Trade, Comparative Advantage & Uneven Adjustment — Practice · Grade 12 Social Studies

Chapter: Global Connections, Risk & Economic Inquiry

What this practice covers

By the end of Trade, Comparative Advantage & Uneven Adjustment you should be able to:

8 questions, written answer, each with a worked explanation.

Vocabulary used: absolute advantage, comparative advantage, terms of trade, tariff, trade balance.

Problem 1

Why can A have absolute advantage in both goods without comparative advantage in both?
Answer and explanation

Absolute advantage compares input requirements directly. Comparative advantage compares opportunity-cost ratios. A’s cloth cost is lower, while B’s grain cost is lower. Relative tradeoffs can differ even when A is faster at every task.

Problem 2

Why do terms between two and three grain per cloth permit gains in the supplied model?
Answer and explanation

A gives up cloth costing two grain and receives more than two; B obtains cloth for less than its own three-grain cost. Both improve the represented tradeoff under the no-extra-cost assumptions. Other costs or constraints can change that conclusion.

Problem 3

Why does a model of total trade gains not guarantee every worker benefits?
Answer and explanation

The model aggregates possibilities, while jobs, income, costs, and adjustment differ across people and locations. Distribution and transition require separate evidence and institutions. Total gains do not automatically create compensation or an equivalent job.

Problem 4

Why should a trade deficit not be called a government budget deficit?
Answer and explanation

They measure different flows. Trade compares defined exports and imports; the budget compares public spending and revenue. A negative trade balance cannot by itself establish fiscal borrowing, wealth, or overall welfare.

Problem 5

Invented hours per unit: A cloth two, grain one; B cloth six, grain two. Divisible output, constant rates, no trade costs. Identify advantages and test one cloth for 2.5 grain.
Answer and explanation

A has absolute advantage in both goods. Cloth costs A two grain and B three, while grain costs A half a cloth and B one-third. Thus A has comparative advantage in cloth and B in grain. Exchanging one cloth for 2.5 grain can benefit both under the supplied assumptions because the rate lies between two and three. Feasible quantities, distribution, and extra costs remain separate questions.

Compare absolute input requirements.

Calculate opportunity costs.

Compare exchange terms with both costs.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 6

Does a country faster at producing everything have no potential gains from trade?
Answer and explanation

Not necessarily. Comparative advantage concerns relative opportunity costs rather than speed alone. Different ratios can allow gains under suitable terms and assumptions, while adjustment and distribution still require analysis.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 7

In the unit trade model, would one cloth for 1.5 grain benefit A compared with its own opportunity cost?
Answer and explanation

No under the stated model: A gives up cloth costing two grain and receives only 1.5. The proposed rate is outside the mutually advantageous range. Feasibility, extra costs, and distribution still need separate analysis.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 8

Invented exports 120 and imports 150 in one defined period. Calculate the trade balance and identify what it does not measure.
Answer and explanation

The balance is −30 units. It does not establish public spending minus tax revenue, national wealth, or every household’s welfare. Specify scope, period, and accounting categories before comparing other measures.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Browse all courses