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Benefits of International Trade · Paper 1 — Free Economics HL Practice Questions

1MasterySAQ-STrade restrictions and their impact6 marksPaper 1~9 min
Country X imposes a specific tariff of USD 200 per tonne on imported steel. The world price of steel is USD 500 per tonne. Before the tariff, domestic producers supply 22 million tonnes and domestic consumers demand 55 million tonnes. After the tariff, the domestic price rises to USD 700 per tonne, domestic supply increases to 33 million tonnes, and domestic demand falls to 44 million tonnes.
(a)
Calculate the change in consumer surplus resulting from the tariff. [2 marks]
(b)
Calculate the government tariff revenue and the net welfare loss (deadweight loss) to Country X resulting from the tariff. [2 marks]
(c)
Analyse whether the tariff produces a net benefit or net loss for Country X as a whole, referring to your calculations. [2 marks]
diagram

Solutions

2MasterySAQ-STrade restrictions and their impact6 marksPaper 1~9 min

Data

In 2023, the government of Economia imposed an import quota on rice, limiting imports to 50,00050{,}000 tonnes per year. Before the quota, the domestic price of rice equalled the world price of USD 300 per tonne, with domestic consumption of 200,000200{,}000 tonnes and domestic production of 120,000120{,}000 tonnes. After the quota, the domestic price rose to USD 400 per tonne, domestic production increased to 140,000140{,}000 tonnes, and domestic consumption fell to 180,000180{,}000 tonnes.
(a)
Explain how the import quota causes the domestic price of rice to rise above the world price. [2 marks]
(b)
Analyse the impact of the quota on the welfare of domestic consumers, using the data provided to support your answer. [4 marks]
diagram

Solutions

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