6.1 The reasons for international trade

a) The terms of trade index for an economy changed from 105 to 110 in a given year. Explain two likely reasons for this change and consider the extent to which the change is likely to benefit the current account of the balance of payments of this economy. [8]

b) Assess whether government policy can influence an economy's comparative advantage in a good or service. [12]

a) With the help of a formula, explain the causes of an improvement in the terms of trade in an economy and consider whether such an improvement can ever be harmful to an economy. [8]

a) With the help of a formula, explain two reasons for an improvement in the terms of trade and consider the extent to which an improvement in the terms of trade will benefit an economy. [8]

b) Assess the extent to which the consequences of free trade are always positive for an economy. [12]

a) Explain the potential advantages of free trade and consider whether such advantages are always greater than the potential disadvantages of free trade. [8]

a) Explain two possible causes of a change in the terms of trade in an economy and consider which of these causes is likely to be more important for low-income countries. [8]

a) Explain the difference between the terms of trade and the balance of trade in goods and consider whether an economy should be more concerned about its terms of trade than its balance of trade in goods. [8]

b) Assess whether a rise or a fall in the terms of trade will benefit the macroeconomic performance of an open economy that is heavily dependent on international trade. [12]

An economy adopts a freely floating exchange rate.

b) Discuss the advantages and disadvantages that result from a rise in an economy's terms of trade and consider whether a rise is likely to be of overall benefit to an economy. [12]

a) Explain how a higher rate of inflation in an economy compared to its trading partners and a decline in the exchange rate will each affect the terms of trade in an economy. [8]

b) Discuss whether the principle of comparative advantage concludes that a movement to free trade will always result in an overall benefit for an economy. [12]

b) Discuss the view that the gains from tariff-free trade are greater for countries who are net importers than for countries who are net exporters. [12]

China's terms of trade index fell from 102.1 in March 2018 to 99.7 in April 2018.

a) State how the terms of trade are measured, and explain three possible causes of the fall in China's terms of trade shown above. [8]

b) Discuss whether a rise in the terms of trade or a fall in the terms of trade is more likely to be of benefit for an economy. [12]

a) Explain why the theory of comparative advantage may not give a true account of the benefits of free trade. [8]