26

Trade and trade protectionism

Activity (p. 277)

1 Students own answers.
2 Students own answers.

Exam practice (p. 278)

1 Reasons for countries trading with each other include:
l The lack of certain resources in the domestic country, e.g. Bangladesh does not
have sufficient supplies of crude oil and natural gas whereas Brunei Darussalam
does not have the arable land needed to grow rice and tropical fruits.
l It is often cheaper to import products than to produce them domestically,
e.g. Sweden could, in theory, grow its own pineapples and bananas but it
would be more economical to purchase these from overseas countries such as
Thailand, the Philippines and India.
l International specialisation and trade can benefit consumers as there is more
competition, choice and improved quality of products.
l Employment opportunities can also arise from international trade.

Accept any other reason that is clearly explained.

Award 12 marks for an answer that shows some understanding, or if only one
reason is explained.
Award 34 marks for a detailed answer that clearly shows understanding of any
two reasons why countries trade with one another.
2 With Brunei Darussalam relying on crude oil and natural gas to account for
90% of its GDP, the country is said to be overspecialised. This makes economic
conditions in the country very volatile if the world demand for such resources
decreases in the future, perhaps in favour of more environmentally friendly fuel
sources.
Another potential problem is the future supply of non-renewable resources such
as crude oil and natural gas. The country may struggle to find alternative products
that it can export to maintain its standards of living.
Accept any one reason that is clearly explained for full marks.
3 Bangladeshs export of rice and tropical fruits helps its farmers to achieve
economies of scale because:
l Specialisation allows the exporters to operate on a large scale, and hence enjoy
cost-saving benefits.
l Specialisation also helps to improve productivity (which lowers unit production
costs) and quality.
l The larger global market also enables Bangladeshi farmers to operate on a
larger scale and sell to a much larger market than if they only catered for
domestic consumers.
Award 12 marks for an answer that shows some understanding.
Award 34 marks for a detailed answer that clearly shows understanding of how
such specialisation helps Bangladeshi farmers to achieve economies of scale.

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 1

 26 Trade and trade protectionism

Exam practice (p. 282)

1 a) The tariff is a tax on imports, so is shown by a leftwards shift of the supply
curve. This results in an increase in the price of British beef in overseas
markets. All other things being equal, the higher price will therefore reduce
the quantity demanded for British beef.
Award up to 2 marks for an accurately labelled diagram and up to 2 further
marks for correctly explaining what is likely to happen to the price of British
beef and the quantity demanded.
b) The impacts of an import tariff on producers of British beef include the
following:
l Higher production costs will lead to higher prices and/or falling demand.
l As a result, profits may decline (depending on the PED for British beef).
l There may be a decline in profits if foreign customers switch to buying beef
from relatively cheaper beef produced in other countries.
l The decline in the competitiveness of British beef producers may lead to job
losses. This process must be managed by the producers and compensation
may need to be paid to the workers made redundant.
l British beef producers may be forced to become more efficient or focus on
non-price competition in order to compete in overseas markets.
The impacts of an import tariff on consumers of British beef include the
following:
l As the price increases, consumers are forced to either pay higher prices or
to purchase less British beef.
l The higher price also means existing customers (in overseas markets) will
have less real disposable income for the purchase of other products.
l Retaliation to the import tariff can cause further price hikes for consumers.
l Protectionism ultimately limits the degree of competition in an industry,
thus harming customers as they have less choice but may need to pay
higher prices.
Award 13 marks for an answer that shows limited understanding.
Award 46 marks for an answer that shows some understanding although
may be unbalanced or lacking in detail. Award up to 4 marks if only producers
or consumers are considered. Application may be missing at the lower end of
the mark band.
Award 78 marks for a detailed answer that examines the impacts of a tariff
on both producers and consumers of British beef.
2 a) Reasons why countries use protectionism include:
l to allow domestic producers to compete with foreign competition (low-cost
producers from China)
l to safeguard strategic industries (the US car industry is highly important to
the economy)
l to provide job protection (in the US tyre manufacturing industry)
l to raise government revenue (from taxing the imports from China).

Award up to 2 marks for each clearly explained reason, up to a total of

4 marks.
b) Possible methods of trade protectionism include:
l Tariffs these will raise the price of tyres from China, allowing US firms
to compete and raise government tax revenues. However, this means US
consumers pay higher prices and US firms are protected from being more
efficient/cost-effective.

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 2

 26 Trade and trade protectionism

l Quotas these limit the number of tyres coming into the USA from
China. Whilst this allows domestic firms to compete (perhaps), it does not
necessarily give them a price advantage or make them more competitive
against Chinese firms.
l Subsidies for US producers this is highly costly for the US government but
will allow domestic firms to produce tyres at a lower cost, thus giving them
a price advantage domestically and in overseas markets. Consumers may
gain, but taxpayers will lose out.
l Administrative barriers these make it more difficult for Chinese tyres to
enter the USA due to excessive paperwork and compliance laws (such as
safety checks on imported tyres). Whilst this provides protection in the short
term, the US could end up being flooded with tyres from China in the long
run.
l All forms of trade barriers can spark retaliation from China.

Award 13 marks for an answer that shows limited understanding.

Award 46 marks for an answer that shows some understanding but may be
unbalanced or lacking in detail. Award up to 6 marks if only one method is
considered. Application may be missing at the lower end of the mark band.
Award 78 marks for a detailed answer that discusses at least two methods of
trade protection, with justification of which one would be best for the USA to
impose.

Activity (p. 282)

Students own answers. The answers to the first two parts of this activity will be
generic/similar, whilst the third part will depend on evaluation skills.

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 3