Edexcel International A Level Economics
Edexcel International A Level Economics Trade and the Global Economy Exam Questions
Free Edexcel International A Level Economics exam questions for Trade and the Global Economy, with a mark scheme for every pack. Covers absolute and comparative advantage, terms of trade, patterns of trade, trading blocs, the WTO and protectionism.
Trade and the Global Economy exam questions
1 question pack of real past exam questions, each with its mark scheme. Do not stop after a few: answer as many as you can without notes, then mark every answer with the mark scheme. The more questions you do, the more quickly you will spot how examiners ask about each idea.
About Edexcel International A Level Economics Trade and the Global Economy
Trade and the global economy is a Unit 4 topic in Edexcel International A Level Economics. It explains why countries trade, using absolute and comparative advantage, and how the terms of trade affect the gains from trade. You study changing patterns of trade, the growth of trading blocs and the role of the World Trade Organization, and the reasons for and effects of protectionism. The topic links closely to globalisation, the balance of payments and development. Examiners regularly ask for comparative advantage calculations, tariff diagrams showing welfare effects and evaluation of the costs and benefits of trading blocs and trade restrictions.
What you need to know
- Absolute and comparative advantage A country has an absolute advantage if it can produce more of a good with the same resources. It has a comparative advantage if it can produce the good at a lower opportunity cost. Specialisation according to comparative advantage raises total world output.
- Terms of trade Terms of trade = index of export prices / index of import prices x 100. An improvement means a country can buy more imports for a given quantity of exports.
- Patterns of trade Trade patterns change with comparative advantage, the growth of emerging economies, exchange rates and trading bloc membership.
- Trading blocs and the WTO Free trade areas, customs unions, common markets and monetary unions. Know trade creation and trade diversion. The WTO promotes trade liberalisation and settles trade disputes.
- Restrictions on free trade Tariffs, quotas, subsidies to domestic producers, non-tariff barriers and administrative barriers. Reasons include protecting infant industries, jobs and strategic industries and preventing dumping.
- Effects of protectionism A tariff raises domestic price, increases domestic supply, reduces imports, raises government revenue and creates deadweight welfare losses. It may also invite retaliation.
Common mistakes in Trade and the Global Economy
- Using absolute advantage to decide specialisation. Specialisation should follow comparative advantage, which is based on opportunity cost.
- Calculating terms of trade the wrong way up. It is export price index divided by import price index, multiplied by 100.
- Treating an improvement in the terms of trade as always good. If export prices rise, demand for exports may fall and the current account may worsen.
- Missing the welfare loss triangles on a tariff diagram. There are two: the production distortion and the consumption distortion.
- Confusing trade creation with trade diversion. Trade creation replaces higher-cost domestic production with lower-cost imports from members; trade diversion replaces lower-cost non-member imports with higher-cost member imports.
Try three Trade and the Global Economy exam-style questions
1. A country's export price index rises from 100 to 110 and its import price index rises from 100 to 125. Calculate the new terms of trade. (2 marks)
Show the mark scheme answer
Terms of trade = (110 / 125) x 100; = 88, a deterioration.
2. With the help of a diagram, explain the effects of imposing a tariff on imported steel. (6 marks)
Show the mark scheme answer
Tariff raises the domestic price from world price to world price plus tariff; domestic supply increases; domestic demand falls; imports fall; government gains tariff revenue; consumer surplus falls; two deadweight loss triangles; diagram correctly labelled.
3. Evaluate the costs and benefits for a country of joining a customs union. (12 marks)
Show the mark scheme answer
Benefits: tariff-free trade with members, trade creation, larger market and economies of scale, more FDI; costs: common external tariff causes trade diversion; loss of independence in trade policy; competition harms some domestic industries; evaluation: depends on existing trade with members and relative efficiency; dynamic effects; supported judgement.
Trade and the Global Economy FAQs
What does Edexcel IAL Economics Trade and the global economy cover?
It covers absolute and comparative advantage, the terms of trade, patterns of trade, trading blocs and the WTO, and the causes and effects of protectionism.
Which unit is Trade and the global economy examined in?
It is part of Unit 4, Developments in the global economy.
How do I find comparative advantage?
Work out the opportunity cost of each good in each country. The country with the lower opportunity cost in a good has the comparative advantage and should specialise in it.
