What this lesson teaches
I can explain why countries specialise and trade, using comparative advantage.
Syllabus 9570, 3.3.1(b). Globalisation, International Trade and Economic Co-operation: Basis of free trade and specialisation
I can weigh the benefits and costs of free trade and open flows for consumers, producers and governments.
Syllabus 9570, 3.3.1(c). Globalisation, International Trade and Economic Co-operation: Benefits and costs of free trade and flows of capital and labour on:; Consumers - Prices, choice and variety of goods and services; Producers - Size of markets, degree of competition, cost of production and innovation; Government - Macroeconomic objectives (and policy choice)
Make a guess
Wages in a country rise steadily as its workers become more skilled. What happens to its advantage in garment making?
- It grows, because skilled workers sew faster.
- It weakens, as the opportunity cost of garments rises.
- It stays the same, because comparative advantage is fixed.
Show the answer
It weakens, as the opportunity cost of garments rises.
Skilled workers could now make far more valuable goods. Making garments costs more of those goods, so the advantage shifts to lower-wage countries.
A whole H2 case study: 30 marks, about 75 minutes in the exam. Answer every part, then compare with the suggested answers.
This is a complete H2 case study in exam format: six parts worth 30 marks. It is about why factories move between countries, how comparative advantage changes, and what that means for the countries involved, including Singapore. In the exam you have 2 hours 30 minutes for two case studies, so allow about 75 minutes for this one, including reading time.
Countries C and V and every number in Figure 1 and Table 1 are illustrative: invented for practice, not official data. Extract 3, on Singapore, describes real history.
Allow about an hour. Read the data and all three extracts first. Write each answer before you open its suggested answer, and use the level descriptors below to mark the 8- and 10-mark parts.
The extracts
Extract 1: Country V's factory boom
Ten years ago, Country V was known mainly for rice, coffee and clothing. Today it is one of the region's largest exporters of phones and laptops. Large foreign electronics firms have built factories there, attracted by a young workforce, wages well below those in Country C, and new roads and ports. Most of the parts are imported and assembled in Country V, so much of the value of each phone is created elsewhere. Still, millions of workers have moved from farms into factory jobs that pay more. Written for these notes; Country V is invented.
Extract 2: Country C moves up
For decades Country C was the world's factory for cheap goods. As its economy grew, wages rose and workers became more skilled. Simple assembly work began to move to cheaper locations, while Country C's own firms moved into making advanced machinery, electric cars and the chips inside them. Tariffs that a large trading partner placed on Country C's goods from 2018 sped up the move, as foreign firms looked for a second production base. Towns that depended on assembly factories have lost jobs, and some older workers have struggled to find new work. Written for these notes; Country C is invented.
Extract 3: Singapore has done this before
In the 1960s and 1970s, Singapore attracted factories making clothing and assembling simple electronics, which created jobs for a fast-growing workforce. As wages rose, that work moved to lower-cost countries. Singapore shifted to higher-value activities such as making semiconductor wafers, chemicals and medicines, and to services such as finance and logistics. Each shift needed new skills, and some workers had to retrain or change jobs. Written for these notes from public information.
How the 8- and 10-mark parts are marked
Data parts (1 to 2 marks)
Point-marked. A 'describe' part gives 1 mark for the overall trend and 1 for a refinement. A 'compare' part gives 1 mark for each similarity or difference supported by figures.
8 marks: L2 (4 to 6)
Gains and losses are both explained with clear chains and tied to evidence from the extracts. A top L2 answer develops both sides fully.
8 marks: L1 (1 to 3)
One-sided, or points listed without explanation, or little use of the case.
8 marks: E (1 to 2)
E2: a reasoned judgement in the context of the case that says for whom and over what time the answer holds. E1: a judgement that is stated but not explained.
10 marks: L2 (4 to 7)
Both approaches are developed with clear analysis, their limits and case evidence. A one-sided answer is usually capped at about 5.
10 marks: L1 (1 to 3)
Mostly descriptive, one-sided, or not tied to the case.
10 marks: E (1 to 3)
E3: a well-reasoned judgement on the better approach for a small open economy, using its features, with a conclusion. E2: a reasoned judgement with less support. E1: an unsupported judgement.
| Year | 2015 | 2017 | 2019 | 2021 | 2023 | 2025 |
|---|---|---|---|---|---|---|
| Exports | 40 | 60 | 85 | 120 | 150 | 175 |
| Year | Country C | Country V |
|---|---|---|
| 2015 | 3.00 | 1.50 |
| 2020 | 4.50 | 2.00 |
| 2025 | 6.00 | 2.50 |
Worked example: Compare growth in two series
Suppose wages in Country X rose from $2 to $4 an hour, and in Country Y from $1 to $1.50, over the same years.
- Both rose: a similarity.
- X rose by 100% (2 / 2), Y by 50% (0.5 / 1): X rose faster.
- The gap widened, from $1 to $2.50 an hour.
- So Y's wage advantage over X grew: a point an 'explain' part can build on.
Watch out for this
Country V has a comparative advantage in electronics because its workers are better at making them than Country C's.
That would be absolute advantage. Comparative advantage means a lower opportunity cost. Country V's abundant, lower-cost labour means assembly costs it less in other goods given up.
Check your understanding
Why can comparative advantage change over time?
- Governments set comparative advantage each year in trade agreements.
- A country's factor endowments change, such as wages, skills and capital.
- Comparative advantage is fixed by a country's climate, so it cannot change.
Show the answer
A country's factor endowments change, such as wages, skills and capital.
Right. As Country C's wages and skills rise, labour-intensive work costs it more in other goods given up, so its advantage shifts.