OxfordAQA International AS and A-level Economics: International trade (9640) – 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 follow the OxfordAQA International AS and A-level Economics (9640) specification, version 1.2, section 3.4.1.2 (Trade), with quantitative skills from section 3.5. Section 3.4 belongs to the extra International A2 part of the course. All countries and figures are made up for illustration. Revise first with the study guide and revision notes. Course pages: hub and checklist.

Questions

1. Explain what is meant by comparative advantage. [2]

2. In a month, using all its resources, Country K can make 80 kettles or 40 fans. Country L can make 60 kettles or 20 fans.

(a) Calculate the opportunity cost of one fan in each country. [2] (b) Identify the country that should specialise in fans, and explain why K’s higher output of both goods does not alter this. [2] (c) State the range of terms of trade, in kettles per fan, at which both countries gain, and explain why. [2]

3. The table shows price indices for Country M (Year 1 = 100).

Year	Export prices	Import prices
1	100	100
2	105	102
3	111	120

(a) Calculate the terms of trade in Year 3 and state whether they have improved or deteriorated since Year 1. [2] (b) Calculate the percentage increase in export volume needed in Year 3, compared with Year 1, to buy the same volume of imports. Give your answer to one decimal place. [2]

4. Country P is a small importer of tables and takes the world price of 8 as given. Home demand is Qd = 200 − 5P and home supply is Qs = 50 + 5P.

(a) Calculate the quantity imported under free trade. [2] (b) A tariff of 2 per table is introduced. Calculate the new home price, the quantity imported and the tariff revenue. [3] (c) Calculate the change in consumer surplus and in producer surplus, and the net welfare loss. [3]

5. Use the market in question 4. Instead of the tariff, the government sets an import quota of 50 tables.

(a) Show that the home price becomes 10. [2] (b) Explain who receives the area equal to 100 under the quota, and who receives it under the tariff. [2]

6. Country N exports cheese at a world price of 6. Home demand is Qd = 110 − 5P and home supply is Qs = 30 + 10P. The government pays 2 for every unit exported.

(a) Calculate exports before the subsidy. [2] (b) Calculate exports after the subsidy. [2] (c) Calculate the cost of the subsidy. [1]

7. Name the type of trading bloc described in each case.

(a) Members remove tariffs on each other’s goods but each sets its own tariff on outsiders. [1] (b) As in (a), with a common external tariff. [1] (c) As in (b), with free movement of labour and capital. [1] (d) As in (c), with a single currency. [1]

8. Explain two roles of the World Trade Organisation. [4]

9. Explain two costs that a country may face from increased international trade. [4]

10. A government in a small low-income economy places a 30% tariff on imported electronic goods to protect its new assembly industry. Evaluate whether this is likely to benefit the economy. [8]

11. Country Z exports a mineral. Its export price index rose from 100 in Year 1 to 130 in Year 2. Its import price index rose from 100 to 104.

(a) Use the index numbers to find Country Z’s terms of trade in Year 2. [2] (b) Explain two possible causes of a change in a country’s terms of trade. [2] (c) Evaluate the likely effects of this change on Country Z’s economy. [5]

Answers

1. A country has a comparative advantage in a good when it sacrifices less of other output than its trading partner to make an extra unit [1]. It is judged by opportunity cost, not by total output [1]. [2] Examiner insight: Use the idea of sacrifice. An explanation that only says “produces more” describes absolute advantage instead.

2. (a) K: 80 ÷ 40 = 2 kettles [1]. L: 60 ÷ 20 = 3 kettles [1]. [2] (b) Country K [1], because it gives up 2 kettles per fan compared with 3 for L. Higher output of both goods (absolute advantage) is irrelevant, only the opportunity cost matters [1]. [2] (c) Between 2 and 3 kettles per fan [1], because K must receive more than the 2 kettles it gives up at home, and L must pay less than the 3 it gives up at home [1]. [2] Examiner insight: Show each division. Writing only “K” with no opportunity costs leaves nothing to credit if the choice is wrong.

3. (a) Terms of trade = 111 ÷ 120 × 100 = 92.5 [1], a deterioration because it is below 100 [1]. [2] (b) 100 ÷ 92.5 = 1.081 [1], so about 8.1% more [1]. [2] Examiner insight: Say improved or deteriorated in words beside the figure. In (b), name Year 1 as the comparison so the 8.1% has a clear reference.

4. (a) Qd = 200 − 40 = 160 and Qs = 50 + 40 = 90 [1]. Imports = 160 − 90 = 70 [1]. [2] (b) New price = 8 + 2 = 10 [1]. Qd = 150, Qs = 100, imports = 50 [1]. Revenue = 2 × 50 = 100 [1]. [3] (c) Consumer surplus falls by (160 + 150) ÷ 2 × 2 = 310 [1]. Producer surplus rises by (90 + 100) ÷ 2 × 2 = 190 [1]. Net welfare loss = 310 − 190 − 100 = 20 [1]. [3] Examiner insight: Mention the sign or direction of each change. Checking that the loss equals the two triangles, ½ × 2 × 10 twice, confirms the arithmetic.

5. (a) Set Qd − Qs = 50: 200 − 5P − (50 + 5P) = 50 [1]. 150 − 10P = 50, so P = 10 [1]. [2] (b) Under the tariff the 100 is government revenue [1]. Under a quota it goes to the holders of the import licences, unless the government sells the licences [1]. [2] Examiner insight: “Importers” alone is thin. Say that the price gap between home and world price is captured by whoever is allowed to import.

6. (a) At P = 6, Qd = 110 − 30 = 80 and Qs = 30 + 60 = 90 [1]. Exports = 10 [1]. [2] (b) Producers receive 8, so the home price is 8: Qd = 110 − 40 = 70 and Qs = 30 + 80 = 110 [1]. Exports = 40 [1]. [2] (c) 2 × 40 = 80 [1]. [1] Examiner insight: The subsidy applies to exports, not to all output. Using the full quantity supplied gives the wrong cost.

7. (a) Free trade area [1]. (b) Customs union [1]. (c) Common market [1]. (d) Monetary union [1]. [4] Examiner insight: Give the exact term. Each bloc adds one feature to the one before, so learn the order.

8. First role, for example providing a forum for negotiating the reduction of trade barriers [1], which helps lower tariffs and increase trade between members [1]. Second role, for example settling disputes between members [1], which allows a country to challenge another’s policy through a rules-based process rather than by retaliation [1]. [4] Examiner insight: Each role needs a development. Two bare names, such as “negotiation” and “disputes”, earn less than two roles explained in a sentence each.

9. First cost, for example structural unemployment [1]: an industry that cannot compete with imports shrinks, and workers lack the skills to move quickly into other jobs, so unemployment may last [1]. Second cost, for example over-specialisation [1]: a country that relies on one export is exposed to a fall in its price or to a drop in world demand, which reduces its income [1]. [4] Examiner insight: Link each cost to who bears it and why it lasts. A bare list such as “unemployment, dependence” is only a statement.

10. Reason for protection: the industry is new, with high costs at a small scale [1]. The tariff raises the price of imports, so home output rises [1] and, as scale grows, average costs fall, so it may become competitive and the tariff can be removed [1]. This could create jobs and diversify the economy [1]. Against: consumers and firms pay higher prices [1], protected firms may become inefficient with little pressure to improve [1], and other countries may retaliate, or firms using imported parts face higher costs [1]. Judgement: it is more likely to benefit the economy if the tariff is temporary, the industry has real scope for scale economies, and cheaper alternatives such as training support are not available [1]. [8] Examiner insight: A conclusion tied to a stated condition, such as how long the tariff lasts, is usually stronger than “it depends” on its own.

11. (a) 130 ÷ 104 × 100 = 125 [1], an improvement [1]. [2] (b) Any two, each with a reason: a rise in world demand for the mineral raises export prices [1]; a fall in import prices, for example from a fall in the price of imported fuel, lowers the import index [1]. [2] (c) Each import costs fewer exports, so Country Z can buy more imports for the same export volume, which raises real income [1]. Cheaper imported capital goods may help investment [1]. But a rise in export prices may cut sales if demand is elastic [1], and reliance on one mineral leaves the economy exposed if its price falls again [1]. The effect on the trade balance depends on how volumes respond to price, so an improved terms of trade does not guarantee a better current account [1]. [5] Examiner insight: Support the evaluation with the elasticity point and a time frame. Saying an improvement is “good” with no qualification is a statement and not an evaluation.

Where marks are usually lost

• Using total output rather than opportunity cost to decide comparative advantage.
• Inverting the terms of trade fraction, so the direction of change is the wrong way round.
• Giving the range of terms of trade without explaining why both countries gain.
• Calling quota rent government revenue.
• Leaving out the welfare loss, or forgetting that the tariff revenue is a transfer.
• Listing costs or reasons for protection without explaining the chain of cause and effect.
• Writing “WTO stops protection” without saying how, or noting its limits.
• Concluding an evaluation question with a one-sided view.

Next steps

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

Official syllabus

OxfordAQA International AS and A-level Economics (9640), specification version 1.2, first teaching September 2020, first International AS exams May/June 2021, first International A-level exams May/June 2022; section 3.4.1.2 Trade.