WAEC Economics 2020 Theory — Question 5

Model answer

(a) Tariff can be defined as the compulsory levy imposed on imported goods. It is the tax imposed by a country on goods imported from other countries. (b)(i) The Law of Absolute Cost Advantage states that a country should specialize in the production of a good or service that she can produce in a greater quantity without increasing cost, that is, the country can produce more and more of a commodity at same cost compared with other countries. (ii) The Law of Comparative Cost Advantage states that a country should specialize in the production of goods and/or service in which it has least opportunity cost compared with other countries. (c) Assumptions behind the law of comparative cost advantage (any four): i. it is assumed that the cost of production is constant all through. ii. it is also assumed that only labour cost is involved in production, thus non-labour costs are not considered. iii. it is also assumed that there is no transportation cost. iv. finally, it is assumed that two countries and two goods are involved.