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Economics example exam paper answears: World Exports have increased over 2 1/2 times since 1985. Discuss with reference to questions 1 to 4.
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World Exports have increased over 2 1/2 times since 1985. a) How might this increase in world trade be explained? (40marks) Trade is where people exchange products, either directly through a barrier or indirectly through the medium of money, in hope of achieving mutual advantage (Comparative advantage which in turn leads to opportunity cost) Trade therefore allows a country to consume beyond its PPF. The greater the gradient of it's trading line,the greater the gains from trade to the countries concerned. Another way to emphasize the significance of trade is to show the welfare gain of going from no trade to free trade. This diagram shows no external trade allowed. DH and DS represent domestic demand and supply curves respectively. The price will initially stay at P1 and equilibrium quantity at Q1. Suppose that trade becomes possible and the good can be imported at the world price PW. There will be a gain of...
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