A2 Model: using comparative advantage theory in exam answers

Evaluate the benefits to an African country of increased trade with BRICS? (12 marks)

6 mark response

Increased trade links between an African and BRIC country, such as China, could result in increased economic growth for the African economy as a result of comparative advantage theory.  (1 mark for growth) This may occur as an African economy can identify its ‘ability to produce a good at a lower opportunity cost than China’s economy ie an African

country has a comparative advantage in production of a commodity if it has to forego the production of fewer other products such as manufactured items in order to make more crops. The resulting gains in productive efficiency resulting from specialising in growing crops and trading at a mutually beneficial exchange rate will result in catch up growth for the African economy and the ability to operate outside its PPF i.e. increased trend growth. (Extensive Analysis 2 marks)

However if the crop exported has a highly income elastic demand and China goes into recession growth may be stunted (2e). The developing country may become over-reliant on the crop - so risks harvest failure  - supply side shocks causes recession and absolute poverty. (1e). The developing country's exports lacks added value and faces global competition so poor terms of trade (2e).

Also other potential evaluative marks:

ignores transport costs (ie it may be cheaper to produce sheep in the UK rather than pay for

shipping from New Zealand (NZ))

• ignores external costs of production (eg environmental degradation)

• ignores gains from economies of scale

• assumes factors of production can easily be switched from producing one good to producing

another (which they can’t)

• assumes perfect knowledge (which doesn’t exist)

• reduces self-sufficiency.

To do - Produce a slimmed down version for discussing gains to the UK of staying in the EU?