Comparative advantage
Comparative advantage: even if one country is absolutely better at everything, both gain from trade if each specialises where its opportunity cost is lower. Specialisation raises global output; trade then lets each country consume beyond its own PPF (production possibility frontier). The pattern of trade also reflects factor endowments (land, labour, capital, enterprise) and economies of scale at global volumes.
Protectionism — four instruments
Protectionism restricts imports. Tariffs: taxes on imports that raise their price and earn revenue. Quotas: quantity limits, drawn as a vertical line at the permitted amount — not a shift of existing curves. Subsidies: lower domestic firms' costs so they compete with cheap imports. Exchange controls: limit the foreign currency available to pay for imports. Each protects domestic producers but raises consumer prices and invites retaliation.
Current account — four parts
The BoP (balance of payments) current account has four parts: visible trade (goods exports minus imports), invisible trade (services — banking, tourism, insurance), income (wages, dividends and interest from abroad) and current transfers (e.g. foreign aid). Their sum is the current account balance. A persistent deficit — importing more than is earned — must be financed by inflows on the financial account.
Drawn from real examiner reports.
Globalisation is not just trade
Defining globalisation as 'trading between countries' is rejected — that is international trade. Globalisation is the growing interconnection and integration of world economies: goods, services, capital, labour and ideas crossing borders. Likewise 'exports' needs two parts: (1) goods or services (2) produced domestically and sold abroad — examples alone score zero.
June 2023 Paper 2, Q1(c) and Q1(d): "trading between countries" rejected for globalisation definition — must reference growing integration/interconnection; examples alone score zero in define questions.
Trade diagrams: only one curve shifts
For a quota, draw a new vertical supply curve at the permitted quantity — do not shift the original curves. For an exchange-rate diagram when exports fall, only the demand curve for the currency shifts left. Shifting both curves scores 0 automatically. Always label the new curve and the new equilibrium price and quantity.
June 2023 Paper 2, Q1(f) and June 2024 Paper 2, Q1(f): candidates who shifted both curves automatically received 0 marks — only one curve shifts; new curve must be labelled.
Use extract data, do not copy it
On a 12-mark Evaluate (e.g. joining a trading bloc), copying sentences from the extract stalls at Level 1. Use the data as evidence in a chain of reasoning, and develop counter-arguments (domestic firms losing to cheaper rivals, adjustment costs). A supported conclusion is needed for the top band — restating earlier points is not a judgement.
November 2024 Paper 2, Q4(c): many candidates scored only Level 1 by copying extract data without economic analysis — conclusions were absent or repeated prior points.
Comparative is not absolute advantage
Absolute advantage = producing more of a good with the same resources. Comparative advantage = producing at a lower opportunity cost than others. Gains from trade rest on comparative, not absolute, advantage: even a country absolutely better at everything should specialise where its opportunity cost is lowest. Compare opportunity costs, not raw output.
Invisible trade sits in the current account
Trade in services — tourism, banking, insurance, freight — is invisible trade and belongs in the current account, not the financial account. Real transactions in goods, services, income and transfers are current-account items; capital and investment flows are the financial account. Putting service exports in the financial account misreads the accounts.
Tariff taxes price; quota limits quantity
A tariff is a tax on imports: it raises the import price and lets the quantity adjust. A quota is a quantity limit: it fixes how much may be imported and lets the price adjust. Both protect domestic firms and tend to raise prices, but one works through price and the other through quantity — say which the question uses.
Evaluate: for, against, then judge
Scaffold a 12-mark Evaluate: define → for with extract evidence (lower tariffs → cheaper imports → higher welfare) → against with a developed counter (import-competing firms lose jobs) → a judgement fixed to the context, not a repeat of earlier points.
Trade-balance calc: units and working
For a trade-balance calculation (e.g. the invisible balance = receipts − payments), show the subtraction and write the full unit — the currency symbol and 'bn'. A correct number with no unit scores only 1 of 2 marks. Show working for the method mark.
Draw one curve and label everything
On a Draw question, move only the curve the question requires. Label the axes, both curves and the new equilibrium, then refer to the shift in your answer. Marks are lost for an unlabelled curve or for moving one that should not move.
Identify means state, not explain
When the command word is Identify, State or Give, name the point and stop — no explanation is credited. For 'identify a reason for trade protection', 'to protect domestic jobs' is a complete answer. Explaining wastes time needed for higher-tariff questions.
Countries trade because specialisation allows global output to rise. The principle of comparative advantage states that a country should produce and export the goods for which its opportunity cost is lower relative to its trading partners — even if it is absolutely better at producing everything.
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