4.1.2 Specialisation and Trade — Practice Questions

Six original multiple-choice questions on specialisation and trade, written to the style and difficulty of Edexcel Paper 2 Section A.

6 questions Edexcel A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 4.1.2 Specialisation and Trade revision notes.

1. 1. Two countries specialise according to comparative advantage and then trade with one another. The clearest evidence that both have gained is that each can now

   Applied reasoning

   Select one answer

   A Consume at a point beyond its own PPF.

   B Produce both goods more cheaply than before.

   C Shift its production possibility frontier outward.

   D Supply the whole world market on its own.
   Show model answer

   Answer: A (Consume at a point beyond its own PPF.). A country's production possibility frontier marks the most it can produce with the resources it has. Specialisation does not move that frontier — no new resources appear and no technology changes. What trade does is separate what a country produces from what it consumes: by making more of one good than it wants and exchanging the surplus, it ends up consuming a combination lying outside its own frontier altogether. That is the gain from trade, and it is what the standard diagram is drawn to show.

   Why the other options are wrong

   • B — Specialisation lowers the opportunity cost of what each country makes. It does not make production physically cheaper in both goods at once.
   • C — An outward shift of the frontier needs more or better resources, which trade does not provide.
   • D — Comparative advantage explains why countries trade with each other, not why one would supply everything.

2. 2. The theory of comparative advantage assumes that factors of production move freely between industries within a country. Where that assumption fails, specialisation is likely to bring

   Applied reasoning

   Select one answer

   A A larger gain in global output than predicted.

   B No change to any country's opportunity costs.

   C Structural unemployment in declining sectors.

   D Zero transport costs between the countries.
   Show model answer

   Answer: C (Structural unemployment in declining sectors.). The model assumes that as a country specialises, the workers and capital released by the shrinking industry move smoothly into the expanding one. In practice a textile worker does not become a chip designer quickly, and a mill cannot be converted into a fabrication plant at all. Where mobility fails, the resources released are not reabsorbed, and the country ends up with structural unemployment alongside its gains from trade. This is the standard evaluation of comparative advantage, and the reason free trade produces losers as well as winners.

   Why the other options are wrong

   • A — The predicted gain assumes the released resources are redeployed. If they sit idle instead, the gain realised is smaller than predicted, not larger.
   • B — Opportunity costs come from a country's production possibilities, not from how easily its factors move between industries.
   • D — Zero transport costs is a different assumption of the same model, and it is not the one the stem sets aside.

3. 3. In one hour a worker in Country P can make either 6 crates of olives or 30 litres of oil. The opportunity cost to Country P of one crate of olives is

   Calculation

   Select one answer

   A 0.2 litres of oil

   B 5 litres of oil

   C 24 litres of oil

   D 30 litres of oil
   Show model answer

   Answer: B (5 litres of oil). Opportunity cost is what must be given up. The hour spent making crates of olives could have been spent making oil instead.
   One hour produces either 6 crates or 30 litres, so the two are equivalent in resources: 6 crates ≡ 30 litres.
   One crate ≡ 30 ÷ 6 = 5 litres of oil.
   The reciprocal is worth having too: one litre of oil costs 6 ÷ 30 = 0.2 crates. A country has a comparative advantage in whichever good it gives up least to produce.

   Why the other options are wrong

   • A — 0.2 is the opportunity cost of one litre of oil — the reciprocal of what the question asks for.
   • C — 24 subtracts one output from the other. The two are in different units and cannot meaningfully be subtracted.
   • D — 30 litres is what a whole hour produces, not what a single crate costs.

4. 4. A developed country imports clothing made in factories where safety rules are weak and hours are long. Among the disadvantages of specialisation and trade, this is

   Applied reasoning

   Select one answer

   A Dependency on imports of essential goods.

   B Income inequality between skilled workers.

   C Job losses in the importing country's mills.

   D Workers being exploited to produce the goods.
   Show model answer

   Answer: D (Workers being exploited to produce the goods.). Trade lets production move to wherever it is cheapest — and part of what makes it cheaper can be standards the importing country would not permit at home. Edexcel lists exploitation of workers among the disadvantages of specialisation and trade for precisely this reason: gains to consumers in one country are partly funded by conditions in another. It is a distinct objection from the job losses trade causes domestically, which fall on an entirely different group of people.

   Why the other options are wrong

   • A — Dependency concerns what happens when supply is interrupted. Nothing here is about security of supply.
   • B — Income inequality between skilled and unskilled workers is a separate disadvantage, and the stem says nothing about relative pay.
   • C — Job losses in the importing country are a real cost of trade, but the stem describes conditions in the exporting country.

5. 5. The comparative advantage model assumes constant returns to scale. If a country specialising heavily in one good instead runs into diminishing returns, the gains from trade will be

   Applied reasoning

   Select one answer

   A Larger, since specialisation deepens.

   B Smaller than the model predicts.

   C Unaffected, since trade is voluntary.

   D Zero, since no country would specialise.
   Show model answer

   Answer: B (Smaller than the model predicts.). The model assumes that doubling the inputs doubles the output, so a country can specialise as far as it likes without its costs rising. If instead the extra resources drawn into the expanding industry are progressively less suited to it — poorer land, less appropriate machinery, workers with the wrong skills — then output per unit of input falls as specialisation deepens. The country's cost advantage narrows the further it goes, complete specialisation stops paying, and the gain actually realised is smaller than the model predicts.

   Why the other options are wrong

   • A — Diminishing returns work against deeper specialisation rather than for it.
   • C — Trade being voluntary explains why it happens at all. It says nothing about the size of the gain.
   • D — Some gain remains for as long as opportunity costs still differ. The model overstates the gain rather than eliminating it.

6. 6. A country specialises completely in financial services and imports all of its food. Global output is higher as a result. The strongest objection to this arrangement is that

   Applied reasoning

   Select one answer

   A Comparative advantage does not apply to services.

   B Financial services cannot be exported at all.

   C It cannot feed itself if supply is interrupted.

   D Its opportunity cost of food would be zero.
   Show model answer

   Answer: C (It cannot feed itself if supply is interrupted.). The efficiency case is left intact — the stem grants that global output is higher. The objection is about risk rather than efficiency. A country with no domestic food production has no fallback if a war, a pandemic or a shipping crisis cuts the supply, and food is not something consumption can simply be postponed on. Edexcel lists dependency on other countries for essential goods among the disadvantages of specialisation, and it is why governments protect some sectors on security grounds even where the economics argues against it.

   Why the other options are wrong

   • A — Comparative advantage applies to services exactly as it does to goods.
   • B — Financial services are among the largest UK exports, so this is simply false.
   • D — A country producing no food has little opportunity cost of food to speak of — but that is a consequence of the arrangement rather than an objection to it.