Economics SL
International trade — Unit 4
- 1.
Using 10 units of labor, Country A can produce either 100 units of cloth or 50 units of wine. Using the same 10 units of labor, Country B can produce either 60 units of cloth or 60 units of wine. (a) Calculate the opportunity cost of producing 1 unit of cloth in each country. (b) State which country has a comparative advantage in cloth, and which has a comparative advantage in wine. (c) Explain why both countries can gain from specializing and trading.
[5 marks] - 2.
Marking analysis: A learner attempts the following task: “Using 10 units of labor, Country A can produce either 100 units of cloth or 50 units of wine. Using the same 10 units of labor, Country B can produce either 60 units of cloth or 60 units of wine. (a) Calculate the opportunity cost of producing 1 unit of cloth in each country. (b) State which country has a comparative advantage in cloth, and which has a comparative advantage in wine. (c) Explain why both countries can gain from specializing and trading.” Their response addresses only this point: “Calculates the opportunity cost of 1 cloth in Country A as 50/100 = 0.5 units of wine.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks] - 3.
Explain two arguments a government might use to justify imposing trade protection (tariffs or quotas) on imported goods.
[2 marks] · no calculator - 4.
Marking analysis: A learner attempts the following task: “Explain two arguments a government might use to justify imposing trade protection (tariffs or quotas) on imported goods.” Their response addresses only this point: “Explains the 'infant industry' argument: a new domestic industry may need temporary protection from established foreign competitors until it achieves economies of scale and becomes internationally competitive.” Evaluate the response against the complete 2-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[2 marks] · no calculator - 5.
In a domestic market, demand is given by Qd = 100 − 2P and domestic supply is given by Qs = 2P − 20, where P is price in dollars. The world price is $10, and the country is a price taker in the world market. (a) Calculate the domestic quantity demanded, domestic quantity supplied, and the quantity of imports at the free-trade world price. (b) The government imposes a specific tariff of $5 per unit, raising the domestic price to $15. Calculate the new quantity demanded, quantity supplied, and quantity of imports. (c) Calculate the government's tariff revenue.
[5 marks] - 6.
Marking analysis: A learner attempts the following task: “In a domestic market, demand is given by Qd = 100 − 2P and domestic supply is given by Qs = 2P − 20, where P is price in dollars. The world price is $10, and the country is a price taker in the world market. (a) Calculate the domestic quantity demanded, domestic quantity supplied, and the quantity of imports at the free-trade world price. (b) The government imposes a specific tariff of $5 per unit, raising the domestic price to $15. Calculate the new quantity demanded, quantity supplied, and quantity of imports. (c) Calculate the government's tariff revenue.” Their response addresses only this point: “Substitutes P = 10 into both equations: Qd = 100 − 2(10) = 80, Qs = 2(10) − 20 = 0.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks] - 7.
Using the market from the previous question (free trade: Qd = 80, Qs = 0; with a $5 tariff: Qd = 70, Qs = 10), explain, without needing to calculate exact areas, why imposing the tariff creates a deadweight welfare loss to society, even though it raises government revenue and benefits domestic producers.
[4 marks] · no calculator - 8.
Marking analysis: A learner attempts the following task: “Using the market from the previous question (free trade: Qd = 80, Qs = 0; with a $5 tariff: Qd = 70, Qs = 10), explain, without needing to calculate exact areas, why imposing the tariff creates a deadweight welfare loss to society, even though it raises government revenue and benefits domestic producers.” Their response addresses only this point: “States that consumers lose surplus from both the higher price paid and the lower quantity consumed.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] · no calculator - 9.
Distinguish between a tariff and an import quota as methods of trade protection, and explain one key difference in who receives the benefit that would otherwise be government tariff revenue.
[3 marks] · no calculator - 10.
Marking analysis: A learner attempts the following task: “Distinguish between a tariff and an import quota as methods of trade protection, and explain one key difference in who receives the benefit that would otherwise be government tariff revenue.” Their response addresses only this point: “States that a tariff is a tax placed on imported goods, while a quota is a physical limit placed on the quantity of a good that may be imported.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 11.
Explain two reasons why many economists generally favor free trade over trade protection.
[2 marks] · no calculator - 12.
Marking analysis: A learner attempts the following task: “Explain two reasons why many economists generally favor free trade over trade protection.” Their response addresses only this point: “Explains that free trade allows countries to specialize according to comparative advantage, increasing total world output and making both consumers and producers better off on average.” Evaluate the response against the complete 2-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[2 marks] · no calculator - 13.
Define 'trading bloc', and explain one potential benefit and one potential drawback for a country of joining a regional trading bloc such as a free trade area or customs union.
[3 marks] · no calculator - 14.
Marking analysis: A learner attempts the following task: “Define 'trading bloc', and explain one potential benefit and one potential drawback for a country of joining a regional trading bloc such as a free trade area or customs union.” Their response addresses only this point: “Defines a trading bloc as a group of countries that agree to reduce or eliminate trade barriers between themselves.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 15.
Explain how trade liberalization (the removal of trade barriers) might contribute to economic growth in a developing country, and state one risk this strategy carries.
[2 marks] · no calculator - 16.
Marking analysis: A learner attempts the following task: “Explain how trade liberalization (the removal of trade barriers) might contribute to economic growth in a developing country, and state one risk this strategy carries.” Their response addresses only this point: “Explains that trade liberalization allows a developing country to access larger export markets, exploit its comparative advantage, and attract foreign investment seeking to use its resources or labor for export production.” Evaluate the response against the complete 2-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[2 marks] · no calculator - 17.
A country imposes a minimum domestic content requirement on cars sold in its market, requiring at least 40% of parts to be sourced domestically. Explain how this type of non-tariff barrier protects domestic producers, and identify one group that is likely to be worse off as a result.
[2 marks] · no calculator - 18.
Marking analysis: A learner attempts the following task: “A country imposes a minimum domestic content requirement on cars sold in its market, requiring at least 40% of parts to be sourced domestically. Explain how this type of non-tariff barrier protects domestic producers, and identify one group that is likely to be worse off as a result.” Their response addresses only this point: “Explains that the requirement forces foreign car manufacturers to purchase a minimum share of parts from domestic suppliers, guaranteeing demand for the domestic parts industry even if its prices are not internationally competitive.” Evaluate the response against the complete 2-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[2 marks] · no calculator - 19.
A country currently exports agricultural goods and imports manufactured goods. Explain one reason this pattern of trade might make the country's export revenue more volatile than a country exporting a diversified range of manufactured goods.
[2 marks] · no calculator - 20.
Marking analysis: A learner attempts the following task: “A country currently exports agricultural goods and imports manufactured goods. Explain one reason this pattern of trade might make the country's export revenue more volatile than a country exporting a diversified range of manufactured goods.” Their response addresses only this point: “Explains that agricultural commodity prices tend to fluctuate significantly due to factors such as weather, pests, and global supply gluts or shortages, which are largely outside the country's control.” Evaluate the response against the complete 2-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[2 marks] · no calculator - 21.
Explain how the World Trade Organization (WTO) aims to promote international trade, and state one criticism commonly made of its role.
[2 marks] · no calculator - 22.
Marking analysis: A learner attempts the following task: “Explain how the World Trade Organization (WTO) aims to promote international trade, and state one criticism commonly made of its role.” Their response addresses only this point: “Explains that the WTO negotiates and enforces agreements between member countries to progressively reduce trade barriers and resolve trade disputes through an agreed set of rules.” Evaluate the response against the complete 2-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[2 marks] · no calculator - 23.
Explain the concept of 'dumping' in international trade, and state one policy response a country might use against goods it believes are being dumped in its market.
[2 marks] · no calculator - 24.
Marking analysis: A learner attempts the following task: “Explain the concept of 'dumping' in international trade, and state one policy response a country might use against goods it believes are being dumped in its market.” Their response addresses only this point: “Explains dumping as selling a good in a foreign market at a price below its cost of production (or below the price charged in the exporter's home market), often used to drive competitors out of the market.” Evaluate the response against the complete 2-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[2 marks] · no calculator - 25.
Explain how an export subsidy affects the domestic price, domestic quantity produced, and quantity exported of a good, compared to the free-trade equilibrium.
[4 marks] · no calculator - 26.
Marking analysis: A learner attempts the following task: “Explain how an export subsidy affects the domestic price, domestic quantity produced, and quantity exported of a good, compared to the free-trade equilibrium.” Their response addresses only this point: “States that an export subsidy is a payment made by the government to domestic producers for each unit exported.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] · no calculator - 27.
Explain how a large reduction in global trade barriers over several decades might have contributed to both rising average living standards and rising income inequality within some developed countries.
[3 marks] · no calculator - 28.
Marking analysis: A learner attempts the following task: “Explain how a large reduction in global trade barriers over several decades might have contributed to both rising average living standards and rising income inequality within some developed countries.” Their response addresses only this point: “Explains that trade liberalization generally lowers prices and increases variety for consumers overall, raising average real incomes and living standards.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 29.
A country currently has no trade restrictions on steel imports. Using a standard demand and supply diagram in words, explain what happens to domestic producer surplus and consumer surplus if the country opens up to free trade in a good it previously did not trade, where the world price is below the pre-trade domestic equilibrium price.
[5 marks] · no calculator - 30.
Marking analysis: A learner attempts the following task: “A country currently has no trade restrictions on steel imports. Using a standard demand and supply diagram in words, explain what happens to domestic producer surplus and consumer surplus if the country opens up to free trade in a good it previously did not trade, where the world price is below the pre-trade domestic equilibrium price.” Their response addresses only this point: “States that since the world price is below the pre-trade domestic price, the domestic price falls to the world price once trade opens.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks] · no calculator - 31.
Explain why countries with abundant unskilled labor tend to export labor-intensive goods, while countries with abundant capital tend to export capital-intensive goods, according to the factor endowment theory of trade.
[3 marks] · no calculator - 32.
Marking analysis: A learner attempts the following task: “Explain why countries with abundant unskilled labor tend to export labor-intensive goods, while countries with abundant capital tend to export capital-intensive goods, according to the factor endowment theory of trade.” Their response addresses only this point: “States that a country's relative abundance of a factor of production (labor or capital) tends to make that factor relatively cheap within the country.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator