AQA A-Level Economics (7136) · The National & International Economy
Specification points
- Globalisation: causes and consequences.
- Absolute and comparative advantage; the gains from trade.
- Protectionism and trading blocs.
Globalisation
Globalisation is the increasing integration of economies through trade, capital flows, migration and technology, driven by lower transport/communication costs, trade liberalisation and multinational companies. It raises output and choice but can widen inequality, harm the environment and increase interdependence.
Comparative advantage
A country has a comparative advantage in a good if it produces it at a lower opportunity cost. Specialising and trading according to comparative advantage raises total world output — even if one country has an absolute advantage in everything.
Gains from trade come from comparative (opportunity-cost) advantage, not absolute advantage.
Limits: transport costs, factor immobility and over-specialisation.
Key definitions
| Term | Definition |
|---|---|
| Comparative advantage | Producing a good at a lower opportunity cost than others. |
| Protectionism | Restricting trade to shield domestic industry. |
| Trading bloc | A group of countries with reduced trade barriers between them. |
Protectionism
Methods: tariffs, quotas, subsidies and regulations. Protection can shield infant industries and jobs but raises prices, protects inefficiency and risks retaliation and trade wars. Trading blocs (e.g. the EU single market) increase trade between members (trade creation) but may divert trade from cheaper outside producers (trade diversion).
Worked example
Two countries specialise by comparative advantage and trade: combined output of both goods rises and each consumes beyond its own production possibilities. If one imposes a tariff to protect a domestic industry, prices rise for consumers and downstream firms, and retaliation could shrink its own exports — the case against protection.
Common exam mistakes
- Confusing comparative (opportunity cost) with absolute advantage.
- Presenting protection as costless.
- Ignoring trade diversion within blocs.
Exam technique
Use opportunity-cost reasoning for comparative advantage, and evaluate protection and trading blocs by stakeholder, efficiency and retaliation.
Quick revision
- Gains from trade: comparative advantage (lower opportunity cost).
- Protection: tariffs, quotas, subsidies — costs and retaliation.
- Trading blocs: trade creation vs trade diversion.