SYLLABUS FOR ECN 138

Subject: ECN 138 (INTERNATIONAL TRADE)

Class Professor: Dr. Beethoven Morales

Course Description: International business and trade is a very exciting field. It is also
very dynamic and its recent development has been dominated by the need to understand
the changing world economy and to find solutions to emerging problems in international
trade policy. The approach that is used in this course is to stress concepts and their
applications instead of focusing too much attention on theoretical formalism. The course
will also introduce students to various economic issues and questions that have extreme
relevance in today’s world: What are the merits of free trade? What causes countries to
run trade surpluses or deficits? And how should governments handle international
financial instability? Students are expected to do a lot of reading and studying in this
course.

Textbook: Principles of Macroeconomics, with senior contributing authors Steven

A. Greenlaw and Timothy Taylor
Reference: International Economics (Dominic Salvatore)

RULES, POLICIES AND OTHER IMPORTANT INFORMATION PERTAINING

TO THE COURSE/SUBJECT

HOW TO PREPARE FOR THE LESSONS:

The course consists of four parts. Each part is designed to take about a
fourth of the semester. Each part also contains a list of the lessons that need to be
covered and studied.
In order to learn and prepare for the lessons, students are required to read
certain pages of the textbooks for this course. However, students are advised and
encouraged to take the initiative of researching, studying and reading other parts of
the textbook that are related to the indicated lessons so that it would be easier for
the student to understand the lesson or to complete the assignment that is required
in connection with the lesson. Nonetheless, if after all of these things and the student
still finds the lesson or even parts of the book difficult to understand then, please do
not hesitate to communicate with me by e-mail or by text so that I can either find a
way to explain the ambiguities in detail or to send additional material if there is
need to do so.

RULES AND POLICIES WITH REGARD TO COMPLETION AND

SUBMISSION OF ASSIGNMENTS:
There are certain important things that are required with regard to the
completion and submission of assignments. FIRST, ALL ASSIGNMENTS
SHOULD BE HAND-WRITTEN ON A YELLOW PAPER OR YELLOW PAPERS
(IF MORE THAN ONE PAPER IS NEEDED). ANSWERS MUST ALSO BE
ACCOMPANIED WITH THEIR CORRESPONDING SOLUTIONS (whenever
appropriate). ANSWERS WITHOUT THEIR CORRESPONDING SOLUTIONS
WILL NOT BE CHECKED OR GIVEN ANY CREDIT. Second, there should not
be a single erasure on these assignments. The use of correction fluids like
“snopake” or erasers is also not permitted. Students can prepare a draft of their
answers and then write their answers without a single erasure on a clean piece or
more of yellow papers. This should not be difficult to do because there are not
many assignments to do and students are given enough time to complete these
assignments. Assignments which violate the “no erasure” rules, including those that
contain obvious errors in spelling and grammar to bypass the “no erasure” rules,
will automatically incur a deduction penalty of at least ten points. Third, students
can use both sides of the yellow paper as long as they are clear, clean and no
erasures. Fourth, students can write more than one question with answers on a
single page if there is still space on the page. For example, in lesson 1 of part 1,
students are required to submit the answers to more than one question. After
answering the first question, if there is still space on the page then students can
continue and write the answer to the second question on the same page and continue
on to the next page if there is no more space in the current page. Fifth, students may
come up with their own answers or get their answers to the questions from any
source as long as they do not copy “verbatim” the answers of their classmates.
Sixth, each assignment which includes more than one question should be submitted
online at the same time. Seventh, students are required to copy the question first
before they write their answer or answers to the question. Eight, in grading your
answers to the questions, I will adopt a policy of not being very strict with the
“correctness of your answers” but rather, I want to see “effort, resourcefulness and
diligence” in terms of how you come up with your answers. I will give high marks
to answers that are well-researched and well-prepared and not done in a hurry.
Ninth, students must write their name and affix their signature for every page that
they will submit for their assignments. (Assignments which fail to follow this rule
will automatically be imposed a deduction penalty of five points.) Tenth, students
are required to write the lesson and part pertaining to the assignment first and then
write their name and affix their signature before they write any question as well as
its answer. For example, in lesson 1 of part 1, students are required to use the
following format when submitting the required assignment:

Lesson 1 of Part 1: (Title of the Lesson)

Name of student: _______________ Signature of student: _________________

SUBMITTING ASSIGNMENTS ONLINE:

Students must scan/photograph their hand-written assignment and then save
it by using the following scheme in attaching a file name to it. For example, if the
last name of the student is “gensan” and he is submitting the assignment for lesson 2
of part 2, then he is to scan/save the assignment using the following file name:
gensanl2p2, where l2 here means lesson 2, p2 means part 2. If an assignment
consists of more than one file then use the following scheme. For example, if in the
previous case, the assignment consists of two files then the first file can have the
following file name: gensanl2p2f1, where f1 means file 1.
If an assignment requires more than one file, download all of the files at the
same time. DO NOT SEND/COMPRESS YOUR FILES AS A SINGLE FILE OR A
ZIP FILE because I cannot open the file without using another program. It is much
easier for me to open them if they are sent as individual files because I can open it
immediately using GOOGLE CLASSROOM.
I will post the assignments in the “assignment feature” of GOOGLE
CLASSROOM and so the student can submit their assignment files through the use
of the assignment feature in our GOOGLE CLASSROOM.
Students must submit each assignment separately (in accordance with how
the assignment is posted in the assignment feature of GOOGLE CLASSROOM).
For example, the assignment in lesson 1 of part 1 will have to be submitted
separately from the assignment in lesson 2 of part 1.
DO NOT SUBMIT A DRAFT COPY OF THE ASSIGNMENT. SUBMIT
ONLY THE FINAL VERSION. If you submit a draft copy, I will simply regard it
as your final version and I will not check or entertain a later version anymore. Thus,
whatever score you get on the draft version will be your final score for that
assignment even if you submit a revised version.

DEADLINE FOR SUBMISSION OF ASSIGNMENTS:

Students will be provided with enough time to complete their assignments.
Students will be provided with a notice of the deadline for the assignments in the
assignments portion of the syllabus. Assignments that are submitted after the
deadline will still be accepted but these assignments will automatically be imposed a
deduction penalty of 20 points. For example, if an assignment is submitted late and
gets a score of 95, then what will appear as a final score when the assignment is
returned is a score of 75.
Nonetheless, students are encouraged to submit their assignments earlier
than the deadline. All the materials and requirements are given in advance so that
students will have the luxury of proceeding at a comfortable pace and, hopefully, to
finish everything early and avoiding the usual practice of many students of doing
everything at the last minute. In addition, because of existing university policies on
the need to check papers and submit grades ASAP at the end of the semester,
students must not go beyond the scheduled end of the semester to submit remaining
assignments. In line with this, late assignments will not be accepted anymore after
August 25, 2022.
(VERY IMPORTANT) ASSIGNMENTS THAT ARE COMPLETE
DUPLICATES/”CARBON COPIES” OF OTHER ASSIGNMENTS:
Do not allow other students to copy your assignment because if I find two or
more assignments that are exact copies or duplicates, I will not deduct anything
from the first one that I will grade but I will deduct 20 points from the other
assignments that I will check after that. So what happens is that even if you are the
original source of these assignments but I did not grade your assignment first then
you will suffer the “20 point penalty” even if you were actually the source of all
these “identical” assignments. Please note also that even if you are the first to
submit (these “identical” assignments), there is no guarantee that your paper will be
checked first because I usually check papers after the deadline and not before that.

GRADING SYSTEM:

The following grading system will be adopted:

60 – 64 = 3.0 65 – 69 = 2.75 70 - 73 = 2.5 74 – 77 = 2.25 78 – 82 = 2.0
83 – 87 = 1.75 88 – 92 = 1.5 93 – 96 = 1.25 97 – 100 = 1.0

SUMMARY OF THE LESSONS AND ASSIGNMENTS FOR THE COURSE

Part 1: Theories of International Trade

Lesson 1: Absolute Advantage and Comparative Advantage and Gains from Trade
Read and study pages 463-481 of Greenlaw and Taylor’s book

Submit the answers to the following “review/critical thinking questions”:

1. Are differences in languages behind the differences in absolute advantages?
Explain.
2. Why does the Philippines not have an absolute advantage in fish production over
its Southeast-Asian neighbors? (Do a little bit of research on this by looking at the
experience of our fish-producing Southeast-Asian neighbors).
3. What factors does Paul Krugman identify that supported the expansion of
international trade in the 1800s?
4. In the table below are listed a series of points that define an economy’s production
possibility frontier for goods Y and X.

Y 1000 900 800 700 600 500 400 300 200 100 0
X 0 100 400 900 1600 2500 3600 4900 6400 8100 10000

(a) Plot these pairs of points to scale, on graph paper. (b) Given the shape of this PPF
is the economy made up of individuals who are similar or different in their
production capabilities? (c) What is the opportunity cost of producing 100 more Y
at the combination (X = 3600, Y = 400). (d) Suppose next there is technological
change so that at every output level of good Y the economy can produce 10
percent more X. Enter a new row in the table containing the new values, and plot
the new PPF.
5. Using the PPF that you have graphed using the data in question 4 above,
determine if the following combinations are attainable or not: (X = 6000, Y =
410), (X = 2500, Y = 350).
6. With reference to Table 1 below, indicate in what commodity the U.S. and the
Philippines have an absolute advantage?
Table 1
 COMMODITY U.S. Philippines
Wheat (bushels/man-hour) 7 3
Rice (sacks/man-hour) 1 4

7. You just overheard your friend say the following: “Poor countries like Malawi
have no absolute advantages. They have poor soil, low investments in formal
education and hence low-skill workers, no capital, and no natural resources to
speak of. Because they have no advantage, they cannot benefit from trade.” How
would you respond?
8. With reference to Table 1 above, indicate how much the U.S. and the Philippines
would gain if the U.S. exchanges 7W(heat) for 4R(ice) with the Philippines?
Assume only labor is a scarce resource! (Do not just give the number, but also
explain and justify your answer.)

(Deadline for the above assignment: July 21, 2022)

(REMINDER: Assignments that are submitted after the deadline will still be
accepted but these assignments will automatically be imposed a deduction penalty of
20 points.)

Lesson 2: Production Possibilities and Mutually Beneficial Trade with Comparative

Advantage
Read and study pages 463-481 of Greenlaw and Taylor’s book

Submit the answers to the following “review/critical thinking questions”:

1. Is it possible to have a comparative advantage in the production of a good but not
to have an absolute advantage? Explain.
2. France and Tunisia both have Mediterranean climates that are excellent for
producing/harvesting green beans and tomatoes. In France it takes three hours for
each worker to harvest green beans and three hours to harvest a tomato. Tunisian
workers need only two hours to harvest the green beans but four hours to harvest
the tomatoes. Assume there are only two workers, one in each country, and each
works 48 hours a week. a. Draw a production possibilities frontier for each
country. Hint: Remember the production possibility frontier is the maximum that
all workers can produce at a unit of time which, in this problem, is a week.
b. Identify which country has the absolute advantage in green beans and which
country has the absolute advantage in tomatoes. c. Identify which country has the
comparative advantage. d. How much would France have to give up in terms of
tomatoes to gain from trade? How much would it have to give up in terms of
green beans?
3. With reference to Table 1 above, indicate how much the U.S. and the Philippines
would gain if the U.S. exchanges 7W(heat) for 8R(ice) with the Philippines? (Do
not just give the number, but also explain and justify your answer.)
4. In Germany it takes five workers to make one television and three workers to
make one video camera. In Poland it takes three workers to make one television
 and four workers to make one video camera. a. Who has the absolute advantage
in the production of televisions? Who has the absolute advantage in the
production of video cameras? How can you tell? b. Calculate the opportunity
cost of producing one additional television set in Germany and in Poland. (Your
calculation may involve fractions, which is fine.) Which country has a
comparative advantage in the production of televisions? c. Calculate the
opportunity cost of producing one video camera in Germany and in Poland.
Which country has a comparative advantage in the production of video cameras?
d. In this example, is absolute advantage the same as comparative advantage, or
not? e. In what product should Germany specialize? In what product should
Poland specialize?
5. If a lawyer earns P1,000 an hour from his office work but can also type and do
clerical work better and more efficiently than his secretary, who gets P100 per
hour, does it pay for the lawyer to fire his secretary and do the required typing and
clerical work on his own? (Justify your answer by relating this to the law of
comparative advantage.)
6. Can a nation sustain its comparative advantage over a considerable period of
time? What factors and scenarios would likely take place to ensure that a nation
would continue to enjoy its comparative advantage over time?

(Deadline for the above assignment: July 26, 2022)

Part 2: Intra-industry Trade

Lesson 1: Advantages of Intra-industry Trading and Economics of Scale

Read and study pages 463-481 of Greenlaw and Taylor’s book

Submit the answers to the following “review/critical thinking questions”:

1. What is intra-industry trade?
2. What is splitting up the value chain?
3. With reference to Table 2 below, indicate in what commodity the U.S. and the
Philippines have a comparative advantage?
Table 2
COMMODITY U.S. Philippines
Wheat (bushels/man-hour) 9 1
Rice (sacks/man-hour) 6 3
4. Look at question 2 in Lesson 2 of Part 1. Compute the opportunity costs of
producing sweaters and wine in both France and Tunisia. Who has the lowest
opportunity cost of producing sweaters and who has the lowest opportunity cost
of producing wine? Explain what it means to have a lower opportunity cost.
5. In Canada a worker can produce 30 barrels of oil or 50 tons of lumber. In
Venezuela, a worker can produce 60 barrels of oil or 35 tons of lumber.

Country Oil (barrels) Lumber (tons)

Canada 30 or 50
 Venezuela 60 or 35

a. Draw a production possibilities frontier for each country. Assume there are
100 workers in each country. Canadians and Venezuelans desire both oil and
lumber. Canadians want at least 2,000 tons of lumber.
b. b. Assume that the Canadians specialize completely because they figured out
they have a comparative advantage in lumber. They are willing to give up
1,000 tons of lumber. How much oil should they ask for in return for this
lumber to be as well off as they were with no trade? How much should they
ask for if they want to gain from trading with Venezuela? Note: We can think
of this “ask” as the relative price or trade price of lumber.
c. c. Is the Canadian “ask” you identified in (b) also beneficial for Venezuelans?
Use the production possibilities frontier graph for Venezuela to show that
Venezuelans can gain from trade.
6. What are the two main sources of economic gains from intra-industry trade?
7. Do consumers benefit from intra-industry trade? Explain.
8. With reference to Table 2 above, indicate how much the U.S. and the Philippines
would gain if the U.S. exchanges 12W(heat) for 12R(ice) with the Philippines?
(Do not just give the number, but also explain and justify your answer.)

(Deadline for the above assignment: July 31, 2022)

Lesson 2: Tariffs and Benefits of Reducing Barriers to Trade

Read and study pages 463-481 of Greenlaw and Taylor’s book

Submit the answers to the following “review/critical thinking questions”:

1. What are tariffs? Why do governments impose tariffs on imported goods?
2. Do you think that the arguments for tariff may be valid in the case of “national
defense”? (Explain and justify your answer by doing additional research on cases
or situations involving “national defense” priorities and considerations.)
3. In Germany it takes three workers to make one television and five workers to
make one video camera. In Poland it takes five workers to make one television
and eight workers to make one video camera. a. Who has the absolute advantage
in the production of televisions? Who has the absolute advantage in the
production of video cameras? How can you tell? b. Calculate the opportunity
cost of producing one additional television set in Germany and in Poland. (Your
calculation may involve fractions, which is fine.) Which country has a
comparative advantage in the production of televisions? c. Calculate the
opportunity cost of producing one video camera in Germany and in Poland.
Which country has a comparative advantage in the production of video cameras?
d. In this example, is absolute advantage the same as comparative advantage, or
not? e. In what product should Germany specialize? In what product should
Poland specialize?
 4. If the removal of trade barriers is so beneficial to international economic growth,
why would a nation continue to restrict trade on some imported or exported
products?
5. Are the gains from international trade more likely to be relatively more important
to large or small countries? Explain.
6. Why might a low-income country put up barriers to trade, such as tariffs on
imports?
7. Consider two countries: South Korea and Taiwan. Taiwan can produce one
million mobile phones per day at the cost of $10 per phone and South Korea can
produce 50 million mobile phones at $6 per phone. Assume these phones are the
same type and quality and there is only one price. What is the minimum price at
which both countries will engage in trade?
8. In World Trade Organization meetings, what do you think high-income countries
lobby for? Explain.

(Deadline for the above assignment: August 5, 2022)

Part 3: Globalism

Lesson 1: Protectionism and the Effects of Trade Barriers

Read and study pages 485-510 of Greenlaw and Taylor’s book

Submit the answers to the following “review/critical thinking questions”:

1. Who does protectionism protect? What does it protect them from?
2. Explain how trade barriers raise wages in protected industries by reducing
average wages economy-wide.
3. With the help of supply-demand diagrams, explain the impact of a tariff decrease
on the equilibrium quantity of imports and the equilibrium price.
4. With the help of supply-demand diagrams, explain the impact of a substantial
reduction of export subsidy from the government on the equilibrium quantity of
exports and the equilibrium price.
5. Do the jobs for workers in low-income countries that involve making products for
export to high-income countries typically pay these workers more or less than
their next-best alternative? Explain.
6. Explain how a subsidy on agricultural goods like sugar adversely affects the
income of foreign producers of imported sugar.
7. Tariffs raises the price of imports. What is interesting is that the price rises by less
than the amount of the tariff. Who pays the rest of the tariff amount? Can you
show this graphically?
8. Explain the logic behind the “race to the bottom” argument and the likely reason
it has not occurred.

(Deadline for the above assignment: August 10, 2022)

Lesson 2: International Trade, the Job Market and Cost of Protectionism

Read and study pages 485-510 of Greenlaw and Taylor’s book

Submit the answers to the following “review/critical thinking questions”:

1. Does international trade, taken as a whole, increase the total number of jobs,
decrease the total number of jobs, or leave the total number of jobs about the
same? Explain.
2. Explain how trade barriers save jobs in protected industries, but only by costing
jobs in other industries.
3. How does international trade affect working conditions of high-income countries?
4. How does foreign competition benefit or harm domestic businesses? Explain.
5. What is the likely effect of international trade on everyone’s wages? Explain.
6. Why might a tax on domestic consumption of resources critical for national
security be a more efficient approach than barriers to imports?
7. Why would countries promote protectionist laws, while also negotiate for freer
trade internationally?
8. How do you think low-income countries would feel if the American government
would pressure them to increase environmental standards? Explain your answer.

(Deadline for the above assignment: August 15, 2022)

Part 4: Trade Policies and Import Restrictions

Lesson 1: Arguments in Support of Restricting Imports and Dumping and Other Import
Restriction Policies

Read and study pages 485-510 of Greenlaw and Taylor’s book

Submit the answers to the following “review/critical thinking questions”:

1. Do you think that labor standards and working conditions are higher in the high-
income countries of the world compared to low-income countries? Explain.
2. How does international trade affect the labor standards of low-income countries?
Explain.
3. Why do you think that the GATT rounds and, more recently, WTO negotiations
have become longer and more difficult to resolve?
4. How does international trade affect the environmental standards of low-income
countries? Explain.
5. What is dumping? Why does prohibiting it often work better in theory than in
practice?
6. How can governments identify good candidates for infant industry protection?
Can you suggest some key characteristics of good candidates? Why are industries
like computers not good candidates for infant industry protection?
7. Explain why the arguments for tariffs may be valid in the cases of dumping and
infant industries.
8. Explain how predatory pricing could be a motivation for dumping.
(Deadline for the above assignment: August 20, 2022)

Lesson 2: Enacting Trade Policies and the Tradeoffs of Trade Policy

Read and study pages 485-510 of Greenlaw and Taylor’s book

Submit the answers to the following “review/critical thinking questions”:

1. You have just been put in charge of trade policy for Malawi. Coffee is a recent
crop that is growing well and the Malawian export market is developing. As such,
Malawi coffee is an infant industry. Malawi coffee producers come to you and ask
for tariff protection from cheap Tanzanian coffee. What sorts of policies will you
enact? Explain.
2. Why might the unsafe consumer products argument be a more effective strategy
(from the perspective of the importing country) than using tariffs or quotas to
restrict imports?
3. Is it legitimate for a high-income country to impose higher safety standards on
imported goods than exist in the low-income country where the goods were
produced?
4. Trade has income distribution effects. For example, suppose that because of a
government-negotiated reduction in trade barriers, trade between Germany and
the Czech Republic increases. Germany sells house paint to the Czech Republic.
The Czech Republic sells alarm clocks to Germany. Would you expect this
pattern of trade to increase or decrease jobs and wages in the paint industry in
Germany? The alarm clock industry in Germany? The paint industry in Czech
Republic? The alarm clock industry in Czech Republic? What has to happen for
there to be no increase in total unemployment in both countries?
5. Economists sometimes say that protectionism is the “second-best” choice for
dealing with any particular problem. What they mean is that there is often a policy
choice that is more direct or effective for dealing with the problem—a choice that
would still allow the benefits of trade to occur. Explain why protectionism is a
“second-best” choice for: a. helping workers as a group; b. helping industries stay
strong; c. protecting the environment; d. advancing national defense. (In all your
answers to a, b, c & d, explain what is the best or more effective policy for
dealing with the issue.)
6. Assume two countries, Thailand (T) and Japan (J), have one good: cameras. The
demand (d) and supply (s) for cameras in Thailand and Japan is described by the
following functions: QdT = 65 – P; QsT = –5 + 1/4 P; QdJ = 80 – P; QsJ
= –10 + 1/2 P. P is the price measured in a common currency used in both
countries, such as the Thai Baht. a. Compute the equilibrium price (P) and
quantities (Q) in each country without trade. b. Now assume that free trade
occurs. The free trade price goes to 58 Baht. Who exports and imports cameras
and in what quantities?
7. In principle, the benefits of international trade to a country exceed the costs, no
matter whether the country is importing or exporting. In practice, it is not always
possible to compensate the losers in a country, for example, workers who lose
 their jobs due to foreign imports. In your opinion, does that mean that trade
should be encouraged because there are more winners than losers?

(Deadline for the above assignment: August 25, 2022)

IMPORTANT: Please take note that all late assignments, including the last one, will
not be accepted anymore after August 25, 2022.