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Benefits of International Trade · Paper 1 — Free Economics SL Practice Questions
1MasterySAQ-SGains from trade4 marksPaper 1~6 min
A country produces two goods: textiles and rice. Its production possibility frontier (PPF) has intercepts at million USD of textiles (horizontal axis) and million USD of rice (vertical axis). In 2023, the country produces at point : million USD of textiles and million USD of rice.
The world price ratio is unit of rice units of textiles.
(a)
Draw a fully labelled PPF with textiles on the horizontal axis and rice on the vertical axis. Mark the intercepts, the current production point , the specialisation point , and the consumption possibility frontier (CPF). [2 marks]
(b)
Using the PPF intercepts, calculate the domestic opportunity cost of producing one unit of rice in terms of textiles, and hence identify the good in which this country has a comparative advantage. [1 mark]
(c)
Analyse the gains from trade for this country when it opens to trade at the world price ratio. [1 mark]
Solutions
2MasterySAQ-SGains from trade4 marksPaper 1~6 min
Japan can produce cars or electronics per worker per day. South Korea can produce cars or electronics per worker per day.
(a)
Draw a production possibility frontier (PPF) for Japan, with cars on the horizontal axis and electronics on the vertical axis. On your , label Japan's autarky point, its full-specialisation point, and a terms-of-trade line representing car electronics. [2 marks]
(b)
Using opportunity cost, identify which country has comparative advantage in cars. [1 mark]
(c)
Using your , analyse how Japan gains from specialising in cars and trading with South Korea at a rate of car electronics. [1 mark]
Solutions
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