DEPARTMENT OF EDUCATION

GRADE 12 ECONOMICS

ASSESSMENT BOOK 3
INTERNATION TRADE, TRADE AND PROTECTION

FLEXIBLE OPEN AND DISTANCE EDUCATION

PRIVATE MAIL BAG, WAIGANI, NCD
DEPARTMENT OF EDUCATION
Grade 12 Economics UNIT 3 ASSESSMENT Page 2 of 41 pages

TOPICS: INTRODUCTION TO INTERNATION TRADE, TRADE AND

PROTECTION
TEST NO. 1
Part A: Multiple Choice (Question 1 to 8) (8 Marks)
Choose the correct answer in the space provided in the ANSWER SHEET.
QUESTION 1
Trade is defined as
A. swapping or exchange of goods and services.
B. the opposite of free trade.
C. as a situation where there are barriers to trade.
D. buying of goods and services.

QUESTION 2
International trade is defined as
A. buying of goods and services from other countries.
B. selling of goods and services to other countries.
C. buying and selling of goods and services to and from other countries.
D. buying and selling of goods only to and from other countries.

QUESTION 3
When is the country said to have comparative advantage?
When a country can produce a product
A. more efficiently than another country with a given resource.
B. at a lower opportunity cost than another with a given resource.
C. at a same rate of opportunity cost than another with a given resource.
D. at a higher opportunity cost than another with a given resource.

QUESTION 4
Trade protection is
A. a measure taken by the government to impose artificial barriers to trade.
B. a measure taken by the government to control the flow of the money.
C. setting of minimum wage above the equilibrium to control employment.
D. setting of maximum price on goods and services to help consumers
Grade 12 Economics UNIT 3 ASSESSMENT Page 3 of 41 pages

QUESTION 5
Which of the following is the disadvantage of free trade?
A. It helps to improve efficient allocation of resources.
B. It encourages innovation and competitiveness increase.
C. It leads to higher standard of living.
D. It may lead to a rise in short term unemployment.

QUESTION 6
Which of the following trade protection measures can contribute to the
government revenue?
A. Ban B. Quota
C. Tariff D. Embargo

QUESTION 7
Which of the following is the effect of tariff?
A. Price will increase B. Local supply will decrease
C. Employment will decrease D. Demand will increase

QUESTION 8
A total ban on certain imported goods is known as a/an ______________.
A. subsidy B. embargo
C. tariff D. tariff quota

QUESTION 9
Which of the following is NOT the benefit of international trade?
A. Increase in price B. Increase in employment
C. Variety of goods available D. Increase in living standards

QUESTION 10
The best reason for trade is to
A. increase in price. C. increase local production.

B. buy what a country can not D. buy what other countries can
produce. not produce
Part B: Short Answer Questions. (Questions 11 to 15) 10 Marks

QUESTION 11
Define International Trade in your own words. (1 Mark)
__________________________________________________________________
________________________________________________________________
QUESTION 12
What are the two reasons for trade? (2 Marks)
__________________________________________________________________
________________________________________________________________
QUESTION 13
Differentiate between comparative advantage and absolute advantage.(2 Marks)
__________________________________________________________________
________________________________________________________________
QUESTION 14
Papua New Guinea Australia
Wheat 200 400
Rice 400 800

a. Which country has an absolute advantage in producing rice?

___________________________________________________

(1 Mark)
b. In which product does PNG has comparative advantage over
Australia?
____________________________________________________

(1 Mark)
QUESTION 15
State the benefits of free trade on. (3 Marks)
a. Price _________________________________________________
b. Supply _______________________________________________
c. Level of employment ___________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 5 of 41 pages

Part C: Extended Response (Question 16) (5 Marks)

State the effects (whether increase or decrease) on the following after a tariff is
imposed.

a. Price of goods and services in the domestic market. (1 Mark)

___________________________________________________________

b. Supply of locally produced goods and services. (1 Mark)

___________________________________________________________

c. Demand for goods and services in the domestic market. (1 Mark)

____________________________________________________________

d. Supply of imported goods and services. (1 Mark)

____________________________________________________________

e. General level of consumption in the economy (1 Mark)

___________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 6 of 41 pages

TOPIC: TRADE & PROTECTION

ASSIGNMENT NO.1
Name:__________Class:_______Date:________Total Score:_____/ 10 Marks

QUESTION 1
Explain the difference between absolute advantage and comparative advantage.
(2 marks)
__________________________________________________________________
________________________________________________________________
QUESTION 2
The table below shows two countries producing both goods with the given
resources.

Papua New Guinea Australia

Wheat 200 400
Rice 400 800
a. Calculate the opportunity cost of producing each product in each country.
(Show your working out in the box)
Papua New Guinea Australia
Opportunity
cost of wheat
Opportunity
cost of rice

b. If the two countries above decide to specialize in the production of a good they
have comparative advantage in, which product would each of them produce?
Australia _______________
Papua New Guinea _______________

Marking criteria
-3 marks for showing working out for each product in each country. (Refer to the
working out on page 7 of Module 3)
-2 marks for the correct answers to question 2. 1 mark each for writing the correct
product under each country.
- Therefore, total of 5 marks.
Grade 12 Economics UNIT 3 ASSESSMENT Page 7 of 41 pages

QUESTION 3
Explain the effect of tariff on prices and quantity of goods and services demanded
and supplied.
(Use the appropriate graph to help you explain and label the graph correctly)
( 3 Marks)
Marking criteria for Question 3
-Graph drawn correctly and labeled correctly with the correct answer will be
awarded full 3 Marks.
- If the correct answer is given without the help of the graph, the student will be
awarded 2 marks only.
Grade 12 Economics UNIT 3 ASSESSMENT Page 8 of 41 pages

TOPIC 2: BALANCE OF PAYMENT

TEST NO. 2
Part A Multiple Choice (Questions 1 to 10) (10 Marks)

QUESTION 1
What are the two main accounts under balance of payment?
A. Capital and trade account
B. Net invisibles and current account
C. Capital and current account
D. Balance of trade and net invisibles.

QUESTION 2
What does terms of trade measure?
A. The number of imports that can be bought with the foreign currency
earned from a given volume of exports.
B. The difference between the balance on current account plus the revaluation
and net errors and omissions.
C. The money flows that result from international borrowings, lending and
foreign investments for a period of time.
D. The number of imports that can be bought with foreign currencies earned
from financial assets overseas.

QUESTION 3
Which of the following would result if there is balance of payment deficit in the
country?

A. Improved standard of living. C. Decrease in production and

National income
B. Increase in investment and
employment level. D. Increase in Money flow into
the economy.
QUESTION 4
Joe insures his business with an Australian insurance company.
This transaction will be recorded as a/an ________________.
A. invisible import B. invisible export
C. visible export C. visible import
Grade 12 Economics UNIT 3 ASSESSMENT Page 9 of 41 pages

QUESTION 5
Johnson family came from Australia to visit the Goroka cultural show during 35th
independence celebration.
This transaction will be recorded as a/an ________________.
A. invisible import B. invisible export
C. visible export C. visible import

QUESTION 6
Which of the following transaction involves official capital flow in the balance of
payment account?
A. BSP bank paying wages to its employees in Fiji.
B. Max well group of company in Lae paying tax to the government.
C. Rental payment by the government to its embassy in Australia.
D. Investment by Exxon Mobil in the newly found PNG_LNG project.

For Questions 7 and 8, refer to the following information.

Amount (Kina in Million)

Visible export 45 000
Visible import 34 000
Invisible export 25 000
Invisible import 30 000
Net Transfers 10 000
Balance of capital account -45 000
Errors and omissions -2 000

QUESTION 7
Find the balance of trade.
A. K 9 000 surplus B. K 9 000 deficit
C. K 11 000 surplus D. K 11 000 deficit
Grade 12 Economics UNIT 3 ASSESSMENT Page 10 of 41 pages

QUESTION 8
What is the balance on current account?
A. K 5 000 surplus B. K5 000 deficit
C. K 6000 surplus C. K 6 000 deficit

QUESTION 9
In the Balance of Payment account, Net Private transfers are usually negative.
Which of the following is the best explanation?
A. There are more government spending overseas than it receives.
B. More money is leaving the country from import than coming in.
C. More money is leaving the country through government aid than coming
in.
D. More money is leaving the country through payment of company interest.

QUESTION 10
Terms of trade improves when
A. export prices are increasing relative to import prices.
B. import prices are increasing relative to export prices.
C. export prices are decreasing relative to import prices.
D. import prices are increasing as export prices increases.

Part B. Short Answer Questions. (Questions 11 to 14) (5 Marks)

QUESTION 11
Define balance of payment. (1 Mark)
__________________________________________________________________
________________________________________________________________
QUESTION 12
What does balance of trade account record? (1 Mark)
__________________________________________________________________
________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 11 of 41 pages

QUESTION 13
Julie took her family to Bali for a Christmas vacation.
In which account would you record her transactions during her travel in Bali in
Indonesia? (1 Mark)
__________________________________________________________________
________________________________________________________________
QUESTION 14
Differentiate between improving terms of trade and deteriorating terms of trade.
(2 Marks)
__________________________________________________________________
________________________________________________________________
_________________________________________________________________

Part C: Extended Response (Question 15) (5 marks)

State if the following is an inflow or out flow.

I. BSP Fiji pays the dividends to Papua New Guinean shareholders.
_________________________________________________________
II. Australian pilot is paid his monthly salary by Air Niugini.
________________________________________________________
III. Jera exported her coffee direct to German.
________________________________________________________
IV. Stephanie just bought a Japanese used car through the Internet.
________________________________________________________
V. OX & Palm just exported it product to Fiji.
________________________________________________________

END OF TEST NO. 2

Grade 12 Economics UNIT 3 ASSESSMENT Page 12 of 41 pages

TOPIC 2 : Balance of Payment

ASSIGNMENT NO. 2 , 10 Marks
QUESTION 1.
The table below shows the balance of payment accounts in year 1 and year 2.
Task: Study carefully how year 1 figures are calculated. Apply the same steps to
calculate the missing figures in year 2.
Balance of Payment Account
Amount (Kina )
Year 1 Year 2
Current Account
Export of goods 20000 30 000
Import of goods 15000 20 000
Balance of Trade 5000 __________(A)

Invisible export 10000 25 000

Invisible import 5000 __________(B)
Net invisibles 5000 -10 000
Net private transfers -6000 -70 000
Official transfers 12000 20 000
Net Transfers 6000 130 000
Balance on current 21000 _________(C)
account
Capital account
Official capital flows 2000
Private capital flows 4000
Balance on capital 6000 __________(D)
account
Net errors and omissions 0
Overall Balance of 27000 _________ (E)
Payment
Marking Criteria.
-2 marks are awarded for the correct figures in each blank.
Grade 12 Economics UNIT 3 ASSESSMENT Page 13 of 41 pages

TOPIC 3: EXCHANGE RATE

TEST NO. 3 (25 Marks)
Part A: Multiple Choice (Questions 1 to 10) (10 Marks)

QUESTION 1
Exchange rate is defined as
A. price of one currency measured in terms of another currency.
B. price of one currency measured in terms of volume of imports.
C. value of goods and services exchanged in another currency.
D. value of exports measured in terms of value of imports.

QUESTION 2

When Papua New Guinea was using the Hard Kina Policy as its exchange rate
policy, a balance of payment deficit would cause currency
A. appreciation. B. flow deficit.
C. flow surplus. D. depreciation.

QUESTION 3.
When demand and supply of Kina causes the value of Kina to rise, it is called
_________.
A. depreciation B. appreciation
C. revaluation D. devaluation
 Grade 12 Economics UNIT 3 ASSESSMENT Page 14 of 41 pages

QUESTION 4
When an exchange rate is raised through government intervention (policy), it is
called _________.
A. appreciation B. depreciation
C. revaluation D. devaluation

QUESTION 5
Which of the following occurs when there is an increase in exchange rate?
A. Export becomes cheaper
B. Imports become expensive
C. Export becomes expensive
D. Import becomes unchanged

QUESTION 6
Which of the following is NOT the method of exchange rate?

A. Floating exchange rate C. Fixed exchange rate

B. Managed float D. Internal exchange rate

For Questions 7 to 9, refer to the following information.

Joe imported some computers worth K50 000 in 2011.
The exchange rate was K1=A$0.50. In 2015, the same amount of computer was
bought for K60 000 from Australia.

QUESTION 7
The situation above shows that
A. export has become expensive. B. import has become cheap.
C. PNG Kina has appreciated. D. PNG Kina has depreciated.

QUESTION 8
How much was paid in Australian Dollar in 2011?
A. A$ 25 000. B. A$ 50 000.
C. A$ 75 000. D. A$ 100 000.
Grade 12 Economics UNIT 3 ASSESSMENT Page 15 of 41 pages

QUESTION 9
If the exchange rate was K1=A$0.30 in 2015, how much Australian Dollar did Joe
pay in 2015?
A. A$60 000. B. A$18 000.
C. A$15 000. D. A$6 000.

QUESTION 10
What is globalization with relation to economics?
It is the process of
A. connecting internal markets to global economy.
B. calculating foreign exchange rate.
C. fixing the exchange rate against another currency.
D. allowing goods to be dumped in another country.
Grade 12 Economics UNIT 3 ASSESSMENT Page 16 of 41 pages

Part B. Short Answer Question. ( Questions 11 to 15) (10 Marks)

QUESTION 11
What is exchange rate? (1 Mark)
__________________________________________________________________
________________________________________________________________
QUESTION 12
State 3 methods of Exchange rate (3 Marks)
__________________________________________________________________
__________________________________________________________________
_______________________________________________________________

QUESTION 13
Exchange rate
K1 =US$0.25
How much will Julie get in PNG Kina when she converts it to A$50 000?(1 Mark)

_________________________________________________________________
QUESTION 14
Differentiate between fixed exchange rate and floating exchange rate.( 2 Marks)
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

QUESTION 15
State the three effects of decrease in exchange rate on (3 Marks)
a. export
_________________________________________________________________

b. import

c. balance of payment in general.

_________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 17 of 41 pages

Part C: Extended Response (Question16) 5 Marks

QUESTION 16
Define the following terms.
a. Revaluation
__________________________________________________________________
________________________________________________________________
b. Devaluation
__________________________________________________________________
________________________________________________________________

c. Balance of payment surplus

__________________________________________________________________
________________________________________________________________

d. Foreign reserve
__________________________________________________________________
________________________________________________________________

e. Economic globalization
__________________________________________________________________
________________________________________________________________

Marking criteria
One mark each for correct answer given.

END OF TEST NO.3

Grade 12 Economics UNIT 3 ASSESSMENT Page 18 of 41 pages

TOPIC 3: EXCHANGE RATE

Assignment NO. 3
Name: ______________ Class:________ Date:_______ Score:_____/12 Marks

Write your answers on the ANSWR SHEET provided.

QUESTION 1
An Australian firm produces motor bike which sells for $ 2 000.00 each in
Australia. The initial rate of exchange is K1 = A$1. The price elasticity of demand
for imported motor bike in Papua New Guinea is 0.5. Sales of the motor bike to
Papau New Guinea is 150.

a. What is the actual price each motor bike in Papua New Guinea Kina?
(2 Marks)

______________________________________________________________

b. Find the total revenue received by the firm in Papua New Guinea Kina
(2 Marks)

________________________________________________________________

The rate of exchange changes to K1 = A$0.25

c. Does this represent a depreciation or appreciation? (1 Mark)

__________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 19 of 41 pages

d. What would be the new price of each motorbike in Papua New Guinea
Kina? (2 Marks)

e. What will happen to the demand for motorbike in Papua New Guinea?
(1 Mark)

f. If the demand for motor bike has not changed despite the change in price,
what would be the new revenue for the firm? (2 Marks)

__________________________________________________________________

g. What is the state of elasticity of demand for the motor bike? (2 Marks)

________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 20 of 41 pages

UNIT THREE
END OF ASSESSMENT QUESTION (OUT OF 100)

GRADE 12 ECONOMICS

UNIT 3: INTERNATIONAL TRADE

ASSESSMENT NO.3

PART TWO: ANSWER SHEET

Grade 12 Economics UNIT 3 ASSESSMENT Page 21 of 41 pages

TOPICS: INTRODUCTION TO INTERNATIONAL TRADE, TRADE AND

PROTECTION
TEST NO. 1
Part A: Multiple Choice (Question 1 to 8) (8 Marks)
Choose the correct answer in the space provided in the ANSWER SHEET.

1 6

2 7

3 8

4 9

5 10

Part B: Short Answer Questions. (Questions 11 to 15) 10 Marks

QUESTION 11
(1 Mark)
__________________________________________________________________
________________________________________________________________
QUESTION 12
(2 Marks)
__________________________________________________________________
________________________________________________________________

QUESTION 13
.(2 Marks)
__________________________________________________________________
________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 22 of 41 pages

QUESTION 14
a.
___________________________________________________

(1 Mark)
b.
____________________________________________________

(1 Mark)

QUESTION 15
(3 Marks)
a. _________________________________________________
b. _______________________________________________
c. _______________________________________________

Part C: Extended Response (Question 16) (5 Marks)

a. (1 Mark)
___________________________________________________________

b. (1 Mark)
___________________________________________________________

c. (1 Mark)
____________________________________________________________

d. (1 Mark)
____________________________________________________________

e. (1 Mark)
____________________________________________________________
End of Test
Grade 12 Economics UNIT 3 ASSESSMENT Page 23 of 41 pages

ASSIGNMENT NO. 1 (TOPIC: TRADE & PROTECTION)

Total Score: 10 Marks

QUESTION 1
(2 marks)
__________________________________________________________________
________________________________________________________________
QUESTION 2

a. (3 Marks)
Papua New Guinea Australia
Opportunity
cost of wheat
Opportunity
cost of rice

b. (2 Marks)
Australia _______________
Papua New Guinea _______________

Marking criteria
-Give 3 full marks for all four correct working out, if there is one mistake, deduct
one mark and so on. Give zero for only one correct working out. (Refer to the
working out on page 7 of Module 3)
-2 marks for the correct answers to question 2. 1 mark each for writing the correct
product under each country.
- Therefore, total of 5 marks.

QUESTION 3
(3 Marks)
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 24 of 41 pages

TOPIC 2: BALANCE OF PAYMENT

TEST NO. 2
Part A Multiple Choice (Questions 1 to 10) (10 Marks)

1 6

2 7

3 8

4 9

5 10

Part B. Short Answer Questions. (Questions 11 to 14) (5 Marks)

QUESTION 11
(1 Mark)
__________________________________________________________________
________________________________________________________________
QUESTION 12
(1 Mark)
__________________________________________________________________
________________________________________________________________
QUESTION 13
(1 Mark)
__________________________________________________________________
________________________________________________________________

QUESTION 14
(2 Marks)
__________________________________________________________________
________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 25 of 41 pages

Part C: Extended Response (Question 15) (5 marks)

I.
_________________________________________________________
II.
________________________________________________________
III.
________________________________________________________
IV.
________________________________________________________
V.
________________________________________________________

END OF TEST NO. 2

Grade 12 Economics UNIT 3 ASSESSMENT Page 26 of 41 pages

ASSIGNMENT NO. 2 (TOPIC 2 : Balance of Payment)

QUESTION 1. (10 Marks)

Balance of Payment Account

Amount (Kina )
Year 1 Year 2
Current Account
Export of goods 20000 30 000
Import of goods 15000 20 000
Balance of Trade 5000 __________(A)

Invisible export 10000 25 000

Invisible import 5000 __________(B)
Net invisibles 5000 -10 000
Net private transfers -6000 -70 000
Official transfers 12000 20 000
Net Transfers 6000 130 000
Balance on current 21000 _________(C)
account
Capital account
Official capital flows 2000
Private capital flows 4000
Balance on capital 6000 __________(D)
account
Net errors and omissions 0
Overall Balance of 27000 _________ (E)
Payment
Marking Criteria.
-2 marks are awarded for the correct figures in each blank.
Grade 12 Economics UNIT 3 ASSESSMENT Page 27 of 41 pages

TOPIC 3: EXCHANGE RATE

TEST NO. 3
Name:______________Class:_______Date:_____Score:_____/25
Part A: Multiple Choice (Questions 1 to 10) (10 Marks)

1 6

2 7

3 8

4 9

5 10

Part B. Short Answer Question. ( Questions 11 to 15) (10 Marks)

QUESTION 11
(1 Mark)
__________________________________________________________________
________________________________________________________________
QUESTION 12
(3 Marks)
__________________________________________________________________
__________________________________________________________________
_______________________________________________________________

QUESTION 13
Exchange rate
K1 =US$0.25
_________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 28 of 41 pages

QUESTION 14
( 2 Marks)
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

QUESTION 15 (3 Marks)
a.
_________________________________________________________________

b.

c. .
_________________________________________________________________

Part C: Extended Response (Question16) 5 Marks

QUESTION 16
a.
__________________________________________________________________
________________________________________________________________
b.
__________________________________________________________________
________________________________________________________________

c.
__________________________________________________________________
________________________________________________________________

d.
__________________________________________________________________
________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 29 of 41 pages

e.
__________________________________________________________________
________________________________________________________________

END OF TEST NO.3

TOPIC 3: EXCHANGE RATE

Assignment NO. 3
Name: ______________ Class:________ Date:_______ Score:_____/12 Marks

Write your answers on the ANSWR SHEET provided.

QUESTION 1

a. (2 Marks)

______________________________________________________________

b. (2 Marks)
________________________________________________________________
The rate of exchange changes to K1 = A$0.25
c. (1 Mark)

__________________________________________________________________
Grade 12 Economics UNIT 3 ASSESSMENT Page 30 of 41 pages

d. (2 Marks)

e. (1 Mark)

f. (2 Marks)

__________________________________________________________________

g. (2 Marks)

________________________________________________________________

END OF ASSESSMENT
Grade 12 Economics UNIT 3 ASSESSMENT Page 31 of 41 pages