Economics 9708 · syllabus 6

Cambridge A Level Economics 9708 — International economic issues (AS Level) topical past papers

Why countries trade and how trade is managed: comparative advantage, terms of trade, protectionism, the current account, exchange rates and policies for imbalances.

Questions: 331
Years: 2002–2026
With mark scheme: 100%
Questions 2022–2026: 182

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What International economic issues (AS Level) covers

Countries gain by specialising in the goods they can produce at a lower opportunity cost than others, their comparative advantage, and trading. This holds even when one country has an absolute advantage in everything, producing more of every good from the same resources. The terms of trade, an index of export prices divided by an index of import prices, measure how many imports a unit of exports buys compared with a base year. Free trade widens choice and lowers prices, but governments still protect domestic industries with tariffs, import quotas, export subsidies, embargoes and administrative barriers, citing infant industries, strategic industries, jobs and dumping.

The current account of the balance of payments records trade in goods, trade in services, primary income — wages, profits and interest earned across borders — and secondary income, transfers such as workers' remittances and foreign aid. A deficit means the country is paying out more on these items than it receives, and it must be financed by borrowing from abroad, selling assets to foreigners or running down reserves; whether it matters depends on its size, its cause and how long it lasts.

A floating exchange rate is set by the demand for and supply of a currency. Demand comes from foreigners buying the country's exports and assets, supply from residents buying imports and foreign assets, so a rise in export sales, or in interest rates relative to other countries, raises demand and the currency appreciates. A depreciation makes exports cheaper abroad and imports dearer at home, which can improve the current account but adds to inflation. To correct a deficit, a government can switch spending towards domestic output with tariffs or a lower exchange rate, reduce spending as a whole with contractionary fiscal or monetary policy, or improve competitiveness with supply-side policies. This is AS content, examined on Papers 1 and 2.

In the syllabus

The headings this topic has in the Cambridge International 2026–2028 syllabus, as the board prints them.

6 International economic issues (AS Level)
6.1 The reasons for international trade
6.2 Protectionism
6.3 Current account of the balance of payments
6.4 Exchange rates
6.5 Policies to correct imbalances in the current account of the balance of payments

Read the syllabus on the board’s website

What you should be able to do

Use opportunity cost ratios to identify absolute and comparative advantage, and the range of exchange ratios at which both countries gain
Calculate the terms of trade and explain the causes and effects of a change in them
Analyse the effects of a tariff on domestic consumers, producers, the government and imports, using a diagram
Identify the components of the current account and explain the causes and consequences of deficits and surpluses
Show how a floating exchange rate is determined, and analyse the causes and effects of appreciation and depreciation
Compare expenditure-switching, expenditure-reducing and supply-side policies for correcting a current account imbalance

Key ideas

Comparative advantage: the ability to produce a good at a lower opportunity cost than another country
Terms of trade = index of average export prices ÷ index of average import prices × 100
Current account = trade in goods + trade in services + primary income + secondary income
Appreciation and depreciation are rises and falls in a floating exchange rate; revaluation and devaluation are deliberate changes to a fixed one
Expenditure-switching policies move spending from imports to domestic output; expenditure-reducing policies cut total spending, and with it imports

How International economic issues (AS Level) has been examined

From 2022 to 2026, International economic issues (AS Level) was on Paper 2 · AS Level Data Response and Essays in 14 of 14 exam series, worth about 28% of that paper’s marks.

How International economic issues (AS Level) has been examined, by paper
Paper	Questions	Share of marks	Series
Paper 1 · AS Level Multiple Choice	135	13%	11 of 14
Paper 2 · AS Level Data Response and Essays	47	28%	14 of 14

Momentum’s own count, over the questions in its bank for these years: a series is one exam session, every zone included, and a question filed under two chapters counts in both. Median marks per question: 1. The bank files this topic together with neighbouring ones, so these figures count every question in its chapters, including some on those topics.

Filed in Momentum under: International Economic Issues.

A worked example

In a base year a country's export price index and import price index are both 100. Five years later its export price index is 115 and its import price index 125. Calculate the terms of trade in each year, and explain what the change means.

Terms of trade = export price index ÷ import price index × 100
Base year: 100 ÷ 100 × 100 = 100
Five years later: 115 ÷ 125 × 100 = 92
The index has fallen by 8%, so a unit of exports now buys 8% fewer imports: an unfavourable movement
The effect on the current account is a separate question: if the fall comes from exports becoming cheaper relative to foreign goods and demand for them is price elastic, export revenue can rise

Answer: The terms of trade fall from 100 to 92, an unfavourable movement of 8%: a unit of exports buys fewer imports than before

Written by Momentum for this page, with its own numbers; it is not taken from a past paper.

Mistakes that cost marks

Deciding who should specialise by absolute advantage — the gains from trade come from comparative advantage, so a country that is better at producing everything still gains by specialising where its opportunity cost is lowest
Treating a rise in the terms of trade as an improvement in the current account — each unit of exports buys more imports, but if demand for exports is price elastic, higher export prices can cut export revenue
Putting a currency on the wrong side of the market — residents buying imports supply their own currency; foreigners buying its exports demand it
Saying a depreciation makes exports dearer — it makes them cheaper in foreign currency and makes imports dearer at home
Shifting the domestic supply curve to show a tariff — the tariff raises the price of imports above the world price, so domestic producers move up their unchanged supply curve, consumers buy less and imports fall

Exam technique

In Paper 1 comparative advantage questions, work out each country's opportunity cost of one unit of each good before reading the options, and check that any trading ratio lies between the two countries' opportunity costs
On a tariff diagram, mark the world price, the price with the tariff, domestic output and consumption before and after, imports and the government's revenue
When a data-response question gives the current account in parts, say which part drives the balance and use several years of figures to describe the trend
In essays on protection, evaluate each argument rather than listing it: the infant industry case holds only if the protection is temporary and the industry can become competitive, and any tariff risks retaliation

Practising in Momentum

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