IB International Economics Higher Level (HL) Practice Exam

Excessive trade barriers can lead to an improvement in terms of trade, which refers to the ratio at which one good can be exchanged for another between countries. When a country imposes trade barriers such as tariffs, quotas, and subsidies, it seeks to protect its domestic industries from foreign competition. This protectionism may reduce the quantity of imports and elevate domestic prices for the goods that are restricted, which can lead to a temporary improvement in the terms of trade.

As the domestic price rises due to the barriers, the country can now export its products at a relatively higher price compared to the import prices. This means the country may receive more value for its exports, effectively improving its terms of trade. However, this improvement often comes with long-term downsides, such as retaliation from trading partners, and it can also lead to inefficiencies in the domestic economy due to a lack of competition.

The other options highlight potential issues related to excessive trade barriers. For instance, worsening international relations is a valid concern, as countries that face tariffs and quotas often respond with their own trade barriers, leading to escalating trade wars. Stagnation of local economies might occur as well, as protected industries lack the incentive to innovate or improve efficiency without foreign competition. Finally,