OxfordAQA International A Level Economics 3.4.1 Globalisation and Trade Exam Questions

About OxfordAQA International A Level Economics 3.4.1 Globalisation and Trade

Globalisation and trade opens Unit 4, Economic development and the global economy, on the OxfordAQA International A2 Economics course. You study the characteristics, causes and consequences of globalisation, including the role of multinational corporations. You then learn why countries trade, using absolute and comparative advantage, the terms of trade, and the costs and benefits of free trade. Finally you analyse protectionist measures such as tariffs, quotas and subsidies, and the role of trading blocs and international organisations. This topic links to balance of payments, exchange rates and development later in the unit. Examiners regularly ask for comparative advantage calculations, tariff diagrams and evaluation of protectionism.

What you need to know

• Globalisation Globalisation is the increasing integration of economies through trade, capital flows, labour migration and the spread of technology. Causes include lower transport and communication costs, trade liberalisation and the growth of multinationals.
• Costs and benefits Benefits include cheaper goods, economies of scale, investment and technology transfer. Costs include structural unemployment in declining industries, environmental damage, exploitation of labour and vulnerability to global shocks.
• Comparative advantage A country has a comparative advantage in a good if it can produce it at a lower opportunity cost than another country. Specialising according to comparative advantage and trading can raise total output. Assumptions include no transport costs and constant costs.
• Terms of trade Terms of trade = index of export prices / index of import prices x 100. An improvement means each unit of exports buys more imports.
• Protectionism Tariffs raise import prices, cut imports and raise government revenue but reduce consumer surplus and create deadweight loss. Quotas limit import quantities; subsidies help domestic producers; non-tariff barriers include regulations. Arguments for protection include infant industries and protecting jobs.
• Trading blocs and institutions Free trade areas, customs unions and common markets reduce barriers between members but can cause trade diversion. The World Trade Organization promotes trade liberalisation and settles disputes.

Common mistakes in 3.4.1 Globalisation and Trade

• Confusing absolute and comparative advantage. Trade can benefit both countries even if one has an absolute advantage in both goods.
• Saying an improvement in the terms of trade always benefits the current account. If demand is elastic, higher export prices may reduce export revenue.
• Drawing a tariff diagram without showing the fall in imports, the rise in domestic output and the deadweight loss.
• Assuming globalisation benefits everyone equally. Gains and losses fall on different groups and countries.
• Treating all trading blocs as the same. Know the difference between a free trade area and a customs union.

Try three 3.4.1 Globalisation and Trade exam-style questions