The Reasons for International Trade: five questions to try now
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Question 1
The diagram shows the domestic and world demand and supply for a good. The government imposes a tariff on imports of the good. What will happen to the quantity imported?
Answer: B.
Answer: B. It will fall from Q1Q5 to Q2Q4.
Explanation: When a tariff is imposed on imports of a good, the domestic price of the good will rise relative to the world price. This leads to a decrease in the quantity demanded by domestic consumers and an increase in the quantity supplied by domestic producers.
In the diagram, the initial quantity imported is represented by the difference between Q1Q5 (world supply) and Q1Q3 (domestic demand). After the imposition of the tariff, the domestic price will increase to P2, leading to a decrease in the quantity demanded domestically to Q4. At the same time, domestic producers will increase their quantity supplied to Q2.
The new quantity imported after the imposition of the tariff is the difference between Q2Q4 (domestic supply) and Q2Q3 (domestic demand), which is represented as a decrease from Q1Q5 to Q2Q4. This means that the correct answer is B.
Therefore, option B is the correct answer as it accurately reflects the decrease in the quantity imported due to the imposition of a tariff.
Explanation: When a tariff is imposed on imports of a good, the domestic price of the good will rise relative to the world price. This leads to a decrease in the quantity demanded by domestic consumers and an increase in the quantity supplied by domestic producers.
In the diagram, the initial quantity imported is represented by the difference between Q1Q5 (world supply) and Q1Q3 (domestic demand). After the imposition of the tariff, the domestic price will increase to P2, leading to a decrease in the quantity demanded domestically to Q4. At the same time, domestic producers will increase their quantity supplied to Q2.
The new quantity imported after the imposition of the tariff is the difference between Q2Q4 (domestic supply) and Q2Q3 (domestic demand), which is represented as a decrease from Q1Q5 to Q2Q4. This means that the correct answer is B.
Therefore, option B is the correct answer as it accurately reflects the decrease in the quantity imported due to the imposition of a tariff.
Question 2
The table shows the ability of two countries, P and Q, to produce two goods, Y and Z. production of good Y per person production of good Z per person country P 1000 1600 country Q 1500 2000 Which statement is correct?
Answer: D.
The correct answer is D: P has a comparative advantage in Z, and Q has an absolute advantage in Y.
Explanation:
1. Absolute Advantage: Absolute advantage refers to a country's ability to produce a good using fewer resources (or in this case, per person production). In the table given, we can see that country P can produce 1600 units of good Z per person, which is more than country Q's 2000 units. Thus, P has an absolute advantage in the production of good Z.
2. Comparative Advantage: Comparative advantage refers to a country's ability to produce a good at a lower opportunity cost compared to another country. To determine comparative advantage, we need to calculate the opportunity cost of producing each good in terms of the other good.
a. Country P: For P, the opportunity cost of producing one unit of good Z is 1600/1000 = 1.6 units of good Y. The opportunity cost of producing one unit of good Y is 1000/1600 = 0.625 units of good Z.
b. Country Q: For Q, the opportunity cost of producing one unit of good Z is 2000/1500 = 1.33 units of good Y. The opportunity cost of producing one unit of good Y is 1500/2000 = 0.75 units of good Z.
From the opportunity cost calculations, we can see that for good Z, the opportunity cost is lower for P (0.625 < 0.75), which means that P has a comparative advantage in producing good Z. Similarly, for good Y, the opportunity cost is lower for Q (1.33 < 1.6), indicating that Q has a comparative advantage in producing good Y.
Therefore, the correct answer is D: P has a comparative advantage in Z, and Q has an absolute advantage in Y.
Explanation:
1. Absolute Advantage: Absolute advantage refers to a country's ability to produce a good using fewer resources (or in this case, per person production). In the table given, we can see that country P can produce 1600 units of good Z per person, which is more than country Q's 2000 units. Thus, P has an absolute advantage in the production of good Z.
2. Comparative Advantage: Comparative advantage refers to a country's ability to produce a good at a lower opportunity cost compared to another country. To determine comparative advantage, we need to calculate the opportunity cost of producing each good in terms of the other good.
a. Country P: For P, the opportunity cost of producing one unit of good Z is 1600/1000 = 1.6 units of good Y. The opportunity cost of producing one unit of good Y is 1000/1600 = 0.625 units of good Z.
b. Country Q: For Q, the opportunity cost of producing one unit of good Z is 2000/1500 = 1.33 units of good Y. The opportunity cost of producing one unit of good Y is 1500/2000 = 0.75 units of good Z.
From the opportunity cost calculations, we can see that for good Z, the opportunity cost is lower for P (0.625 < 0.75), which means that P has a comparative advantage in producing good Z. Similarly, for good Y, the opportunity cost is lower for Q (1.33 < 1.6), indicating that Q has a comparative advantage in producing good Y.
Therefore, the correct answer is D: P has a comparative advantage in Z, and Q has an absolute advantage in Y.
Question 3
The diagram shows the change in the supply curve of imports, S–S1 to curve S–S2, after the introduction by the government of a trade protection measure. price of imports O quantity of imports S S1 S2 What is the form of protection?
Answer: C.
Look at what the new curve does rather than where it sits. Imports were supplied along a horizontal line at the world price, foreign producers would send any quantity at that price. After the measure the line runs horizontally as before and then turns straight up. A vertical segment means that beyond that quantity no extra imports arrive however high the price goes, and a fixed physical limit on the quantity allowed in is a quota. Both tariffs would leave the line horizontal and simply RAISE it: a specific tariff lifts it by a fixed amount per unit, an ad valorem tariff by a percentage of the price. Neither puts a wall at a particular quantity. An embargo would ban imports altogether, so there would be no horizontal stretch at all.
Question 4
An economy with a long history of extensive barriers to trade decides to switch to totally free trade. What is most likely to increase in the short term?
Answer: A.
Sweeping away tariffs and quotas lets cheaper foreign goods in and widens the range on offer, so buyers pay less for the same items and can also reach goods that were previously kept out. The gap between what consumers would have been willing to pay and what they now actually pay grows, which is a straightforward increase in consumer surplus and shows up quickly. Government revenue moves the opposite way, because tariff receipts vanish along with the tariffs that generated them. Inflationary pressure falls rather than rises, since import prices are the first thing free trade pushes down. The claim about the profits of all domestic companies is undone by the word all: firms that had been sheltered behind the barriers now meet foreign competition and lose out, even while exporters and firms buying imported inputs do better.
Question 5
The diagram shows the effect of a tariff on a product. price P2 P1 O quantity domestic supply domestic demand world supply plus tariff world supply From this diagram, what determines the gain the tariff generates for domestic producers?
Answer: D.
The tariff lifts the price domestic buyers pay from the world price P1 to P2, and what domestic producers gain is the extra producer surplus created between those two price lines to the left of the domestic supply curve. Two things fix the size of that area: the height of the price rise, which is the tariff rate, and how far domestic output expands in response, which is governed by the price elasticity of domestic supply. Elastic domestic supply means home firms can push output up a long way for that price rise, so the gain is large, while inelastic supply keeps the gain small however high the tariff. The elasticity of domestic demand matters for a different quantity, namely how far total consumption falls and therefore how much the volume of imports shrinks, but consumers' responsiveness plays no part in the area accruing to producers, which is why the two options that bring domestic demand into the answer overreach. Leaving the tariff rate out altogether fails at the first step, since without knowing how far the price rose there is no way to measure a gain at all.
What this practice covers
These questions are drawn from past CIE 9708 papers and filtered to the reasons for international trade. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on the reasons for international trade, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Defining comparative advantage as producing more with fewer resources. That is absolute advantage.
- Choosing comparative advantage without calculating opportunity cost.
- Assuming the country with absolute advantage in both goods should make both.
- Saying trade shifts the PPC outward.
- Confusing the trading possibility curve with the production possibility curve.
- Calculating terms of trade as import prices divided by export prices.
- Treating a terms-of-trade index above 100 as proof it is currently improving.
- Confusing terms of trade with the balance of trade.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: The Reasons for International Trade revision notes.