With free trade, the price at home becomes the world price. When the world price is lower, the country imports.
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The points to remember
- Imports = what buyers want at the world price minus what farmers at home supply.
- Buyers gain from the lower price; producers at home sell less.
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When the world price is higher than the price at home, the country exports.
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Watch the graph build step by step in study mode.
The points to remember
- Exports = what growers supply at the world price minus what buyers at home want.
- Producers gain from the higher price; buyers at home pay more.
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A tariff keeps the price above the world price. Removing it moves the country towards free trade.
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Remember it as: Lower price, less made at home, more bought: more imports.
At Higher Level, Paper 3 asks you to calculate from a trade diagram.
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The four calculations
Quantity exported or imported
The gap at the world price: 60 − 20 = 40 thousand tonnes.
Export revenue
World price × quantity exported: €8 × 40 000 = €320 000.
Import expenditure
World price × quantity imported: at €4, €4 × 40 000 = €160 000.
Change in producers' revenue
Price × quantity they supply, before and after. If the world price falls from €8 to €7: 8 × 60 000 = €480 000, then 7 × 50 000 = €350 000: a fall of €130 000.
The points to remember
- Write the working, then the answer with units: one mark each.
- Producers' revenue uses all they sell, at home and abroad: price × quantity supplied.
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Paper 2 asked this in May 2024, for 4 marks.
Text B says that new free trade agreements will remove the tariffs on farm goods imported from two partner countries.
Using an international trade diagram, explain how imports of farm goods are likely to change.
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See the answer broken into clear points, with guidance on how each point earns marks.
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How the 4 marks are given
| Marks | What your answer needs |
|---|---|
| 3–4 | A correct diagram and a correct explanation |
| 1–2 | A correct diagram or a correct explanation, not both |
| 3 at most | A diagram with a wrong or missing label |