Paper 3 examination question on trade barriers (exiting syllabus)
This is a continuation of the previous lesson and contains a paper three type question on the costs and benefits of being part of a trading bloc. This exercise can be completed in 45 minutes. While paper three type questions are only part of the higher level syllabus, I will also give paper three exercises to my standard level students to complete, as it provides good practise for all economics students.
Paper 3 style examination question (existing syllabus)
Maximum mark for this question 25
1. The following is a middle income country which has joined a free trade association. They produce bread domestically which they make from a combination of domestically produced and imported corn. Prior to joining the FTA the government imposed a tariff on corn imports but after joining the organisation they were forced to remove these. This reduced the price of corn in the country to $ 5 per Kg.
Define the following terms:
(a) i. Preferential trade area (PTA) [1 mark]
ii. Monetary union [1 mark]
iii. Common market [1 mark]
(b) i. Calculate the total revenue spent on corn by consumers prior to joining the FTA? [2 marks]
ii. Calculate the amount spent by consumers on corn after joining the FTA? [2 marks]
iii. Prior to the removal of the tariff what was the level of tax revenue generated by the import tax? [2 marks]
iv. Calculate the change in revenue gained by domestic producers after the removal of the tariff. [2 marks]
v. Calculate the change in revenue gained by imported producers after the removal of the tariff. [2 marks]
vi. Which area represents the gain in consumer surplus after the tariff was removed? [2 marks]
vii. Which area represents the deadweight loss resulting from the imposition of the original tariff? [2 marks]
(c) Explain the impact of membership of the free trade area on the following stakeholders: [4marks]
- domestic producers
- the government.
(e) Explain the difference between trade diversion and trade creation. [4 marks]
The paper three type questions above can be accessed as a PDF worksheet at: P3 questions
The P3 markscheme with responses is available at: Mark scheme