Example of a AQA unit 4 question from June 2007. AQA paper available here
Note: Some of the data can’t be published online.
This is just a short guide to answer the question. I think it lacks – more use of data and more evaluation.
Explain why Free Trade is important to EU member countries
1:1 Exports are an important component of Aggregate Demand and therefore influence economic growth
1:2 Consumers rely on imports to enable higher living standards e.g cheap clothing imports from China and cars from the EU.
1:3 Free Trade is an important engine of growth
1:4 Free Trade increases competition and incentives to cut costs
1:5 Some countries have few natural resources therefore, trade is essential to enable them to have oil / petrol e.t.c
1:6 Trade helps technological innovation
Explain possible reasons for changes in the pattern of trade between EU member countries and China
2:1. Extract B shows that between 2004 and 2005 there was a small 2% increase in exports to China. However, imports from China have increased by 23% leading to a worsening of the current account.
2:2 Economic Growth in the EU may have been strong. With strong economic growth people consume more imports. However, imports from other countries were less impressive. e.g. there was a fall in imports from Japan and imports from the US only increased by 1%
2:3. This suggests that China’s exports may have become relatively more competitive and attractive to the EU consumer, causing a rise in the share of imports from China. For example, the increased competitiveness may be due to lower labour costs in China, especially for labour intensive industries such as clothes and cuddly toys.
2:4 The exchange rate. An appreciation in the Euro relative to the Chinese Yuan would make EU exports less competitive and Chinese imports cheaper. This would explain the rise in imports relative to exports. However, we cannot see any data to back up this assertion.
2:5 Chinese firms could be targetting the EU market because they feel there is good potential.
3 assess the economic effects of large economies and trading blocs, such as the EU, adopting protectionist policies, including tariffs and quotas, against China;
3:1 Higher tariffs on imports from China will lead to higher prices for consumers. It will lead to a decline in consumer surplus and less choice, especially for manufactured goods mentioned in extract E such as Bras and underwear.
3:2 Import tariffs tend to lead to retaliation e.g. China places tariffs on EU exports. Therefore there is a net reduction in trade.
3:3 The law of comparative advantage states that tariffs lead to a loss of economic welfare, and lower living standards.
3:4 Tariffs may encourage firms to be inefficient. Extract E says France and Italy don’t like competition from China and therefore are blocking imports. But, this means that the government is encouraging inefficient and declining firms to stay in business.
3:5 However, free trade can be harmful. You could argue that tariffs give French and Italian clothing firms the opportunity to reinvest and try to boost competitiveness; this is better than allowing them to go out of business and cause unemployment.
3:6. Extract E also suggests that tariffs are good because it is reducing the consumerist mentality. i.e. people are spending too much on clothes they don’t need. Therefore, the tariffs are good and helping to reduce overconsumption
3:7. The extract is from an opinion in a magazine, it is not based on economic theory. Tariffs don’t stop people wanting to buy goods, it just means people buy more expensive domestic goods rather than the slightly cheaper imports. The problems of debt will not be solved by tariffs.
make a recommendation as to whether the EU should have free trade with China in high- tech equipment such as ICT products, giving justifications for your recommendation.
4:1 Free trade in ICT products has many advantages.
- Consumers will get lowest prices
- Increased competition will force EU firms to remain competitive.
- China has a growing economy and is likely to have increasing demand for ICT products in the future.
- Economies of scale. Free trade enables efficient firms to specialise and become more competitive.
4.2 In ICT, the EU has little to lose from free trade in the long term. The EU should not worry if Chinese firms become more competitive because consumers will benefit from lower prices and EU firms will switch to more suitable industries in the long term.