International trade

What are the three main assumptions of Mercantilism? [6]

(1) Wealth is finite, (2) nations must export more than they import to accumulate wealth, (3) trade is a zero-sum game where one nation’s gain is another’s loss.

What are the key elements of mercantilist thought on trade? [10]

Exports are encouraged (inflow of gold/silver), imports restricted, government control through tariffs, subsidies, monopolies, and nationalism.

Explain the central arguments with which Adam Smith countered Mercantilist thought. [10]

Smith argued national wealth is based on productive capacity, not gold reserves. Free trade and division of labour improve efficiency. Trade is a positive-sum game, benefiting all.

Define Absolute Advantage according to Adam Smith. [6]

A country has an absolute advantage if it can produce a good more efficiently (lower input cost) than another, allowing specialisation and mutual gains from trade.

Explain David Ricardo’s theory of Comparative Advantage with a graph. [15]

Ricardo showed that even if one country has an absolute advantage in all goods, trade is still beneficial if each country specialises in goods with the lowest opportunity cost. Graphs with PPF and trade lines illustrate gains from trade.

What is the basis for Comparative Advantage in Ricardo’s theory? [2]

Differences in relative costs (opportunity cost) due to technology differences across countries.

Explain the Heckscher-Ohlin model of comparative advantage. [10]

H-O states that comparative advantage arises from factor endowments. Capital-abundant countries export capital-intensive goods, while labour-abundant ones export labour-intensive goods.

What trade patterns would arise under the H-O model? [2]

Inter-industry trade: capital-rich countries export manufactured goods, labour-rich countries export primary products.

How does Linder explain trade patterns? [6]

Linder’s Overlapping Demand Theory says countries with similar per capita incomes and consumer preferences trade more, as they produce and demand similar quality manufactured goods.

How does Paul Krugman explain economies of scale in trade? [10]

Trade arises from internal economies of scale: as firms expand production, average costs fall. Even similar countries trade to exploit larger markets, lower prices, and greater product variety.

Explain the Technology Gap Theory of trade. [6]

Technological innovation gives a country temporary comparative advantage until others imitate. Trade occurs in the lag period (demand lag, foreign reaction lag, domestic reaction lag).

What is the Product Life Cycle Theory? [6]

Products move from introduction → growth → maturity → decline. Innovating countries initially export, but later lose advantage as production shifts to lower-cost nations.

Explain three justifications for restrictions on trade with real-world examples. [10]

(1) Protecting jobs (e.g. US tariffs on Chinese steel), (2) Protecting infant industries (developing country manufacturing), (3) Safeguarding national security (food/energy supply).

Name and briefly describe five non-tariff restrictions. [10]

(1) Quotas (limits on imports), (2) Subsidies (financial support to local firms), (3) Standards/regulations, (4) Licensing, (5) Voluntary export restraints.

Explain with a graph the impact of an import tariff on South African steel. [10]

Tariff raises import price, reduces imports, shifts domestic supply curve, raises producer surplus, lowers consumer surplus, creates deadweight loss.

Why were the GATT and WTO established? [6]

To promote free trade by reducing tariffs/barriers and providing a rules-based system for resolving disputes.

What is the WTO’s Trade Facilitation Agreement (TFA)? [12]

It simplifies and harmonises customs procedures, reduces costs and delays, and aims to make cross-border trade faster and more efficient.

What does economic integration mean? [2]

The process of removing trade barriers and increasing economic cooperation between countries.

When is economic integration called regional integration? [1]

When it occurs among geographically close countries.

Distinguish static and dynamic effects of regional integration. [10]

Static effects: trade creation and diversion. Dynamic effects: economies of scale, increased competition, investment, growth.

What is the African Continental Free Trade Agreement (AfCFTA)? [10]

A free trade agreement among African Union countries aimed at boosting intra-African trade, industrialisation, and development.

How can the Fourth Industrial Revolution (FIR) assist Africa’s integration? [15]

By enabling digital trade platforms, fintech for payments, supply-chain transparency, and improved logistics through AI and blockchain.

How can the TFA and FIR assist women in trade? [15]

They reduce trade barriers, digitise processes, and open opportunities for small-scale women traders through e-commerce and better market access.

What is the composition of the unemployed in South Africa? [10]

High youth unemployment, gender imbalances, regional differences, and a large share of unskilled labour.

How can the FIR, TFA and AfCFTA reduce youth unemployment in SA? [15]

By fostering new industries (digital, green), easing market access for SMEs, and integrating SA into African value chains.

Give a real-world example of infant industry protection. [6]

Developing countries often protect new manufacturing sectors (e.g. Brazil’s car industry in the 20th century) until they can compete globally.

How has South Africa used tariffs to protect employment? [6]

The government imposed tariffs on imported steel to protect local producers like ArcelorMittal SA, aiming to save jobs, but this raised costs for downstream industries.

Provide an African example of regional integration. [6]

The Southern African Development Community (SADC) has reduced tariffs among member states, promoting intra-regional trade in goods like textiles and agricultural products.

What opportunities does the AfCFTA offer Africa? [10]

Larger integrated market (1.3bn people), reduced tariffs, better value chain participation, industrialisation, and improved bargaining power globally.

How could the AfCFTA and FIR together help women entrepreneurs? [8]

E-commerce platforms enable cross-border digital sales, fintech eases payments, and simplified customs reduce informal border barriers that often affect women traders.

List five non-tariff barriers (NTBs). [5]

Quotas, import licensing, technical standards, voluntary export restraints, and subsidies.

What are the main types of regional integration? [5]

(1) Free trade area, (2) Customs union, (3) Common market, (4) Economic union, (5) Political union.

What is protectionism? [2]

Government policies (tariffs, subsidies, NTBs) that restrict trade to protect domestic industries.

What is autarky? [2]

A situation where a country does not engage in international trade and consumes only what it produces.

What is the WTO’s Dispute Settlement Mechanism? [4]

A legal framework under the WTO allowing countries to resolve trade disputes through panels and appeals, ensuring rules-based fairness.

Use a PPF diagram to show gains from trade. [8]

In autarky, consumption = production on the PPF. With trade, countries specialise in goods where they have comparative advantage, shifting consumption to a higher indifference curve beyond the PPF, showing gains.

Show the effect of an import tariff on a supply & demand graph. [10]

Tariff raises import price above world price, reducing imports, increasing domestic production, decreasing consumption, and creating deadweight loss (welfare loss triangles).

On a graph, how can you illustrate the product life cycle? [6]

Draw four phases: Introduction (monopoly exports), Growth (foreign entry), Maturity (foreign producers dominate with low costs), Decline (innovator becomes importer).

What is the structure of unemployment in South Africa? [10]

Predominantly youth, unskilled, and long-term unemployment, with higher rates among women and rural areas.

How could AfCFTA + FIR reduce youth unemployment in SA? [15]

By opening new markets for SMEs, expanding digital services, integrating SA youth into regional value chains, and supporting new industries like renewable energy