This question was attempted by few candidates. The candidates were required to define tariff, state the laws of absolute and comparative cost advantage and to outline any four assumptions behind the law of comparative cost advantage in the (a) (b) and (c) parts of the question respectively. Most of the candidates were able to define tariff correctly in the (a) part of the question, they were however unable to state the laws of absolute and comparative cost advantage in the (b) part of the question. The few of the candidates that were able to state some assumptions behind the law of comparative cost advantage could not explain those points in the (c) part of the question. Candidates’ performance was poor in this question.
Candidates were expected to provide the following answer to score maximum marks in this question.

 (a) A tariff is a tax imposed on goods imported into a country.

(b)(i)   The law of absolute cost advantage states that a country should produce and export those goods in which it has absolute advantage over its trading partners and import those goods in which it has absolute disadvantage compared with its trading partners.                                         
(ii)  The law of comparative cost advantage states that a country should produce and export those goods in which it has a comparative advantage and import those goods in which it has a comparative disadvantage.                                                                                                                                                 

(c)(i)   There are only two countries in the world each producing and consuming only two goods.
(ii)  Labour is the only factor of production and they are of uniform quality within each country.
(iii) There is perfect mobility of labour within each country whereas labour cannot move freely between the two countries.
(iv) Costs of production are constant. The costs remain the same whatever the quantities produced.
(v)  There are no costs of transportation.
(vi) There is full employment in each country. As a result, to produce more of one product will entail forgoing some quantity of the other product.
(vii)There are no trade barriers between the two countries of transportation.
(vi) There is full employment in each country. As a result, to produce more of one product  will entail forgoing some quantity of the other product.