4.3 Arguments for and against trade protection questions for IB Economics
115 questions on Arguments for and against trade protection, written by Augment in the style of IB exam papers. Six of them are below in full, to answer on paper.
- IB Economics
- Part of 4 The global economy
- SL and HL
Questions by paper and level
SL and HL questions are for students at either level. HL only questions cover what only HL students study.
| Paper | SL and HL | HL only | All |
|---|---|---|---|
| Paper 1 | 43 | 9 | 52 |
| Paper 2 | 42 | 9 | 51 |
| Paper 3HL only | 0 | 12 | 12 |
| Every paper | 85 | 30 | 115 |
Counted on
Questions to try
Written by Augment in the style of IB exams, not past papers. Answer them on paper, then check each one against its markscheme with a free account.
Open economies are linked to the rest of the world through spending on exports and imports.
- (a)
Using the circular flow of income model, explain how a fall in exports combined with a rise in spending on imports could reduce a country's national income.
10 marks
- (b)
Using real-world examples, discuss the view that trade protection is necessary to protect domestic jobs.
15 marks
Read the extract and answer the question that follows.
Text A — Haldora plans to subsidize its steel industry
[1] Haldora is an upper-middle-income economy whose steel industry employs 38 000 workers, most of them in two northern regions where unemployment is 14 %, compared with 6 % nationally. Between 2018 and 2024 cheap imported steel reduced the domestic steel producers' share of the Haldoran market from 72 % to 51 %.
[2] The government has announced a subsidy of 45 haldoran dinars (HDD) per tonne of steel produced in Haldora, for three years. The subsidy will cost an estimated HDD 1.1 billion a year, equal to 0.6 % of GDP. Firms will only receive it if they replace their coal-fired blast furnaces with electric arc furnaces, which cut carbon emissions per tonne by around 70 %.
[3] Car manufacturers and construction firms in Haldora welcomed the plan, expecting lower steel prices. However, the government already has a budget deficit of 4.2 % of GDP, and hospitals and schools have warned of staff shortages. The steel industry has received government support twice in the past 15 years.
[4] Two of Haldora's trading partners have said that they may complain to the World Trade Organization (WTO) that the subsidy gives Haldoran steel an unfair advantage in export markets.
Using information from the text and your knowledge of economics, evaluate the government of Haldora's plan to subsidize its domestic steel producers.
15 marks
Wheat farming in Drevnia
Drevnia is a lower-middle-income economy in Central Asia. Wheat is grown by around 600 000 farming households, most of them on plots of less than five hectares, and rural poverty rates are almost three times those in cities. To raise farm incomes, the government has introduced a minimum price for wheat of 280 drevnian som (DVS) per tonne. The state grain agency buys any wheat that is not sold to private buyers at this price.
Table 1: Annual demand and supply schedules for wheat in Drevnia
Price (DVS per tonne) | Quantity demanded (thousand tonnes) | Quantity supplied (thousand tonnes) |
|---|---|---|
200 | 5 000 | 3 800 |
240 | 4 600 | 4 600 |
280 | 4 200 | 5 400 |
320 | 3 800 | 6 200 |
- (a)(i)
Using the information in Table 1, calculate the surplus of wheat at the minimum price.
1 mark
- (a)(ii)
Using your answer to part (a)(i), calculate the cost to the state grain agency of buying the surplus.
2 marks
- (a)(iii)
Using the information in Table 1, calculate the change in farmers' total revenue from wheat as a result of the minimum price.
2 marks
- (a)(iv)
Using the information in Table 1, calculate the change in consumers' total spending on wheat as a result of the minimum price.
2 marks
- (a)(v)
Sketch a demand and supply diagram to show the minimum price and the government's spending on the surplus.
2 marks
- (a)(vi)
The grain agency stores the surplus for one year at a cost of DVS 15 per tonne and then sells it abroad at the world price of DVS 190 per tonne.
Using your answers to parts (a)(i) and (a)(ii), calculate the net cost to the government of the surplus.
3 marks
- (a)(vii)
Using a demand and supply diagram and the information in Table 1, explain the effect of the minimum price on consumer surplus in the market for wheat.
4 marks
- (a)(viii)
Explain two reasons why the government of Drevnia may wish to support the incomes of wheat farmers.
4 marks
- (b)
The government of Drevnia is reviewing its support for wheat farmers. The following information is available:
the cost of the minimum price scheme is expected to rise, because farmers have increased the area planted with wheat; neighbouring countries have complained that Drevnia's subsidized exports are lowering their farmers' incomes
20 % of farms, mostly the largest, produce 65 % of the wheat sold to the grain agency
a direct income payment of DVS 400 a year to every farming household with less than five hectares would cost about DVS 200 million a year
a subsidy for drought-resistant seed and drip irrigation could raise yields on small farms by an estimated 25 % within four years
the government could build rural roads and grain stores, allowing farmers to sell directly to millers in the cities and reducing the share of the crop lost after harvest, currently about 12 %
Using the information provided and your knowledge of economics, recommend a policy the government of Drevnia could introduce to support the incomes of small wheat farmers.
10 marks
Adam Smith argued that specialization and the division of labour are the main sources of a nation's wealth.
- (a)
Explain why Smith's ideas of specialization and laissez faire provide support for free trade between countries.
10 marks
- (b)
Using real-world examples, discuss the view that developing economies should never use trade protection.
15 marks
Read the extract and answer the questions that follow.
Text A — Drevany's push into solar panels
[1] Drevany is a middle-income economy in Eastern Europe that imports almost all of its solar panels. In 2023 the government launched Solar Forward, an industrial policy intended to build a domestic solar manufacturing sector.
[2] Under Solar Forward, domestic manufacturers receive a subsidy of DRV 30 (Drevany dinars) for every solar panel they produce. Manufacturers can also borrow from a state development bank at an interest rate 4 percentage points below commercial rates. All solar installations on public buildings must use panels with at least 25 % domestic content.
[3] Domestic production has grown rapidly (Table 1), and four new factories employ about 3 500 workers. The government argues that the industry will become internationally competitive once it reaches a larger scale, and that it will reduce Drevany's dependence on imported energy technology.
[4] Critics point out that Drevanian panels still cost 18 % more to produce than imported panels, so the domestic content rule raises the cost of public solar projects. The country's budget deficit is 5.2 % of GDP, and the finance ministry has warned that the cost of the subsidy is rising every year. Two of the four factories are owned by firms with close links to senior politicians.
[5] Exporters of panels to Drevany have complained to the World Trade Organization (WTO) that the domestic content rule discriminates against imports.
Table 1: Domestic production of solar panels in Drevany
Year | 2023 | 2024 | 2025 |
|---|---|---|---|
Panels produced (thousand) | 400 | 720 | 1 100 |
- (a)
Define the term industrial policy indicated in bold in the text (Text A, paragraph 1).
2 marks
- (b)(i)
Using information from Text A, paragraph 2 and Table 1, calculate the total cost of the production subsidy to the government in 2025.
2 marks
- (b)(ii)
Sketch a demand and supply diagram to show the effect of the production subsidy on the market for domestically produced solar panels (Text A, paragraph 2).
2 marks
- (c)
Using an AD/AS diagram, explain how Solar Forward could increase Drevany's potential output (Text A, paragraph 3).
4 marks
- (d)
Using information from the text and your knowledge of economics, discuss whether Solar Forward is an appropriate policy for Drevany.
15 marks
Sugar price support in Country V
The government of Country V guarantees sugar producers a minimum price of 600 V-dollars (VD) per tonne. A state agency buys all the sugar that is not sold to domestic buyers at this price and sells it on the world market at the world price of VD 420 per tonne.
Table 1 shows the annual domestic demand and supply schedules for sugar. Assume that the demand and supply curves are straight lines; the demand curve meets the price axis at VD 1 300 and the supply curve meets the price axis at VD 100.
Table 1: Annual demand and supply schedules for sugar in Country V
Price (VD per tonne) | Quantity demanded (thousand tonnes) | Quantity supplied (thousand tonnes) |
|---|---|---|
400 | 900 | 600 |
450 | 850 | 700 |
500 | 800 | 800 |
550 | 750 | 900 |
600 | 700 | 1 000 |
- (a)(i)
Using the information in Table 1, calculate the surplus of sugar at the minimum price.
1 mark
- (a)(ii)
Calculate the net cost to the government of buying the surplus and selling it on the world market.
2 marks
- (a)(iii)
Calculate the change in consumer surplus as a result of the minimum price.
2 marks
- (a)(iv)
Calculate the change in producer surplus as a result of the minimum price.
2 marks
- (a)(v)
Using your answers to parts (a)(ii), (a)(iii) and (a)(iv), calculate the overall change in welfare for Country V as a result of the minimum price scheme.
2 marks
- (a)(vi)
Explain two likely consequences of the minimum price scheme for sugar producers in other countries.
4 marks
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More questions in The global economy
- 4.1Benefits of international trade
- 4.2Types of trade protection
- 4.3Arguments for and against trade protectionThis page
- 4.4Economic integration
- 4.5Exchange rates
- 4.6Balance of payments
- 4.7Sustainable development
- 4.8Measuring development
- 4.9Barriers to economic growth and development
- 4.10Growth and development strategies
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