Y wages rise 2% and productivity 4%. Calculate the change in ULC. [2] (d) Y’s currency appreciates 3% against X’s. Calculate the change in Y’s ULC measured in X’s currency. [2] (e) One of Y’s machines sells for 8,000 units of its currency. Calculate its foreign price when each unit buys 0.25 foreign units, and after the rate becomes 0.28, and comment. [3]

8. Explain two ways in which the pattern of global trade has changed over time, giving a cause for each. [6]

9. Evaluate comparative advantage as an explanation of global trade patterns. [12]

10. Country Z’s price indices (year 1 = 100).

Year	1	2	3	4
Export prices	100	104	99	95
Import prices	100	103	107	110

(a) Calculate the terms of trade for years 2, 3 and 4. [3] (b) By what percentage did the index move between years 3 and 4? [2] (c) Z exported 400 units in year 1. How many year 1 units of imports would the same volume buy in year 4? [2] (d) Evaluate whether this deterioration necessarily harms Z. [4]

11. Evaluate whether aid or trade is more beneficial to a low-income economy. [10]

Answers

1. (a) The exchange of goods and services across national borders [1], through exports and imports [1]. (b) Absolute advantage is the ability to produce more, or use fewer resources per unit, than another country [2]. Comparative advantage is giving up fewer other goods to make a good [1], so a country can have it in a good even when it has absolute advantage in everything [1]. Examiner insight: Keep the contrast in resources used versus opportunity cost explicit; stating two definitions side by side without the distinction tends to earn less.

2. (a) P, since 36 is above 20 and 12 is above 10 [1]. (b) P: 36 / 12 = 3 tonnes of tea [1]. R: 20 / 10 = 2 tonnes [1]. (c) R has the comparative advantage in machines (2 is below 3) [1]. P has it in tea (1/3 of a machine against 1/2) [1]. (d) Between 2 and 3 tonnes of tea per machine [1]. Outside it, one country could make the good more cheaply at home [1]. Examiner insight: Show the division for each country; a correct conclusion with no opportunity costs on the page leaves nothing to reward if it is wrong.

3. (a) Tea 24 + 10 = 34, machines 4 + 5 = 9 [1]. (b) P makes 36 tonnes of tea and R makes 10 machines [1]. (c) P pays 4 x 2.5 = 10 tonnes, so has 26 tonnes and 4 machines, 2 tonnes more tea than before [2]. R has 10 - 4 = 6 machines and 10 tonnes, one more machine than before [2]. (d) P can make a machine at home for 3 tonnes [1], so it would not pay 4 [1]. Examiner insight: Compare consumption after trade with consumption before trade for each country in turn; comparing only world totals does not show that both gain.

4. (a) 118 / 131 x 100 [1] = 90.1 [1]. (b) A deterioration [1]. Each unit of exports now buys about 9.9% fewer imports than in the base year [1]. (c) Exports 118 x 1.03 = 121.54 and imports 131 x 0.98 = 128.38 [1]. Index = 121.54 / 128.38 x 100 [1] = 94.7 [1]. Examiner insight: Interpreting the index in words, with the direction and size, tends to separate a full answer from a bare number.

5. (a) The abundant factor is cheap [1], so goods using it intensively are cheaper to produce [1]. S exports land-intensive goods [1], T exports capital-intensive goods, and each imports the other [1]. (b) Countries can differ in technology, so costs are not set by factor endowments [2]. Much trade is in differentiated goods between similar countries, driven by variety and economies of scale [2]. Examiner insight: Each reason needs a short chain from the reason to why trade departs from the prediction.

6. Low income elasticity of demand for primary goods [1]: as world incomes rise, demand for them grows less than demand for manufactures [1], so export prices rise slowly against import prices [1]. Volatile, oversupplied markets [1]: many producers and low price elasticity of supply mean a rise in supply pushes prices down sharply [1], reducing the export index relative to imports [1]. Examiner insight: Link each cause to the export price index specifically, not only to lower revenue.

7. (a) 24,000 / 32,000 = 0.75 [1]. (b) 1.05 / 1.02 = 1.0294 [1], so +2.9% [1]. (c) 1.02 / 1.04 = 0.9808 [1], so -1.9% [1]. (d) 0.9808 x 1.03 = 1.0102 [1], so +1.0% [1]. (e) 8,000 x 0.25 = 2,000, and 8,000 x 0.28 = 2,240 [1], a 12% rise [1]. The machine is less price competitive abroad, although a strong brand or quality could limit the loss in sales [1]. Examiner insight: Show the ratio before converting to a percentage, and tie any comment to elasticity.

8. Emerging economies have a larger share of world exports [1], because rising incomes, investment and liberalisation raised their productive capacity [1]. Trade in services and global value chains have grown [1], because lower transport and communication costs let firms split production across countries [1]. Alternatively, manufactures have grown relative to primary goods [1], because incomes rose and technology advanced [1]. Examiner insight: A pattern without a cause, or a cause without a pattern, gives half the credit available.

9. Comparative advantage says countries export goods with a lower opportunity cost [1], and Heckscher-Ohlin links this to factor endowments [1]. It explains resource-based trade, such as a country with mineral deposits exporting minerals [1]. It shows trade raises output even if one country is better at everything [1]. But much trade is between similar economies in differentiated goods, caused by variety and scale economies [1]. Opportunity costs rise, so specialisation is partial [1]. Transport costs and barriers alter the gains [1]. Advantage is dynamic, built through education and technology [1]. Multinational firms and government policy affect location [1]. The model assumes full employment and ignores externalities [1]. Judgement: strong for resource-based trade, weaker for manufactures and services [1]. It is a useful but incomplete explanation that needs scale, differentiation and dynamic factors [1]. Examiner insight: A conclusion that weighs which kind of trade the theory suits, instead of repeating the list, tends to be the strongest evaluation.

10. (a) Year 2: 104 / 103 x 100 = 101.0; year 3: 99 / 107 x 100 = 92.5; year 4: 95 / 110 x 100 = 86.4 [3]. (b) (95 / 110) / (99 / 107) - 1 using unrounded values [1] = -6.7% [1]. (c) 400 x 0.8636 [1] = about 345 units [1]. (d) Not necessarily. If lower export prices raise volume and the demand is elastic, revenue may hold up [1]. Cheaper imports in some sectors may offset the loss [1]. But if demand is inelastic, revenue and living standards fall [1]. Judgement: depends on elasticities and what is traded [1]. Examiner insight: Use the figures you calculated in the evaluation, with the elasticity condition stated.

11. Aid can fund investment where saving is low [1] and pay for health and education [1]. Risks are dependency and corruption [1] and tied aid that favours donors [1]. Trade gives market access and foreign exchange [1] and technology transfer [1]. Risks are commodity dependence and volatile prices [1], and infant industries cannot compete [1]. Judgement: the answer depends on governance, the type and size of aid and trade capacity [1]. Aid is best used to build the capacity to trade, so they complement each other [1]. Examiner insight: Reaching a supported choice, with the conditions that decide it, scores better than a balanced list with no verdict.

Where marks are usually lost

• Choosing comparative advantage by output instead of opportunity cost.
• Inverting the opportunity cost ratio.
• Giving terms outside the beneficial range.
• Showing a rise in the terms of trade as always good.
• Using a nominal wage rise as a cost rise without productivity.
• Naming a pattern of trade with no cause.
• Evaluating with a list of assumptions and no judgement.
• Treating aid as one thing, without type or recipient.

Next steps

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

Official syllabus

OCR, A Level in Economics (H460) specification, Version 3.0 (June 2026), first assessment 2021. Component 2, Macroeconomics: area of study The global context, topic International trade.