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HIGHER GRADE ECONOMICS
REVISION QUESTIONS
Question
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(a)
(b)
8
International Trade
Outline the theories of absolute
and comparative advantage as they
relate to international trade.
Apart from absolute advantage and
comparative advantage, suggest some
other reasons why countries trade
with each other.
Briefly explain why countries may
impose restrictions on trade.
Explain how countries benefit from
trading freely with one another.
Describe the methods by which a
country may formally reduce its
imports and explain why it may be
restricted in the use of such
methods.
Explain the difference between
visible and invisible trade.
A British car manufacturer wanted
to sell 1,000 cars to a US company.
The total cost of the cars was £2
million when the exchange rate was
£1 = $1.50. It is now £1=$1.60.
What has happened to the cost of
the UK cars to the US importer?
Marks
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What might the USA company do now?
UK forms ordered one million tons
of wheat from Canada at total cost
of $30 million. The exchange rate
was £1 = $1.50. However, sterling
became stronger and the exchange
rate rose to £1 = $1.80.
2
Explain what has happened to the
cost of the wheat to the UK firms.
2
What effects will this have on the
UK firms who ordered the wheat?
Explain why the UK has had a
persistent deficit on the Current
Account in the Balance of Payments.
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(a)
(b)
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Describe
could be
Describe
could be
exports.
possible measures which
used to reduce UK imports.
possible measures that
used to increase UK
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4
Some countries argue for a floating
exchange rate, that is, that the UK's
Foreign Exchange Market (FOREX) should
be allowed to operate like any other
market in that the forces of supply and
demand should operate to bring about
equilibrium. This equilibrium will,
therefore, reflect the strength of
Sterling.
Opponents of this approach suggest that
leaving the FOREX to the forces of
supply and demand will produce great
fluctuations in the value of Sterling.
They believe its value should be fixed,
either by government intervention or
by the establishment of an
international
system of fixed
exchange rates.
Questions (a)-(f) relate to the above
passage.
(a)
(b)
(c)
(d)
(e)
(f)
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Explain what is meant by Foreign
Exchange Market.
Explain what is meant by Fixed Exchange
Rates.
What factors affect the demand for
Sterling on the Foreign Exchange
Market?
What factors affect the supply of
Sterling on the Foreign Exchange
Market?
Why might ‘great fluctuations in the
value of Sterling’ occur if the Foreign
Exchange Market is left to the forces
of supply and demand?
Explain the advantages and
disadvantages for the UK economy of
Sterling becoming stronger.
What are the main benefits to the UK of
being a member of the European Union?
What is meant by the term Eurozone?
Under what circumstances may an economy
wish to adopt protectionist policies?
What information can be found in the
Capital Account section of the UK
Balance of Payments?
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Explain the difference between a trade
deficit and a trade surplus.
When exports are greater than imports
explain the impact that this will have
on National Income.
When imports are greater than exports
explain the impact that this will have
on National Income.
For what reasons might the UK wish to
protect certain industries from the
impact of foreign trade?
What is a Speculator?
What information or conclusions can we
gather about the UK economy if we study
the UK Balance of Payments?
What is the purpose of the Common
Agricultural Policy (CAP).
What is the purpose of the General
Agreement on Tariffs and Trade (GATT)?
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